This is a critical decision for Income Tax e filing for AY 2025-26.
1. Understanding the Default (New) Tax Regime:
- Lower tax rates across most income slabs compared to the old regime.
- Very few exemptions/deductions allowed: This regime aims for simplicity, foregoing benefits like Section 80C, 80D, HRA, LTA, etc.
- Standard Deduction: A standard deduction of ₹75,000 for salaried individuals is available under the new regime.
- Rebate under Section 87A: For the new regime, the rebate limit has been increased. Individuals with taxable income up to ₹12 lakh can have zero tax liability.
2. Benefits of the Old Tax Regime (If Opted):
Comprehensive Deductions and Exemptions: Allows you to significantly reduce your taxable income through various deductions (e.g., 80C, 80D, 24(b), HRA, LTA).
- Higher Rebate for Lower Incomes: Taxable income up to ₹5 lakh attracts a rebate under Section 87A, making the tax liability zero.
- Ideal for High Deductors: If you make substantial investments in tax-saving instruments, pay significant housing loan interest, or have substantial HRA claims, the old regime may still lead to lower tax outgo.
3. How to Choose:
- Calculate and Compare: The best way to decide is to calculate your tax liability under both regimes. Use online tax calculators or consult a tax professional.
- Consider Your Investments and Expenses: If your tax-saving investments and expenses (like home loan interest, medical insurance) are significant, the old regime is often more beneficial.
- Simplicity vs. Savings: If you prefer a simpler tax calculation with fewer proofs, and your deductions aren’t high, the new regime might be more convenient.
