Details

Starting from 1st April 2025, salaried individuals must decide between the Old Tax Regime and the New Tax Regime to optimize their tax liability. The New Tax Regime is now the default option. If you prefer the Old Regime, you must inform your employer and indicate your choice when filing your Income Tax Return (ITR).​

Key Differences Between Old and New Tax Regimes

Note: The standard deduction under the new regime has been increased to ₹75,000 as per the Finance Act, 2025.​

New Tax Slabs for FY 2025-26 (AY 2026-27)

​Under the new regime, after accounting for the ₹75,000 standard deduction and the enhanced rebate under Section 87A, individuals with income up to ₹12.75 lakh will have zero tax liability.​

When to Opt for the New Regime

• Income up to ₹12.75 lakh with minimal deductions.
• No home loan, insurance premiums, or other tax-saving investments.
• Preference for a simplified tax structure without the need to track multiple deductions.​

When to Opt for the Old Regime

• Significant deductions under sections like 80C, 80D, HRA, home loan interest, etc.
• Individuals with substantial investments in tax-saving instruments.
• Preference for maximizing deductions to reduce taxable income.​

Illustrative Example

​In this scenario, despite higher taxable income under the new regime, the lower tax rates and enhanced rebate result in a lower tax liability.​

How to Inform Your Employer

• Notify your employer at the beginning of the financial year if you wish to opt for the Old Regime.
• If no intimation is given, the employer will deduct TDS based on the New Regime.
• Final selection between regimes can be made while filing your ITR.​

Final Thoughts

Choosing the appropriate tax regime depends on your income structure and eligible deductions. It's advisable to compute your tax liability under both regimes and select the one that offers greater tax savings.

In case of query, please reach us at info@hmts.in

Author: CA Hiren Pasad