The income tax system in India has undergone several changes in recent years, with the introduction of a new income tax slab aimed at providing relief to taxpayers. This new slab has a lower tax rate but limited exemptions and deductions.
The introduction of the new income tax slab for FY 2025-26 has led to a reduction in the tax amount payable for many individuals. However, taxpayers must be careful while opting for the old or new tax regime, as the choice between the two depends on several factors such as income level, deductions, and exemptions.
New Tax Regime for FY 2025-26
The Indian income tax system underwent recent changes with the introduction of a new regime that offers lower tax rates but eliminates several deductions and exemptions. This change provides taxpayers with the option to choose between the old and new tax structures based on whichever is more beneficial for them.
The new income tax regime is designed to provide relief to taxpayers and simplify the tax structure, but it is important for individuals to evaluate their options carefully. Factors such as income level, deductions, and exemptions must be taken into account to make an informed decision and minimise tax deductions.
If a taxpayer earns up to Rs.12 Lakh, they have the option to choose the new tax regime and determine their tax liability. For FY 2025-26, individuals with taxable income up to Rs.12 Lakh are eligible for a rebate under Section 87A, making their tax liability zero.
It is important to note that this tax liability is only valid for taxpayers who choose to forego exemptions and deductions such as HRA and LTA under the new tax regime.
The Old Tax Regime
Under this tax regime, taxpayers have to pay tax on their total income at a fixed rate, based on their income bracket. The tax rates vary across different income slabs, with the rate increasing as the income increases. Additionally, taxpayers are allowed to claim various deductions and exemptions to reduce their taxable income and decrease their tax liability.
| Income | Income tax Rate |
|---|---|
| Up to Rs.2.5 Lakh | NIL |
| From Rs.2,50,001 – Rs.5,00,000 | 5% (claim rebate) |
| From Rs.5,00,001 – Rs.10,00,000 | 20% |
| Rs.10,00,001 and above | 30% |
Old or New Tax Regime: Which One to Choose for an Earning of Rs.12 Lakh?
When it comes to tax planning, understanding the implications of the different income tax slabs is important. With the introduction of a new tax regime in India, taxpayers now have the option to choose between the old and the new regime. However, before deciding which tax regime is better for an income of Rs.12 Lakh, it's important to consider other factors, such as Home Loan tax benefits.
Under the old tax regime, taxpayers can avail of several deductions and exemptions, such as Home Loan tax benefits, which can help lower their taxable income. Home Loan tax benefits can include deductions for the principal amount, interest paid, and stamp duty and registration charges. Furthermore, taxpayers can also claim a deduction of up to Rs.1.5 Lakh on the principal amount under Section 80C of the Income Tax Act,1961.
To determine whether the old or new tax regime is better for an income of Rs.12 Lakh, taxpayers can use an income tax calculator to compare their tax liability under both regimes. It is also important to consider factors such as the Home Loan interest rate and the Home Loan EMI, as these can affect the taxpayer's cash flow and overall financial planning. Ultimately, the decision to choose between the old and new tax regime depends on the taxpayer's financial situation and long-term financial goals.
Old vs. New Tax Regime – Which Offers Better Tax Saving Opportunities?
When it comes to saving taxes, the choice between the old and new tax regimes can be tricky. Let’s break down the tax-saving opportunities under both regimes for FY 2025-26.
Here’s what you can claim under the new regime:
- Standard Deduction – Rs.75,000 for salaried individuals and pensioners
- Family Pension Deduction – Upped to Rs.25,000 from Rs.15,000 (Section 57(iia))
- Employer’s Contribution to NPS – Deductible under Section 80CCD(2), up to 14% of salary
- Agniveer Corpus Fund Contribution – Fully deductible under Section 80CCH
- Conveyance Allowance – Exempt if provided for official duties
- Transport Allowance for Disabled Employees
- Exemptions on Retirement Benefits – Including gratuity, leave encashment, and voluntary retirement under Sections 10(10), 10(10AA), and 10(10C)
- Interest on Let-Out Property – Deduction available under Section 24(b) for interest paid on Home Loan of rented property
Here are some key tax-saving avenues under the old tax regime:
| Component | Tax Benefit |
|---|---|
| House Rent Allowance (HRA) | House Rent Allowance (HRA) Exempt based on salary, rent paid, and city of residence |
| Leave Travel Allowance (LTA) | Exempt for 2 trips in a 4-year block (based on submitted travel bills) |
| Standard Deduction | Rs.50,000 for all salaried individuals |
| Mobile/Internet Reimbursement | Exempt if used for official work (bills required) |
| Education and Hostel Allowance | Rs.100/month and Rs.300/month per child (max 2 children) |
| Meal Coupons | Rs.50 per meal, two meals/day – approximately Rs.26,400/year |
| Professional Tax | Deductible where applicable (usually Rs.2,400/year) |
The generic deductions include:
- Section 80C – Maximum of Rs.1.5 Lakh on investment options such as:
- Public Provident Fund (PPF)
- Equity-Linked Savings Scheme (ELSS)
- Life Insurance Premiums
- Employee Provident Fund (EPF)
- Sukanya Samriddhi Yojana (SSY)
- Home loan principal repayment
- National Savings Certificate (NSC)
- Section 80D – Medical insurance premium
- Rs.25,000 for self/spouse/children
- Rs.50,000 for senior citizen parents
- Section 80TTA –Rs.10,000 exemption on savings account interest
- Section 80E – Full deduction on interest paid for education loans (up to 8 years)
- Section 80G – Donation to registered charities (50% or 100% of amount)
- Section 80DD – Medical care for disabled dependents:
- Rs.75,000 (for 40% disability)
- Rs.1,25,000 (for 80%+ disability)
- Home Loan Interest (Section 24(b)) – Up to Rs.2 Lakh deduction for interest paid on a self-occupied property
Pros and Cons of New Regime
With the announcement of the new income tax slab in Budget 2025, it is important to weigh the pros and cons.
Pros:
- Currently, taxpayers have the flexibility to choose the scheme that is most beneficial to them. This implies that both the old and new tax regimes are still available as options for taxpayers.
- Under the new tax regime, taxpayers have the freedom to invest their funds as they see fit, without any obligation to invest in specific tax-saving schemes and insurance plans that may not align with their financial goals. This allows for more flexibility in investments, as they are not restricted to only tax-saving schemes and insurance plans.
- The new tax regime has lower tax rates compared to the old regime, leading to a decrease in the tax liability for taxpayers.
Cons:
- Certain types of losses cannot be adjusted against current year's income and are not allowed to be carried forward, such as loss from property and unabsorbed depreciation from previous years.
- Flexibility is limited as taxpayers who opt for the new regime cannot switch back to the old regime in case of income from business or profession.
*Terms and conditions apply.
Tax Calculation for Rs.12 Lakh Income – Old vs. New Regime
If your annual salary is around Rs.12 Lakh, one of the key decisions you need to make before filing your income tax return is whether to opt for the old tax regime or the new one. Each regime offers different benefits, and depending on your salary structure and investments, one may prove more tax-efficient than the other.
Let us understand the comparison between the two regimes through a practical example for FY 2025–26.
Rajesh Kumar is a salaried employee based in India. His financial details for the year are as follows:
- Gross salary income – Rs.12,00,000
- HRA exemption – Rs.60,000
- LTA exemption – Rs.20,000
- Professional tax paid – Rs.2,400
- Standard deduction – Rs.50,000 (old regime), Rs.75,000 (new regime)
- Investments and expenses claimed:
- Rs.1,50,000 invested in Public Provident Fund (PPF) – Section 80C
- Rs.50,000 paid as health insurance premium for senior citizen parents – Section 80D
- Rs.25,000 paid as interest on an education loan – Section 80E
Now, let us compare his tax liability under both regimes.
Tax Computation for FY 2025–26
| Particulars | Old Regime (Rs.) | New Regime (Rs.) |
|---|---|---|
| Gross Salary | 12,00,000 | 12,00,000 |
| Less: HRA Exemption | 60,000 | Not Applicable |
| Less: LTA Exemption | 20,000 | Not Applicable |
| Less: Standard Deduction | 50,000 | 75,000 |
| Less: Professional Tax | 2,400 | Not Applicable |
| Taxable Salary | 10,67,600 | 11,25,000 |
| Less: Section 80C Deduction | 1,50,000 | Not Applicable |
| Less: Section 80D Deduction | 50,000 | Not Applicable |
| Less: Section 80E Deduction | 25,000 | Not Applicable |
| Net Taxable Income | 8,42,600 | 11,25,000 |
| Tax Payable (including cess) | 84,261 | 52,500 |
| Less: Rebate under Section 87A | Not Applicable | 52,500 |
| Final Tax Liability | 84,261 | 0 |
Despite claiming all applicable exemptions and deductions under the old regime, Rajesh has to pay Rs.84,261 in tax. On the other hand, under the new tax regime, he benefits from a higher standard deduction and a full rebate under Section 87A—bringing his tax liability to zero.
Frequently Asked Questions
Taxpayers can avail some deductions and exemptions under the new tax regime, including standard deduction, rent paid deduction, and donations made to charitable organisations. However, the new regime does not allow exemptions such as HRA, LTA, and medical bills.
It varies depending on the taxpayer's investment choices, tax-saving strategies, and financial goals. Taxpayers with significant deductions and tax-saving investments may find the old tax regime more beneficial, while those with minimal deductions may benefit from the new regime's rates. If you have availed of a Home Loan, you can use our Income Tax Calculator to calculate the tax benefits.
A better tax regime for an annual income of Rs.15 Lakh depends on factors like financial goals and investment preferences. If there are significant tax-saving investments and deductions, the old regime can be better. Otherwise, the new regime's tax rates may be more beneficial.
Disclaimer
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