Tax Regime Dilemma: Old vs New for FY 2025-26

Tax Regime

Tax Regime Dilemma: Old vs New for FY 2025-26

Tax Regime

With the financial year 2025-26 underway, taxpayers face an important choice: stick with the traditional old tax regime or shift to the new simplified regime introduced with updated benefits. The old regime rewards taxpayers who actively invest in tax-saving avenues and claim exemptions such as HRA, 80C, 80D, and more. In contrast, the new regime offers lower tax rates, a higher basic exemption threshold, and a straightforward tax filing process but restricts most deductions. Selecting the optimal regime depends on your income structure, eligible deductions, and personal financial strategy. A careful evaluation can ensure maximum tax efficiency.

Introduction

Following the Union Budget 2025 announcements by Finance Minister Smt. Nirmala Sitharaman, salaried individuals are reassessing their tax planning for Assessment Year 2026-27.
The pressing question: Which tax regime should you choose—old or new—for better savings?

Understanding the Old Tax Regime

The old tax regime continues to be popular among those who maximize available deductions and exemptions. Let’s take a closer look:

Tax Slabs (Old Regime – FY 2025-26)

Income SlabTax Rate (%)
Up to ₹2,50,000Nil
₹2,50,001 – ₹5,00,0005%
₹5,00,001 – ₹10,00,00020%
Above ₹10,00,00030%

Note: Individuals with a total income up to ₹5,00,000 are eligible for a rebate of ₹12,500 under Section 87A, making their net tax liability zero.

Tax Regime

Key Deductions and Exemptions

  • Standard Deduction: ₹50,000 for all salaried individuals.

  • Professional Tax Deduction: Up to ₹2,500 per month (if paid personally).

  • Chapter VI-A Deductions:

    • Section 80C (Investments in PPF, EPF, LIC, ELSS, etc.) – up to ₹1,50,000.

    • Section 80D (Health insurance premium for self and family).

    • Section 80E (Education loan interest deduction).

    • Section 80TTB (Interest income for senior citizens).

Exemptions Available

  • House Rent Allowance (HRA)

  • Leave Travel Allowance (LTA)

  • Other Special Allowances

With over 70 deductions and exemptions, the old regime is beneficial for those who proactively plan and invest to claim maximum tax benefits.

Exploring the New Tax Regime

The new tax regime aims to simplify the tax filing process while offering lower tax rates across broader income slabs.

Tax Slabs (New Regime – FY 2025-26)

Income SlabTax Rate (%)
Up to ₹4,00,000Nil
₹4,00,001 – ₹8,00,0005%
₹8,00,001 – ₹12,00,00010%
₹12,00,001 – ₹16,00,00015%
₹16,00,001 – ₹20,00,00020%
₹20,00,001 – ₹24,00,00025%
Above ₹24,00,00030%

Note: Individuals with a total income up to ₹12,00,000 qualify for a rebate of ₹25,000 under Section 87A, reducing their tax liability to zero.

Key Benefits and Allowances

  • Standard Deduction: Enhanced to ₹75,000 for salaried employees (Budget 2025).

  • Employer’s Contribution to NPS [80CCD(2)]: Deduction up to 20% of salary.

  • Agniveer Corpus Fund Contributions [80CCH(2)]: Full deduction for both employee and employer contributions.

  • Recruitment of New Employees [80JJAA]: 30% deduction of additional employee cost for three years (business income).

Limited Exemptions Allowed

Unlike the old regime, the new regime allows only a few specific allowances:

  • Daily Allowance (for duty-related expenses)

  • Conveyance Allowance (for official duties)

  • Travelling Allowance (for official tours/transfers)

  • Transport Allowance (for specially-abled employees)

Marginal Relief under New Regime

Marginal relief ensures that if your income slightly crosses ₹12,00,000, the additional tax payable does not significantly outweigh the additional income earned.

Example:

  • Income: ₹12,10,000

  • Tax without marginal relief: ₹61,500

  • Tax with marginal relief: ₹10,000

Thus, marginal relief can significantly reduce tax liability at the slab thresholds.

Inter-Head Set Off: A Key Difference

  • Old Regime: Permits setting off a loss from house property (up to ₹2,00,000) against other income heads.

  • New Regime: No set-off of house property loss allowed.

This is crucial for individuals with significant home loan interest payments.

Tax Regime

Quick Decision Checklist: Old vs. New Regime

CriteriaOld RegimeNew Regime
Investing under Section 80C (PPF, LIC, ELSS, etc.)?✅❌
Paying health insurance premiums (80D)?✅❌
Receiving HRA and paying rent?✅❌
Repaying education loan (80E)?✅❌
Preferring simple tax filing?❌✅
Total deductions below ₹3,00,000?❌✅

Read More: Late Filing Penalty for Income Tax Returns for FY 2024-25: Understanding Section 234F

Conclusion: Which Regime Should You Opt For?

Choosing between the old and new tax regimes for FY 2025-26 depends on your individual financial situation:

  • Choose Old Regime if you actively invest, claim housing and education benefits, or have significant deductions.

  • Opt for New Regime if you seek ease, higher basic exemptions, and don’t avail many deductions.

Before finalizing your choice, simulate your tax calculations under both regimes. Evaluate your investments, exemptions, and expected tax outgo to determine which option ensures maximum tax efficiency and supports your financial planning goals.

Remember: The best regime is the one that maximizes your take-home income while aligning with your overall financial strategy!

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The Old Tax Regime: 4 Advantages That Might Make It the Smarter Choice

Old Tax Regime

The Old Tax Regime: 4 Advantages That Might Make It the Smarter Choice

Old Tax Regime

As the financial year 2024–25 wraps up, taxpayers are gearing up for the income tax filing season. With the deadline to file Income Tax Returns (ITR) set for July 31, individuals now have ample time to evaluate their options — including which tax regime to opt for.

Since the introduction of the new tax regime, taxpayers have had the choice between two frameworks:

  • The old tax regime, which allows deductions and exemptions.

  • The new tax regime, which offers lower tax slabs but limits deductions.

While the new regime might appear attractive at first glance due to the lower tax rates, it’s not always the most financially rewarding choice — especially if you qualify for various exemptions. Here’s a look at four compelling reasons why the old tax regime might be the better option for you.

You Have Significant Tax-Saving Investments

The old tax regime supports a wide array of deductions under various sections, including:

  • Section 80C: Investments in PPF, ELSS, LIC premiums, tuition fees, home loan principal repayment, etc.

  • Section 80D: Premiums paid for health insurance.

  • Section 80G: Donations to eligible charities.

  • Section 80DD: Expenditure on treatment of dependent with disability.

If you’ve strategically invested in instruments that fall under these sections, sticking with the old regime can significantly reduce your taxable income.

On the flip side, the new tax regime offers very limited deductions, with only a few specific ones like:

  • 80CCD(2): Employer contribution to NPS.

  • 80CCH: Agniveer Corpus Fund.

  • 80JJAA: For new employment.

You Receive House Rent Allowance (HRA)

Salaried individuals living in rented accommodation can claim HRA exemption under Section 10(13A) in the old regime. This can be a substantial deduction based on your salary, rent paid, and city of residence.

HRA exemption is not allowed under the new regime, which can make a significant difference to your final tax outgo, especially if you’re working in metro cities with high rental costs.

You Fall in the Highest Tax Bracket

Taxpayers with annual income exceeding ₹10 lakh are taxed at 30% under the old regime, whereas under the new regime, the 30% slab applies only after ₹15 lakh.

At first glance, this appears favorable — but here’s the catch:
Without deductions, the new regime offers no real relief to those in the highest tax bracket who already enjoy considerable exemptions under the old regime.

For such taxpayers, the old regime often results in lower overall tax liability, especially when factoring in deductions for housing loans, children’s education, and insurance premiums.

The Numbers Speak for Themselves

Finally, if you’re still unsure — let the data guide you. Use a reliable income tax calculator that compares both regimes based on your income, exemptions, and deductions.

Often, the old regime emerges as the winner for those who actively plan their taxes through eligible investments and expenses.

Read More: Discard Income Tax Return: Causes, Consequences, and Recovery Options

Conclusion

While the new tax regime promises simplicity and lower tax rates, it doesn’t necessarily result in savings for everyone. The old tax regime continues to be a smarter choice for those who:

  • Invest in eligible tax-saving instruments,

  • Claim HRA,

  • Fall in the highest income bracket, or

  • Have multiple deductions at their disposal.

Before filing your ITR this year, take a few minutes to run both scenarios through a calculator — because in taxation, one size definitely doesn’t fit all.

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Discard Income Tax Return: Causes, Consequences, and Recovery Options

Discard

Discard Income Tax Return: Causes, Consequences, and Recovery Options

Discard

The Income Tax Department of India has recently introduced a much-needed feature for taxpayers — the “Discard Income Tax Return” option. This new tool allows individuals to delete their unverified Income Tax Returns (ITRs), making corrections and re-filing significantly simpler.

Previously, even the smallest mistake in an unverified ITR meant either living with the error or going through the entire process of verifying it and then filing a Revised Return. This was both time-consuming and confusing. The new discard return option changes the game entirely.

What Is the “Discard Return” Option in ITR?

The discard return feature allows taxpayers to completely delete an unverified ITR from the Income Tax Department’s system. This means if you’ve filed your ITR but haven’t e-verified it yet, you can now discard it and file a fresh return — no revised return needed.

This tool provides flexibility and eliminates unnecessary steps in the return correction process.

Discard

Purpose of the Discard Return Option

Simplifying ITR Corrections

The primary goal of this option is to make it easier for taxpayers to correct any mistakes in their original filings without jumping through hoops. As long as your ITR is unverified, you can discard it and start afresh.

Minimizing Use of Revised Returns

Previously, the only option to fix an error was to file a Revised Return after verifying the original one. This was inefficient for small mistakes. The discard option removes that burden, offering a faster, cleaner alternative.

How to Use the Discard Return Option

Here’s a step-by-step guide to discarding your ITR on the Income Tax e-filing portal:

  1. Visit incometax.gov.in

  2. Log in with your valid credentials.

  3. Navigate to the e-File section.

  4. Click on Income Tax Return.

  5. Go to e-Verify Return.

  6. If your ITR is still unverified, you will see the “Discard Return” option.

  7. Click on it and confirm by selecting “Yes”.

Once confirmed, your ITR will be permanently deleted from the portal, and you can file a new one.

Key Benefits of the Discard Return Feature

Effortless Error Correction

Mistakes happen. Whether it’s a typo or an incorrect tax calculation, this option lets you start over without hassle.

Time-Saving Alternative to Revised Return

Skip the whole process of verifying and revising. Simply discard and re-file — it’s faster, smoother, and more intuitive.

Ensures Accuracy and Peace of Mind

You can use the discard feature multiple times until your ITR is error-free and ready for final submission.

Fix Tax Computation Errors

Miscalculated your tax? Made an input error? This feature helps correct those issues without going through tedious rectification procedures.

Discard Return vs Revised Return: What’s the Difference?

FeatureDiscard ReturnRevised Return
When You Can Use ItBefore e-verificationAfter ITR has been verified
What It DoesPermanently deletes the ITRAllows changes to a verified ITR
FlexibilityCan be used multiple times before verifyingLimited usage; must follow specific rules
Time and EffortQuick and easySlightly longer and more formal process

Bottom Line: Discard is for unverified ITRs. Revised is for already verified ones.

Read More: Compliance Alert: TDS and TCS Rates for FY 2025-26

The Discard Income Tax Return option is a welcome addition to the ITR filing process. It makes life easier for taxpayers by offering a convenient way to fix errors and start over — without the stress of filing a revised return.

If your ITR is still unverified and you spot an error, don’t panic. Simply discard it and re-file a fresh, accurate return.

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