The new financial year FY26 has kicked off, and taxpayers are meant to file their income tax returns under one of the two regimes. Mint deconstructs the key points to be considered before choosing the new or old income tax regimes.
For the unversed, the new income tax regime offers concessional tax rates in exchange for non-entitlement of most income tax deductions, such as section 80C, 80D and 80DD, among others.
Which income tax regime is better?
Both tax regimes have their pros and cons. Which one you choose is a function of your profile and the investments you make. For instance, if you fall under the high tax bracket and are entitled to fewer tax deductions, the new tax regime makes more sense.
Conversely, when you have invested in a large number of tax-saving instruments such as PPF, ELSS, and KVP and are entitled to HRA, the old tax regime may be more suitable.
FM Nirmala Sitharaman recently announced that income upto ₹12 lakh will not be taxable? Can I claim rebate this time?
No, the new changes announced on February 1, 2025, such as no income tax for income up to ₹12 lakh will be effective from April 1, 2025. For FY 2025-26, you will file your return in 2026. This time, those provisions announced in Budget 2024 will be applicable.
For the slab rates under both the regimes, you can read this Livemint article.
Is there any difference in standard deduction under both the regimes?
Yes, the standard deduction under the old tax regime is ₹50,000, whereas, in the new tax regime, it is ₹75,000.
Should you opt for the new tax regime if it suits you?
No, you do not need to opt for the new tax regime. This is a default regime. Instead, you must opt for the old tax regime if you want to switch to it.
Are there some deductions that are still allowed under the new tax regime?
In the new tax regime, most deductions cannot be claimed, barring the deductions given under sections 80CCD(2)/ 80CCH and 80JJAA as per the provision of Section 115BAC of the Income Tax (I-T) Act, 1961.
Is there any tax calculator where I can compare my tax computation under both regimes?
Yes, there is a tax calculator to compare the income tax calculated under both regimes. It can be accessed here. After calculating your income under both tax regimes, you can choose the one that leads to lower income tax.
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