Investment Declaration FY 2025-26: New Vs Old Tax Regime; Which One Should You Choose?
The old tax regime allows a higher number of deductions, but the new tax regime offers lower tax rates.
All individuals whose income exceeds the exemption limit in a financial year need to file their income tax returns (ITR). An important step in this direction is making a declaration of investments made by the taxpayer to the employer, which generally happens just before the beginning of the new financial year.
This helps the employer to deduct income tax as per the employee’s taxable income. In the declaration, the employees need to mention the tax regime they want to choose and the tax-saving investments for which they would claim deductions.
As the new financial year 2025-26 (FY26) has already started from April 1, it’s time for salaried employees to submit the investment declaration for tax deduction at source (TDS) to their employers. Employers ask their employees for proof of investment at the end of the financial year.
An important question that arises in the minds of many taxpayers is which regime they should choose, the new tax regime or the old one? The new tax regime was introduced in the Union Budget 2020. It has become the default regime from FY 2023-24, unless one specifically opts for the old regime.
The old tax regime allows a higher number of deductions, but the new tax regime offers lower tax rates.
Here are some of the things to consider when deciding between new and old tax regimes for filing your returns.
New Vs Old Tax Regimes: Five Factors To Consider
1. Deductions You Want To Claim
The number of deductions you can claim under the old tax regime is higher than those you can claim under the new tax regime. Notable deductions under the new tax regime include tax-saving investments under Section 80C of the Income Tax Act, 1961, leave travel allowance (LTA) and house rent allowance (HRA), among others. As per the official website of the I-T Department, “Various deductions and exemptions are allowed in the old tax regime. The new regime offers lower rates of taxes but permits limited deductions and exemptions.”
2. Revision Of Tax Rates
As per the Union Budget 2025, a salaried individual with an income of up to Rs 12.75 lakh doesn’t need to pay any tax. This reduces the tax burden significantly for middle-class people and leaves them with more disposable income. Thus, opting for the new tax regime could be a good option for those who do not have significant tax-saving investments and deductions to claim.
3. Changing Jobs
At the time of joining a new job, it is important to inform your new employer about the deductions you claimed in your previous job. Sometimes, you can end up claiming the same deduction with different employers, and eventually, you will need to file returns for the extra deductions claimed.
4. Changing Regime
A salaried individual can switch between the new and old tax regimes every financial year. As per the I-T Department, the selection of the old tax regime can be done only before the due date of filing the return under Section 139(1) of the I-T Act, 1961.
5. Tax-Saving Instruments
Some of the tax-saving instruments people commonly invest in and declare to their employer are the Public Provident Fund (PPF), National Savings Certificate (NCS), and life insurance premiums. In the old tax regime, under Section 80C of the Income Tax Act, 1961, you can claim up to Rs 1.5 lakh per financial year through investment in such instruments.
