Starting April 1, Indian taxpayers will transition to the new Income Tax Act, 2025. Under this new law, taxpayers will need to reassess whether they want to continue filing income tax as per the new tax regime or switch to the old one.
Since Budget 2025, the new tax regime has appeared as a more sensible choice. This was mainly because it offered higher rebates, less paperwork and more convenience. However, the new tax rules have made certain changes to the deductions under the old regime, which now make it attractive once again. Overall, the benefits of subscribing to the old tax regime will depend on how well a taxpayer is able to optimise their investments and savings.
New Tax Regime
The new tax regime continues to offer lower tax rates but removes most of the deductions and exemptions. These include HRA, exemptions under 80C and other, which helped a taxpayer reduce their taxable income. Still, the new regime appeared more attractive as it simplified filing with fewer compliances and offered a full rebate under Section 87A for individuals with a net taxable income up to Rs 12 lakh. Even for income exceeding Rs 12 lakh, the new regime offered marginal relief due to changes in the tax slabs.
Also Read: Income Tax Act 2025: Here's What You Need to Know
How Old Regime Changes Under Income Tax Act, 2025
The old tax regime, while not offering such significant rebates, provided scope of several exemptions and deductions. This was particularly helpful for investors with higher income, who claim different deductions such as insurance, PPF investments, house rent allowances (HRA) among other things.
Now under the Income Tax Act, 2025, some of the exemptions and deductions under the old tax regime have become more attractive. This is pushing taxpayers to consider what is best for their financial journey.
For instance, the new rules have raised exemption limits under the old tax regime, making it appealing for salaried individuals. Now, HRA in Bengaluru, Pune, Hyderabad and Ahmedabad is 50% of the basic salary (up from earlier 40%). This move matches the HRA allowance in other metro cities such as Delhi, enhancing the appeal of the old regime.
Additionally, other allowances such as children's education, hostel expenses, meals, gifts, fuel, and mobile leasing also now have higher exemptions in the old regime. According to the rules, meal limits have increased from Rs 50 to Rs 200, gift exemptions from Rs 5,000 to Rs 15,000. Calculations show that if someone utilises these new benefits on their Rs 20 lakh per annum salary, they may be able to save up to Rs 1.25 lakh more compared to the new regime.
Also Read: Attention Taxpayers! Govt Notifies Income Tax Rules 2026 Via E-Gazette
Before opting for either regime, taxpayers are advised to thoroughly check their eligibility, exemptions and deductions to ensure the best financial decision for their long-term wealth goals.
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