What is the story about?
Choosing the right income tax regime is one of the most important decisions for salaried taxpayers while filing their Income Tax Return (ITR) for FY 2025-26
(AY 2026-27). Although the new tax regime is now the default option, the old tax regime continues to remain relevant for those who can claim substantial deductions and exemptions. If your annual salary is Rs 15 lakh, Rs 20 lakh or Rs 25 lakh, the tax payable under the two regimes can differ significantly depending on your financial profile. The better option depends on the deductions you are eligible to claim and your overall salary structure.
What assumptions are used for comparison?
For a like-for-like comparison, the old tax regime is assumed to include the following tax benefits:Standard deduction of Rs 50,000
Deduction of Rs 1.5 lakh under Section 80C
Additional Rs 50,000 deduction under Section 80CCD(1B) for National Pension System (NPS) investments
Rs 25,000 deduction under Section 80D for health insurance premium
House Rent Allowance (HRA) exemption of Rs 2 lakh
These assumptions translate into total deductions and exemptions of Rs 4.75 lakh.
Under the new tax regime, taxpayers can claim a standard deduction of Rs 75,000. Most popular deductions, including those under Sections 80C, 80D and the additional NPS deduction under Section 80CCD(1B), along with HRA exemption, are not available. However, the employer's contribution to NPS under Section 80CCD(2) continues to be allowed within the prescribed limits.
Which tax regime is likely to be more beneficial?
Based on these assumptions, the new tax regime generally results in a lower tax liability for salaried individuals earning Rs 15 lakh, Rs 20 lakh and Rs 25 lakh annually. The benefit becomes more noticeable at higher income levels because of the lower tax rates under the new regime.However, this does not mean the new tax regime will be the best choice for every taxpayer.
Why your tax liability may differ
The actual tax payable depends on your individual financial situation. Factors such as salary components, HRA received, home loan interest deduction, investments eligible under Section 80C, medical insurance premiums and employer contributions to NPS can significantly change the final tax calculation.
For taxpayers with higher deductions and exemptions, the old tax regime may still offer better tax savings. On the other hand, those with limited tax-saving investments or a simpler salary structure may benefit more from the lower tax rates available under the new regime.
Before filing your ITR, it is advisable to calculate your tax under both regimes using your actual income and eligible deductions. A quick comparison can help you select the option that results in the lowest tax liability and maximises your savings.
