Old vs new tax regime: Key factors to help you choose before filing

After successfully filling out the income-tax return, the next step is to verify it. If a return is filed but not verified within permitted time, it shall be deemed as invalid return

As the income tax filing season for Assessment Year 2025-26 approaches, millions of Indian taxpayers face a crucial decision: whether to opt for the old tax regime or the new one. With the Income Tax Department opening its e-filing portal and employers set to issue Form 16 by June 15, understanding the nuances of both regimes is essential for maximising savings and ensuring compliance.

 

Income Tax slabs in new regime

 

Income up to Rs 4 lakh: Nil

 

Income from Rs 4 lakh to Rs 8 lakh: 5 per cent

 

Income from Rs 8 lakh to Rs 12 lakh: 10 per cent

 

Income from Rs 12 lakh to Rs 16 lakh: 15 per cent

 

Income from Rs 16 lakh to Rs 20 lakh: 20 per cent

 

Income from Rs 20 lakh to Rs 24 lakh: 25 per cent

 

Income above Rs 24 lakh: 30 per cent

 

Deduction in new tax regime:

 

Section 24(b): Deduction for interest on housing loan for rental property

 

Section 80CCD (2): Deduction for employer’s contribution to the national pension scheme (NPS), limited to 14 per cent of salary

 

Tax slabs under the old tax regime:

 

Income up to Rs 250,000: Nil

 

Income from Rs 250,001 to Rs 5,00,000: 5 per cent

 

Income from Rs 5,00,001 to Rs 10,00,000: 20 per cent

 

Income above Rs 10,00,000: 30 per cent

 

The old tax regime has various deductions, including:

 

Section 80C: Deductions up to Rs 150,000 for investments in PPF, ELSS, and LIC premiums.

 

Section 80D: Deductions for health insurance premiums.

 

Section 24(b): Deductions for home loan interest up to Rs 200,000.

 

Additional exemptions like HRA and LTA.

 

“If someone wants to do full scale tax planning along with wealth creation, one has the option to go for the old tax regime,” said Sujit Sudhakar Bangar, Founder at TaxBuddy.com.

 

“When deciding between the two tax regimes, it is important to take into account the tax exemptions and deductions available under the old tax regime. After deducting all eligible exemptions and deductions, the net taxable income can be determined. By calculating the tax liability based on this net taxable income under the old tax regime, it becomes possible to compare it with the tax liability under the new tax regime,” said Shefali Mundra, Tax Expert at ClearTax.

 

“I feel that taxpayers now have more options. If the taxpayer doesn’t want to spend cash on tax saving investments, then one can go for a new tax regime,” said Bangar.

 

If you have a loss from house property, capital gains, or business and profession, you need to consider them as well while making informed decisions on the selection of regime. Along with the current year’s losses, even the previous year’s losses eligible to set off will get lapsed as well. Ineligibility to carry forward such losses may impact your future income determination and taxes thereon.  Calculate Income Tax: Income Tax Calculator Tool

 

“After successfully filling the income-tax return, the next step is to verify it. If a return is filed but not verified within permitted time, it shall be deemed as invalid return. The Income-Tax Department starts processing the return, only if it is verified. An income-tax return can be verified by the taxpayer himself on his own or through authorised persons only,” said Naveen Wadhwa, Vice President, Taxmann.

 

Steps to keep in mind before filing ITR

 

Calculate your tax liability under both regimes: Use your actual income, eligible deductions, and the respective slab rates to estimate your tax outgo. Online calculators and tax professionals can assist in this comparison.

 

Gather all documents: Ensure you have PAN, Aadhaar, Form 16, bank statements, investment proofs, and other relevant documents ready for accurate filing.

 

Review pre-filled ITR forms: The Income Tax Department provides pre-filled forms for ease, but always cross-check the details before submission.