New tax regime has no deductions but works for some people: Analysts

New system's simplicity, reduced tax liability, increased disposable income potential 'make it a formidable alternative'

Recent changes in personal taxes, particularly in the Union Budget for 2025-26, have sparked a debate among taxpayers about which regime is better. With salaried taxpayers benefitting from an additional Rs 75,000 standard deduction, effectively raising the tax-free threshold to Rs 12,75,000, the new regime has gained significant traction, especially for those without house rent allowance (HRA) claims.

 

“Choosing between the old and new tax regimes for FY26 depends on your income level, financial situation, and ability to claim deductions. The old tax regime allows various exemptions and deductions such as Section 80C (PPF, EPF, life insurance), Section 80D (medical insurance), HRA, and home loan interest deductions, which can significantly lower taxable income. However, it comes with higher tax rates. On the other hand, the new tax regime offers lower tax rates but eliminates most deductions and exemptions,” said Amit Bansal, partner, Singhania & Co.

 

 

“The old tax structure encourages taxpayers to cultivate a habit of saving, while the new tax structure favours employees with lower earnings and investments, resulting in fewer deductions and exemptions. The new tax system is considered safer and simpler, involving fewer records and reducing the potential for tax evasion fraud. However, due to the unique nature of individual deductions and exemptions, a thorough comparison of the two regimes is necessary to determine the best fit for each person,” said Shefali Mudra, Tax Expert, ClearTax.

 

The old regime has more deductions but the new one is attractive to some taxpayers, according to financial experts.

 

“Pursuant to the introduction of the new slabs, the old regime shall only be beneficial in cases where a taxpayer is able to claim deductions of at least Rs 8 lakh. Most marginal taxpayers do not invest heavily in tax-deductible instruments and / or are not eligible to claim the exemptions available under the old regime,” said S R Patnaik, partner (head - taxation), Cyril Amarchand Mangaldas.

 

“Further, many taxpayers do not have the resources to undertake sophisticated tax planning to take advantage of the deductions and exemptions offered under the old regime. Also, it is pertinent to note that the benefits proposed to be claimed by the taxpayers shall be available only if the requisite amount of investments shall be made and other conditions prescribed therein are satisfied. Hence, despite the higher number of deductions, the new tax regime appears to be more attractive compared to the older tax regime for a common taxpayer,” Patnaik said.

 

“While the old regime continues to hold value for taxpayers who maximise deductions, the new regime’s simplicity, reduced tax liability for a vast majority, and increased disposable income potential make it a formidable alternative in the evolving landscape of Indian taxation,” said Tushar Kumar, Advocate, Supreme Court of India.