New Income Tax Regime for FY 2025-26: Complete Guide to Tax Slabs, Deductions, and Benefits
New Income Tax Regime for FY 2025-26: Complete Guide to Tax Slabs, Deductions, and Benefits
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The Indian government introduced significant changes to the income tax regime for FY 2025-26, impacting millions of taxpayers. The Union Budget 2025-26 simplified the tax structure, revised tax slabs, and introduced new deductions to benefit salaried individuals and pensioners.
If you are wondering whether to opt for the new tax regime or stick to the old one, this guide will provide a detailed comparison, key deductions, and benefits, helping you make an informed decision.
1. Understanding the New Income Tax Regime for FY 2025-26
The new tax regime aims to simplify income tax calculations with lower tax rates but fewer deductions compared to the old tax regime. It is now the default tax regime, though taxpayers can still choose the old one if they prefer.
New Income Tax Slabs (FY 2025-26)
Key Features of the New Regime
- Higher Tax-Free Income: Income up to ₹4 lakh is tax-free.
- Increased Standard Deduction: ₹75,000 deduction for salaried taxpayers.
- Lower Tax Rates: Compared to the old regime, tax rates are reduced.
- No Complicated Deductions: Simplified tax filing process.
2. Deductions and Exemptions Under the New Tax Regime
One major drawback of the new regime is the removal of several deductions available under the old tax system. However, some essential deductions remain applicable:
(A) Available Deductions
- Standard Deduction (₹75,000 for salaried taxpayers).
- Employer's NPS Contribution (Up to 14% for central government employees and 10% for private-sector employees under Section 80CCD(2)).
- Leave Encashment Exemption (Increased from ₹3 lakh to ₹25 lakh).
- EPF and PPF Interest (Tax-free up to ₹2.5 lakh per year).
- Tax-Free NPS Withdrawals (60% of the maturity amount is tax-free).
- Gratuity Exemption (Limit increased from ₹20 lakh to ₹30 lakh).
(B) Deductions Not Available
- Section 80C (No deductions for LIC, EPF, PPF, ELSS, etc.).
- House Rent Allowance (HRA).
- Home Loan Interest Deduction (Section 24(b)).
- Section 80D (Health Insurance Premiums).
- Education Loan Interest Deduction (Section 80E).
3. Standard Deduction and Family Pension Benefits
The Standard Deduction is one of the most significant benefits available under the new tax regime.
(A) Standard Deduction for Salaried Individuals
- Previously ₹50,000 → Now ₹75,000.
- This directly reduces taxable income, benefiting employees and pensioners.
(B) Family Pension Deduction
- Increased from ₹15,000 → ₹25,000.
- Beneficial for families receiving pension after a retiree's demise.
4. Comparison: New vs. Old Tax Regime – Which One is Better?
Many taxpayers are confused about whether to choose the new or old tax regime. Here's a quick comparison to help you decide:
(A) Who Should Choose the New Tax Regime?
✔️ Salaried individuals without many deductions.
✔️ Those preferring a simpler tax structure.
✔️ Individuals with income up to ₹12 lakh, as they benefit most from lower rates.
(B) Who Should Stick to the Old Tax Regime?
✔️ Taxpayers claiming higher deductions under Section 80C, 80D, or Home Loan Interest.
✔️ Those investing in PPF, ELSS, LIC policies, or medical insurance.
✔️ Employees receiving HRA and LTA benefits.
(C) Example Calculation: New vs. Old Regime
💡 If you claim deductions exceeding ₹2 lakh, the old tax regime may be more beneficial.
5. Tax Compliance: Time Extension for Filing Updated Returns
To encourage voluntary compliance, the government has extended the time limit for filing updated income tax returns from 2 years to 4 years.
- This gives taxpayers more time to correct errors in previous filings.
- Helps avoid penalties and ensures taxpayers report income accurately.
6. TDS and TCS Changes for FY 2025-26
The government has revised several TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) limits to make compliance easier.
(A) Key Changes in TDS
- Senior Citizens' Interest Income:
- TDS exemption limit doubled from ₹50,000 → ₹1,00,000.
- Rent Payments (TDS Deduction on Rent):
- Threshold increased from ₹2.4 lakh → ₹6 lakh per year.
- Tax on NPS Withdrawals:
- Withdrawals from National Savings Scheme (NSS) are tax-free after August 29, 2024.
(B) TCS Adjustments
- Foreign Remittances:
- Remittance limit for TCS exemption increased to ₹10 lakh.
- Liberalized Remittance Scheme (LRS):
- Reduced TCS on foreign tour packages and overseas education payments.
7. Final Thoughts: Is the New Tax Regime a Good Choice?
✔️ The new income tax regime is beneficial for taxpayers with lower deductions and simpler tax filing preferences.
✔️ However, if you invest in tax-saving instruments or have high deductions, the old regime may be more tax-efficient.
✔️ The increase in standard deduction and higher tax-free income make the new tax regime attractive for middle-class salaried employees.
8. FAQs on New Income Tax Regime FY 2025-26
Q1: Is the new tax regime mandatory?
No, it is the default regime, but you can opt for the old regime if needed.
Q2: What is the standard deduction in the new tax regime?
It is ₹75,000 for salaried employees and ₹25,000 for family pensioners.
Q3: Can I claim 80C deductions in the new tax regime?
No, Section 80C deductions (PPF, LIC, ELSS, etc.) are not allowed under the new regime.
Conclusion
The new income tax regime for FY 2025-26 offers lower tax rates and a higher tax-free limit, making it beneficial for many taxpayers. However, it removes popular deductions, making it less attractive for those with high tax-saving investments.
Before choosing a regime, evaluate your income, deductions, and tax benefits to maximize savings and reduce tax liability.
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