New Regime Exclusive Benefits
Standard deduction
Under the revised income tax regime, salaried individuals can now claim a standard deduction of Rs.75,000. This is a notable increase from the Rs.50,000 deduction that was available under the old tax regime.
Exemption on family pension
In the case of pensions received by family members of deceased employees (excluding ex-servicemen), one-third of the pension amount or a maximum of Rs. 25,000—whichever is lower—is exempt from tax under the new regime, supporting effective tax saving in new tax regime planning. Under the earlier tax regime, this exemption was limited to Rs. 15,000 only.
Major highlights of new tax regime as compared to old tax regime
Covering how to save income tax in the new regime, this regime introduces an additional low rate of tax, virtually removes most exemptions and deductions and aims to simplify the computation of taxes. Here are the key highlights:
Lower tax rates
The new income tax regime features reduced tax rates compared to the old one. For instance, income between Rs 5 lakh and Rs 7 lakh, which attracted a 20% tax under the old regime, is now taxed at just 5% under the new system.
Standard deductions
Prior to Budget 2023, standard deduction was a benefit available only under the old tax regime. However, the new regime now allows salaried taxpayers to claim a standard deduction of up to Rs 75,000, providing additional relief.
Deductions and exemptions
While the old regime offered a wide range of deductions and exemptions under sections like 80C, 80D, 80E, and 80G, the new regime is more restrictive. It allows select deductions, such as employer contributions to PF and NPS, interest on home loans for let-out properties, and specific employer reimbursements.
Simplicity
The primary advantage of the new tax regime lies in its simplified structure. By minimising the number of deductions and required documentation, it makes tax filing easier. In contrast, the old regime, though offering more tax-saving opportunities, involves detailed paperwork and multiple claims.
Who is eligible for new tax regime u/s 115BAC?
Individual taxpayers and Hindu Undivided Families (HUFs) can choose the new tax regime under Section 115BAC of the Income Tax Act. It is available to all eligible taxpayers, irrespective of income level, and is particularly beneficial for those who do not heavily invest in traditional deduction-linked instruments for tax saving in new tax regime planning.
Once you opt for the new regime, you can switch back to the old regime in future financial years, provided you do not have income from a business or profession. However, individuals earning business or professional income generally cannot revert repeatedly and may be required to continue paying taxes under the new tax regime as per applicable rules.
Exemptions and deductions available under new tax regime
Even though most traditional deductions and exemptions have been eliminated in the new tax regime, there are a few exceptions that taxpayers can still reap the benefits of. These are:
Employer’s contribution to the PF and NPS
Most salaried employees contribute 12% of their basic salary to their provident fund (PF), and the employer matches this contribution. For example, if your basic pay is Rs 20,000 per month, both you and your employer contribute Rs 2,400 each.
Under both the old and new tax regimes, the employer’s contribution of up to Rs 7.5 lakh per year across EPF, NPS, and superannuation is tax-exempt. This means that while the contribution is included in your cost-to-company (CTC), it does not count as taxable income.
However, your own 12% contribution is included in your taxable income. In the old regime, this amount is deductible under Section 80C. In the new regime, this deduction is not available.
Similarly, employers can contribute up to 14% of your basic salary to the National Pension System (NPS) under Section 80CCD(2), and this contribution is tax-free up to the combined limit of Rs 7.5 lakh per year under both regimes.
If your employer doesn't already contribute to NPS, you can request HR to begin contributions from the next financial year under Section 80CCD(2).
Interest on home loan for a let-out property
Interest paid on a home loan for a let-out property is deductible under Section 24(b) of the Income Tax Act in both old and new tax regimes. This means your net taxable rental income goes down, reducing your overall tax burden.
Home loan EMIs include principal and interest. The principal component is deductible under Section 80C (only under the old regime). But the interest part is treated separately, and the deduction depends on whether the property is self-occupied or let out.
For a self-occupied house, the interest deduction limit is Rs 2 lakh per year. After Budget 2025, you can claim this benefit for up to two self-occupied homes.
In case of let-out property, the interest is fully deductible from rental income under both tax regimes. For example, if your annual rental income is Rs 3 lakh and you paid Rs 2 lakh in loan interest, you can deduct it, along with a 30% standard deduction on the net rental value (after municipal taxes), leaving you with a very small taxable rental income.
Here’s a sample calculation:
Component
|
Amount (Rs)
|
Gross annual value
|
3,00,000
|
Municipal tax
|
-10,000
|
Net annual value
|
2,90,000
|
Standard deduction (30%)
|
-87,000
|
Interest on home loan
|
-2,00,000
|
Taxable rental income
|
3,000
|
So, you will be taxed on only Rs 3,000.
However, under the new regime, if you report a loss on this property (due to deductions exceeding income), you cannot adjust it against your other income or carry it forward.
If the house is vacant and not self-occupied, the law allows you to declare “nil” annual value for up to two such properties. But for a third vacant property, you must calculate and declare “deemed rent” based on the market rent and pay tax accordingly—even if no actual rent is received.
Given these nuances, it is advisable to consult a tax expert to ensure accurate calculations.
