Tax benefits decoded : Old vs new tax regimes for FY 2025–26

Income Tax benefits decoded comparison of the old vs new income tax regimes for FY 2025–26

“Tax benefits decoded” offers a detailed comparison of the old vs new income tax regimes for FY 2025–26, helping taxpayers evaluate which regime is more beneficial based on their deductions and exemptions.

Rebate under Section 87A for the FY 2025–26

• Old Regime : Full tax rebate up to income of INR  5 lakh.

• New Regime : Full tax rebate up to income of INR  7 lakh.

Deductions & Exemptions for the FY 2025-26

Old Regime : Major deductions/exemptions allowed:

• 80C (PF, LIC, ELSS, PPF, Housing Loan Principal, etc.) – up to INR  1.5 lakh

• 80D – Medical Insurance

• HRA exemption

• LTA exemption

• Standard Deduction for Salaried – INR 50,000

• Home Loan Interest (Section 24(b)) – up to INR 2 lakh (self-occupied)

• Many other deductions available.

New Regime : Most deductions/exemptions not allowed, except:

• NPS Employer Contribution – 80CCD(2)

• Standard Deduction – INR 50,000 (introduced from Budget 2023)

• Family Pension Deduction – INR 15,000

Key Allowances Comparison: Old vs New Regime

Allowance	Old Regime	New Regime	Cap / Notes	Documents Required
HRA	Yes	No	Per formula, max 50% of basic	Rent receipt, rental agreement, landlord’s PAN
Home loan interest	Yes	No	₹2 lakh for self-occupied property	Interest certificate
LTA	Yes	No	2 trips in 4 years	Travel tickets and boarding pass
Car lease	Yes	No	—	Lease agreement
Car fuel/maintenance	Yes	No	Taxable ₹1,800–2,400 (personal use)	Fuel bills, maintenance bills
Driver salary	Yes	No	₹900/month perquisite (personal use)	Salary slips, driver employment agreement
Telephone	Yes	No	—	Post-paid bills in employee’s name
Meal card	Yes	No	₹50 per meal	Usage statement
NPS	Yes	Yes	Old: 10% of basic (employee + employer), New: 14% of basic (employer only)	Transaction statement

Note: Some benefits like HRA and home loan interest are conditionally available in the new regime.

Simplicity vs Tax Saving 

• Old Regime – Useful for those with high investments in tax-saving instruments (80C, 80D, Home Loan, HRA).

• New Regime – Simpler, lower rates, but fewer exemptions. Beneficial for those with fewer investments/deductions.

• Which is Better : If deductions (80C + 80D + HRA + Housing Loan Interest etc.) are more than INR 3–3.5 lakh, the Old Regime usually results in lower tax. If deductions are less than INR  3 lakh, the New Regime is generally better.

Regime Comparison Table – Breakeven Analysis (FY 2025–26)

Gross Salary	Breakeven Deduction	Tax Under Both Regimes
INR 7 lakh	INR  1.5 lakh	0 under both regimes
INR 8 lakh	INR 2.5 lakh	0 under both regimes
INR 10 lakh	INR  4.5 lakh	INR 81,900
INR 14 lakh	INR 5.18 lakh	INR 81,900
INR 16 lakh	INR  5.68 lakh	INR 1,13,100
INR 20 lakh	INR 7.08 lakh	INR 1,92,400
INR 24 lakh	INR 7.87 lakh	INR 2,92,500
INR 25 lakh	INR 8 lakh	₹3,09,000
INR 30 lakh	INR 8 lakh	INR 4,75,800
₹50 lakh	₹8 lakh	INR 10,99,800
INR 1 crore	INR 8 lakh	INR 29,25,780
INR 1.5 crore	INR 8 lakh	INR 48,52,700
INR 2 crore	INR 8 lakh	INR 66,46,770
INR 2.5 crore	INR 8 lakh	INR 91,74,750
INR 5 crore	INR 8 lakh	INR 1,89,24,750

 How to Choose the Best Regime?

• If deductions + exemptions > breakeven → Opt for Old Regime ✅
• If deductions + exemptions ≤ breakeven → Opt for New Regime ✅

Illustrative Example: Gross Salary = ₹40 lakh  and Deductions Claimed = ₹12.5 lakh

Category	Amount (₹)
HRA	10,00,000
PPF/ELSS (80C)	1,50,000
NPS (80CCD)	50,000
Medical (80D*)	50,000
Total	12,50,000

• Since ₹12.5 lakh > ₹8 lakh breakeven for ₹40 lakh salary → Old Regime is better
• Breakeven thresholds already include common deductions. So only additional benefits like HRA, home loan, etc., should be used to evaluate the better option.

New Income Tax Law 2025  (Effective from 1 April 2026)

• India is gearing up to replace the Income-tax Act, 1961 with an all-new law designed to simplify, modernize, and make taxation more transparent. Details of key highlights are mentioned here under
• Simplified Structure : Sections reduced: 819 ➝ 536  & Chapters reduced: 47 ➝ 23 & Assessment Year” & “Previous Year” merged into a single Tax Year.
• New Tax Slabs (Financial Year 2025–26) – Default Regime
  • Up to INR 4 lakh – Nil
  • INR 4–8 lakh – 5%
  • INR 8–12 lakh – 10%
  • INR 12–16 lakh – 15%
  • INR 16–20 lakh – 20%
  • INR 20–24 lakh – 25%
  • Above INR 24 lakh – 30%
• Higher Rebate (Section 87A Income-tax Act, 1961) : Rebate increased to INR 60,000 & Income up to INR 12 lakh effectively tax-free
• Compliance & Refunds : Refunds allowed even for belated returns & Tax deduction at sources correction window shortened from 6 years to 2 years
• Pension & Gratuity : Clear deductions for family members receiving commuted pension or gratuity
• Charitable Trusts : Capital gains can be reinvested & Relaxed norms for anonymous donations
• Faceless Assessments : More digital, minimal human interface & Aimed at reducing corruption & increasing transparency

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