Old vs. New Tax Regime: Which One Maximizes Your Savings in 2025-26?

Starting from April 1, 2025, the new income tax regime will have updated tax slabs. In the regime, individuals earning up to Rs.12 lakh will not have to pay any tax. Most people who are using the old tax regime might think about switching to the new one because the union budget 2025 has significantly reduced the tax rates for incomes up to Rs. 24 lakh.

What are the deductions allowable in the Old Tax Regime?

a) Employee’s Provident Fund (EPF): You can claim a deduction for your contribution to EPF under Section 80C.

b) Leave Travel Allowance (LTA): You can get a tax exemption on LTA for travel expenses within India, up to a certain limit.

c) House Rent Allowance (HRA): If you live in a rented house, you can claim an HRA exemption to reduce your taxable income.

d) National Pension System (NPS): Your employer’s contribution to your NPS account is eligible for a tax deduction under Section 80CCD (2).

e) Food Coupons: Tax-free up to Rs.2,200 per month or Rs.26,400 annually.

f) Other expenses and investments under Section 80C.

g) NPS Investment: Rs.50,000 deduction under Section 80CCD (1b).

h) Health Insurance: Deduction under Section 80D for premiums paid for self, family, and parents.

i) Savings Account Interest: Deduction under Section 80TTA on interest earned.

What benefits does the New Tax Regime offer?

The new tax regime gives limited deductions, but it includes a standard deduction for salary income and a deduction under Section 80CCD (2) for your employer’s contribution to the NPS. Apart from this, telephone and conveyance reimbursements, like car leasing, are tax-free under both tax regimes.

Which Tax Regime is more beneficial?

The choice between the old and new tax regimes depends on your income sources and whether you qualify for deductions. In the old tax regime, your employer’s contribution to your National Pension System (NPS) account can be claimed as a deduction under Section 80CCD (2), up to 10% of your basic salary. And the new tax regime does not offer this deduction. At the same time, in the new tax regime, 14% of the basic salary is allowed as a Section 80CCD.

If taxpayers do not have many deductions or exemptions to claim, the new tax regime with its revised slabs will help them save more on taxes in the financial year 2025-26.