Ways to Save Income Tax in India under the New and Old Tax Regime for FY 2025-26:

Ways to Save Income Tax in India under the New and Old Tax Regime for FY 2025-26 Selecting between the New Tax Regime and the Old Tax Regime is not about personal preference; it's about numbers and mathematical operations. Every regime has its own benefits; it depends on your income level, existing investments, deductions available to you, and long-term financial goals. However, choosing a regime early in the financial year can significantly enhance your post-tax income. There are lower tax slab rates and higher rebates under the New Tax Regime; however, fewer deductions and exemptions are allowed under this regime. The regime has been developed keeping in mind fewer compliance requirements. This regime is perfect for the taxpayers who have smaller tax-saving investments or claims.

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On the other hand, the Old Tax Regime allows a wider range of deductions and exemptions, such as Section 80C investments, house rent allowance (HRA), home loan interest, and education loan interest. In this regime, there are higher tax slab rates, and those who claim deductions may end up paying less tax under this regime. Section 3 of the Income Tax Act lists tax slab rates under the New Tax Regime for the financial year 2025-26:

Income Slab (Rs.)	Tax Rate
Up to 4,00,000	Nil
4,00,001 - 8,00,000	5%
8,00,001 - 12,00,000	10%
12,00,001 - 16,00,000	15%
16,00,001 - 20,00,000	20%
20,00,001 - 24,00,000	25%
Above 24,00,000	30%

The key benefit of this regime is that it offers lower rates with fewer conditions.

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Section 6 of the Income Tax Act lists tax slab rates under the Old Tax Regime for the financial year 2025-26:

Income Slab (Rs.)	< 60 yrs / NRI	60-80 yrs	80+ yrs
Up to 2.5 lakh	Nil	Nil	Nil
2.5 - 3 lakh	5%	Nil	Nil
3 - 5 lakh	5%	5%	Nil
5 - 10 lakh	20%	20%	20%
Above 10 lakh	30%	30%	30%

A few important deductions are allowed under the New Tax Regime. Salaried employees can claim the standard deduction. Employer contribution to NPS under Section 80CCD(2) is allowed and can be a major tax saver, especially for higher-income individuals. Contributions to the Agniveer Corpus Fund are fully exempt. Certain allowances, such as transport allowance for differently abled persons, are also permitted. Additionally, retirement-related benefits like gratuity, leave encashment (within limits), and VRS compensation continue to receive exemptions as per rules. A major relief under the New Regime is the rebate offered under Section 87A. Under the new tax regime for the Financial Year 2025-26, a resident individual can claim a tax rebate under Section 87A of up to Rs. 60,000 if their total taxable income is up to Rs. 12 lakh. This effectively makes income up to Rs. 12 lakh tax-free for such individuals.

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While traditional slab rates are followed under the old tax regime, flexible deductions are offered under the same. This regime is particularly more beneficial for individuals who invest regularly or have fixed expenses such as home loan EMIs or rent. Taxpayers can reduce taxable income substantially by using available sections wisely. Key deductions under the Old Regime include:

• Section 80C, which allows up to Rs. 1.5 lakh of maximum deduction.
• Section 80CCD(2), for employer NPS contributions.
• Section 80D, which allows up to Rs. 1 lakh of maximum deduction.
• Section 80E deduction for education loan interest. There is no limit on deduction under this section.

Except for these, there are other deductions too under the Old Tax Regime, like Sections 80G, 80TTA, and 80TTB, etc. These deductions can significantly reduce tax liability for individuals with financial commitments. Section 5 of the Income Tax Act lists some common retirement benefits offered under both regimes:

• Gratuity
• Leave Encashment
• PF Withdrawals
• Retrenchment Compensation
• Pension Withdrawals

Note: This article has been developed only for educational purposes and does not favour any one tax regime. Please consult a qualified tax professional before making any final decision.