Deductions in the New Tax Regime Under the Union Budget 2025

The Union Budget 2025 introduced significant changes to the New Tax Regime to simplify taxation and offer greater financial flexibility. Under the new regime, taxpayers can now benefit from reduced tax rates, but several exemptions and deductions available under the Old Tax Regime have been removed. This regime offers a streamlined approach, particularly for those who want to avoid the complexities of filing multiple claims for tax deductions. While the new tax structure eliminates many exemptions, it aims to make the process easier for taxpayers and offer potential savings through lower tax rates. For individuals looking to strike a balance between tax savings and simplicity, understanding the nuances of this regime is crucial. However, opting for the New Tax Regime depends on various factors, such as your income level, available deductions and financial planning goals. Let’s dive deeper into the key differences and how you can choose the best regime for you.

Understanding the New Tax Regime

The New Tax Regime, introduced to simplify tax filing, offers a lower tax burden for individuals by eliminating most exemptions and deductions available under the Old Tax Regime. The regime offers tax slabs with lower rates, ranging from 5% to 30%, depending on the income level and has no requirement for maintaining proof of expenses for deductions such as HRA, 80C or medical expenses. This regime provides ease of filing and is ideal for individuals who do not claim many exemptions or deductions. However, for individuals who utilise deductions like 80C for savings or health insurance, the New Tax Regime may not provide as many benefits. It is also beneficial for individuals who prefer simplicity in their tax filing and are looking for a hassle-free experience. The New Regime makes it easier to understand and calculate taxes with fewer complexities, but may not be the most beneficial choice for everyone.

Read More: Deductible In Health Insurance Policy: A Complete Guide

What is the Old Tax Regime?

The Old Tax Regime, in contrast to the New Tax Regime, allows taxpayers to avail of various exemptions, deductions and rebates, which can help reduce their taxable income. Some of the common deductions under this regime include those for investments in 80C, medical insurance premiums under 80D, house rent allowances (HRA) and others. This regime is more suitable for individuals who have significant investments in eligible instruments or are claiming numerous deductions. The Old Tax Regime allows for a more customisable approach to tax planning, allowing taxpayers to reduce their taxable income by taking advantage of exemptions and deductions. However, it requires maintaining detailed records and supporting documents for claims. It can be more time-consuming, but may benefit individuals who plan their taxes effectively. Let’s now look at the key exemptions and deductions available under the Old Tax Regime.

Key Exemptions and Deductions Available Under the Old Regime

• Section 80C: Deductions of up to ₹1.5 lakh for contributions to PPF, ELSS, life insurance premiums and more.
• House Rent Allowance (HRA): Exemption on rent paid, subject to conditions, reducing taxable salary.
• Section 80D: Deductions for premiums paid on health insurance policies for self, family and parents.
• Section 10(14): Exemption for special allowances like transport, children’s education, etc.
• Section 24(b): Deduction on home loan interest (up to ₹2 lakh) for self-occupied properties.
• Section 80E: Deduction for interest paid on education loans.
• Section 80G: Deductions for donations to charity.
• Section 80U: A deduction for individuals with disabilities (up to ₹75,000 or ₹1.25 lakh for severe disability).
• Gratuity: Exemptions for gratuity received by employees in case of death, retirement or resignation.

These exemptions and deductions allow you to significantly reduce your taxable income, making the Old Regime more beneficial for those who make use of these provisions.

Major Exemptions Offered Under the New Tax Regime

• No exemptions for HRA or standard deductions.
• No deductions available under 80C, 80D, 80E, etc.
• Lower tax rates across income slabs.

Old vs New Tax Regime: How to Decide Which is Right for You

When deciding between the Old and New Tax Regime, there are a few important considerations to keep in mind. The Old Regime is ideal for individuals who have substantial deductions to claim, such as those for PPF, ELSS and life insurance premiums under Section 80C, as well as HRA and home loan interest. If you have significant investments or medical expenses, the Old Regime might offer better savings. On the other hand, the New Tax Regime simplifies the process by eliminating the need for documentation and record-keeping. It is suitable for individuals who do not make extensive use of deductions and exemptions and prefer a hassle-free filing process.

If you are unsure, comparing both regimes based on your financial situation, tax liability and the deductions you typically claim will help you determine which regime offers the best financial advantage. Keep in mind that if you choose the New Tax Regime, you won’t be able to claim deductions like health insurance premiums. Additionally, opting for Bajaj Allianz General Insurance Company offers comprehensive health coverage can be a wise decision, as you can still ensure adequate protection while simplifying your tax process.

Income Tax Calculation: Old Regime vs New Regime

When calculating income tax under both regimes, several factors come into play, including income level, exemptions and deductions. The Old Tax Regime allows individuals to claim a wide range of deductions, reducing their taxable income. This means that higher earners can potentially save more through deductions. However, the New Tax Regime offers lower tax rates and eliminates the need for claiming deductions. It is simpler and easier for individuals who do not require many exemptions.
For example, let’s assume an individual with an annual income of ₹10 lakh. Under the Old Tax Regime, this person may be eligible to claim deductions for life insurance premiums, home loan interest and other eligible expenses, reducing the taxable income and tax liability. Under the New Regime, the individual will not be able to claim these deductions but will benefit from lower tax rates. Therefore, the New Tax Regime might result in a lower overall tax burden for those who do not claim many deductions, while the Old Tax Regime could be more advantageous for those with substantial deductions.

Read More: Section 80DD Income Tax Deduction : All Need to Know About

Tax Estimates: Comparing Old and New Regime Savings

• Old Tax Regime: Offers higher savings through deductions, especially for individuals with high insurance premiums, home loan interest or investments under 80C.
• New Tax Regime: Provides simpler filing and lower tax rates but eliminates the possibility of claiming deductions like HRA and medical premiums.

Importance of Health Insurance

Health insurance plays a crucial role in safeguarding you and your family against rising medical costs. It offers financial protection against unexpected hospitalisation, surgery or treatment expenses. Bajaj Allianz General Insurance Company provides a range of health insurance plans that can help you manage healthcare costs, offering 18,400+ cashless hospitals across India. These plans ensure you receive timely treatment without worrying about high medical bills. A solid health insurance policy also comes with tax-saving benefits, which can be utilised under the Old Tax Regime to further reduce your taxable income.

Conclusion

Choosing the right tax regime is a crucial decision based on your financial goals, deductions and overall tax-saving strategy. The New Tax Regime offers simplicity, while the Old Tax Regime offers more potential for tax-saving through various exemptions and deductions. By understanding your financial situation and consulting with experts, you can make the best choice. Don’t forget to include health insurance as part of your financial plan, ensuring both protection and tax benefits

FAQs

How has the Section 87A rebate changed in the New Regime (FY 2025–26)?

In the New Tax Regime for FY 2025-26, the Section 87A rebate is available for taxpayers with an income of up to ₹5 lakh, offering a rebate of ₹12,500, making it more beneficial for lower-income earners.

What are the tax slabs in the New Regime for FY 2025–26?

The tax slabs for the New Tax Regime in FY 2025-26 are:

• Up to ₹2.5 Lakhs: Nil
• ₹2.5 Lakhs to ₹5 Lakhs: 5%
• ₹5 Lakhs to ₹7.5 Lakhs: 10%
• ₹7.5 Lakhs to ₹10 Lakhs: 15%
• ₹10 Lakhs to ₹12.5 Lakhs: 20%
• ₹12.5 Lakhs to ₹15 Lakhs: 25%
• Above ₹15 Lakhs: 30%

Can I claim HRA and 80C under the New Regime (FY 2025–26)?

No, under the New Tax Regime, you cannot claim HRA or deductions under 80C, as it does not allow for exemptions or deductions.

What is the tax-free income limit in the New Regime (FY 2025–26)?

In the New Tax Regime, the tax-free income limit is ₹2.5 Lakhs. Income up to this amount is not taxed.

Who should choose the Old Regime in FY 2025–26?

Individuals who have significant deductions to claim, such as HRA, 80C and medical expenses, should consider choosing the Old Tax Regime to maximise their tax savings.

What tax benefits do senior citizens get in the Old Regime (FY 2025–26)?

Senior citizens get higher exemptions in the Old Tax Regime, including a higher basic exemption limit of ₹3 Lakhs for individuals aged 60 and above, along with additional deductions for medical insurance.

Any changes in senior citizen slabs under the New Regime (FY 2025–26)?

The New Tax Regime does not offer any special slabs for senior citizens. However, senior citizens can still avail of the ₹5 lakh rebate under Section 87A, which reduces their tax liability.

How does the standard deduction differ in both regimes (FY 2025–26)?

The standard deduction is available only under the Old Tax Regime and offers a ₹50,000 deduction against salary income. It is not available under the New Tax Regime.

Which regime suits ₹15 lakh salary best in FY 2025–26?

For a ₹15 lakh salary, the Old Tax Regime may be more beneficial if you can claim significant deductions under 80C, HRA or medical expenses. However, the New Tax Regime could be a better option if you prefer a simpler filing process without the need for documentation.

*Standard T&C apply.
**Tax benefits are subject to change in prevalent tax laws. Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making any related decisions. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.