Filing ITR 2025? Why You Should Think Twice Before Opting For The New Tax Regime If Earning Under Rs 12 Lakh?

When filing your Income Tax Return (ITR) for FY 2024-25, going along with the new tax regime by default appears to be the simplest choice, especially for those with an annual salary below Rs 12 lakhs. This convenience, however, comes at the cost of losing some big tax savings.

It is pertinent to note that the enhanced rebate benefit available under the new tax regime, as announced in Budget 2025, will only come into effect from Financial Year 2025-26 (i.e., for income earned on or after April 1, 2025). Therefore, for the purpose of furnishing income tax return during Financial Year 2024-25, the existing provisions of the new regime will apply, without the benefit of the increased rebate.

As per the framework applicable for FY 2024-25 (AY 2025-26), the rebate threshold under the new tax regime is Rs. 7 lakh, entitling eligible resident taxpayers to a maximum rebate of Rs. 25,000 under Section 87A. In contrast, the old regime continues to offer a rebate limit for income of Rs. 5 lakh with a maximum rebate of Rs. 12,500.

The new regime offers lower tax rates but also removes the benefit of most common deductions and exemptions. Life insurance premiums, health premiums, provident fund, or NPS contributions, HRA, or repayment of a home loan are considered tax-saving instruments under the old system, which provide substantial deductions.

Why The Old Tax Regime May Still Work Better For Rs 10-12 Lakh Earners?

"A person with an income of about Rs 10-12 lakhs can claim deductions under sections 80C, 80D, and 24(b), as well as for HRA, thereby reducing their taxable income by Rs 2-3 lakh or even more. As a result, the benefits offered under the old regime may be more substantial than those under the new regime, despite having a higher tax slab. The new regime, to be sure, is cleaner and simpler, but that doesn't mean it's necessarily better," said Kumar Binit, CEO Airpay Money.

Tax planning would be considered a highly personalised approach because no two financial situations are the same. Your salary structure, lifestyle expenses, investments, insurance options, and even your location can influence the amount of tax you need to pay. A 'one size fits all' approach will usually neglect these very factors and could potentially result in lost tax savings.

Why Skipping Deductions In New Tax Regime May Cost You More?

The new tax regime does not permit commonly claimed deductions and exemptions such as those under Sections 80C (investments in PPF, ELSS, LIC, etc.), 80D (medical insurance premiums), House Rent Allowance (HRA), Leave Travel Allowance (LTA) etc. As a result, salaried taxpayers who are eligible to claim these deductions may find that their overall tax liability is lower under the old regime, despite its relatively higher slab rates.

"For taxpayers whose net total income does not exceed Rs. 5 lakh, there is no differential tax impact, as the rebate under Section 87A ensures that no tax is payable under either regime. In cases where the net total income is below Rs. 7 lakh, the new tax regime may result in a nil tax liability due to the higher rebate threshold available under Section 87A. However, for taxpayers with total income exceeding Rs. 7 lakh and up to Rs. 12 lakh, a comparative analysis is necessary to determine the more beneficial regime," commented CA (Dr.) Suresh Surana.

CA (Dr.) Suresh Surana further added that in many such cases, eligible deductions and exemptions such as those under Sections 80C, 80D, HRA, and others can reduce the net total income to Rs. 5 lakh or below, making the old regime more advantageous due to the availability of the corresponding rebate.

Therefore, the choice of tax regime should be evaluated after considering all applicable deductions and exemptions.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.