The government proposed some major tax reforms by introducing tax rebates on an income up to ₹7 lakhs under the new tax regime. This means that taxpayers who have an income below ₹7 lakhs will not have to pay any tax at all if they choose the new tax regime.
For FY 2025-26 the rebate limit has been increased to Rs. 60,000. This means taxpayers with a taxable income (excluding income taxable at special rates) not exceeding Rs. 12 lakhs will enjoy tax-free income meaning Zero tax liability.
Hence, an income of Rs. 7 lakhs earned in FY 2025-26 will have Zero tax liability as it is less than the rebate limit of Rs. 12 lakhs.
Before filing your income tax return this year, let us understand how you can save tax on your salary with an example.
Let’s say your gross salary is Rs.7,50,000. In the present scenario, your default tax payment system will be the new tax regime applicable from 1st April 2023. If you have income from Salary, then up to Rs 7,50,000 taxable income tax liability will be zero if you opt for the new tax regime. This zero-tax liability is possible even without claiming any deductions.
In the Budget 2025, a significant change in the tax slabs and rates was introduced. The slab limits were enhanced to blocks of 4 lakhs and a tax rate of 25% was also introduced.
The revised tax slabs under the new regime for FY 2025-26 (AY 2026-27) are as follows:
Income Tax Slabs | Tax Rate |
Upto Rs. 4 lakhs | NIL |
Rs. 4 lakhs - Rs. 8 lakhs | 5% |
Rs. 8 lakhs - Rs. 12 lakhs | 10% |
Rs. 12 lakhs - Rs. 16 lakhs | 15% |
Rs. 16 lakhs - Rs. 20 lakhs | 20% |
Rs. 20 lakhs - Rs. 24 lakhs | 25% |
Above Rs. 24 lakhs | 30% |
As per the new income tax guidelines, you can opt for either the new or the old regime while filing your taxes. Here is a difference between the two:
Tax Slab | FY 2024-25 Tax Rate (Old tax regime) | Tax Slab | FY 2024-25 Tax Rate (New tax regime) |
Up to Rs 2,50,000 | Nil | Up to Rs 3,00,000 | Nil |
Rs 2,50,000 – Rs 5,00,000 | 5% | Rs 3,00,001 – Rs 7,00,000 | 5% |
Rs 5,00,000 – Rs 10,00,000 | 20% | Rs 7,00,001 – Rs 10,00,000 | 10% |
Rs 10,00,000 and beyond | 30% | Rs 10,00,001 – Rs 12,00,000 | 15% |
NA | NA | Rs 12,00,001 – Rs 15,00,000 | 20% |
NA | NA | Rs 15,00,000 and beyond | 30% |
Although you can use various exemptions and deductions under the old tax regime, you can balance that with the Tax Rebate under Section 87A in case you opt for the new tax regime.
You can also claim these deductions in the new tax regime:
if you opt for the old tax regime, you can avail of tax deductions and exemptions under various sections of the Income Tax Act.
Here is a list of some of the allowable deductions applicable in the case of the old regime:
You can consider the below points to derive maximum benefits of the deductions available under the Income Tax Act.
If you choose new regime, rebate can be availed u/s 87A which can reduce the tax liability, even to zero!
The rebate under new tax regime for FY 2024-25 is Rs. 25,000 i.e., tax-free income up to Rs. 7 lakhs. This has been increased to Rs. 60,000 i.e., tax-free income up to Rs. 12 lakhs from FY 2025-26 onwards.
The following table describes the quantum of deduction available under both the regimes for contributions made by the employer in the NPS scheme under section 80CCD (2)
Particulars | Central / State Government Employer | Other Employer |
Old Regime | 14% of salary (basic + DA) | 10% of salary (basic + DA) |
New Regime | 14% of salary (basic + DA) | 14% of salary (basic + DA) |
Deduction under section 80JJA is available irrespective of choice of regime of the assessee. 30% of the amount expended on additional employees can be allowed as a deduction.
Mr. A has a salary income of Rs 7,50,000 in FY 2024-25. He is eligible for an HRA exemption of Rs 50,000. Section 80C of Rs. 50,000. Now compute tax liability under the old and new tax regime. Which will be the best tax regime to choose for him?
Particular | Old tax regime (For FY 2025-26) | New tax regime (For FY 2025-26) |
Gross Salary u/s 17(1) | 7,50,000 | 7,50,000 |
Less: Exemption u/s 10 | ||
HRA Exemption | 50,000 | NA |
Less: Deduction u/s 16 | ||
Standard deduction | 50,000 | 75,000 |
Income under the Head Salary | 6,50,000 | 6,75,000 |
Less: Deduction under Chapter VI-A | ||
Section 80C | 50,000 | NA |
Net Total Income | 6,00,000 | 6,75,000 |
Income Tax (Excluding cess) | 33,800 | 13,370 |
Less: Rebate u/s 87A | - | 13,370 |
Tax Liability (Including cess) | 33,800 | 0 |
Therefore, by opting for the t=new tax regime the taxpayer will have to pay Zero tax will results in a tax savings of Rs. 33,800.
Particular | Old tax regime (For Y 2024-25) | New tax regime (For FY 2024-25N) |
Gross Salary u/s 17(1) | 7,50,000 | 7,50,000 |
Less: Exemption u/s 10 | ||
HRA Exemption | 50,000 | NA |
Less: Deduction u/s 16 | ||
Standard deduction | 50,000 | 75,000 |
Income under the Head Salary | 6,50,000 | 6,75,000 |
Less: Deduction under Chapter VI-A | ||
Section 80C | 50,000 | NA |
Net Total Income | 6,00,000 | 6,75,000 |
Income Tax (Excluding cess) | 33,800 | 18,750 |
Less: Rebate u/s 87A | - | 18,750 |
Tax Liability (Including cess) | 33,800 | 0 |
In the above example, the tax liability paid for income for the salary of Rs 7.5 lakh is Rs.33,800. In the old regime, with available deductions, the tax liability is Rs. 33,800 and under the new tax regime, even without claiming a deduction, the tax liability paid is zero. Thus, it is important to calculate the tax liability under both the regimes and select the most beneficial one.
However, if he opts for the old tax regime, he will have to file Form 10-IEA before the due date of filing ITR (such a Form needs to be submitted only If he has business income and this is not applicable if you are filing ITR 1 or 2).
If you earn Rs 7 lakh, opting for the new regime will benefit you because of the tax rebate. However, if you opt for the old tax regime, you must make some investments to avail of deductions and exemptions.
Under the old tax regime, to reduce your tax liability, you can invest in tax-saving instruments like the Employee’s Provident Fund, Public Provident Fund, National Pension Scheme, Sukanya Samridhhi Yojana, Equity Linked Savings Scheme etc. If you opt for a health insurance policy, whether for yourself or your children or parents, you can claim tax relief.
Under the New Tax Regime, there are very limited options to claim deductions like Standard deduction, NPS Contribution by employer, Gratuity, and Leave encashment exemption.
Thus, a comparative analysis between the new and old tax regimes is essential to identify the best option for you.
Related Articles
How To Save Tax For Salary Above 10 Lakhs?
How To Save Tax For Salary Above 12 Lakhs?
How To Save Tax For Salary Above 13 Lakhs?
How To Save Tax For Salary Above 15 Lakhs?
How To Save Tax For Salary Above 20 Lakhs?
How To Save Tax For Salary Above 30 Lakhs?
How To Save Tax For Salary Above 50 Lakhs?
How To Save Tax For Salary Above 1 Crore?