With the latest Union Budget introducing revamped tax slab rates and an enhanced Standard Deduction of ₹75,000 under the Default New Tax Regime (Section 115BAC), Indian taxpayers face a crucial strategic decision: stick with traditional exemptions or embrace the streamlined lower tax brackets.
1. Key Highlights of New Tax Regime for FY 2025-26
- Standard Deduction: Raised to ₹75,000 for salaried employees and pensioners.
- Tax Rebate under Section 87A: Full tax rebate on taxable income up to ₹7,00,000, effectively making income up to ₹7.75 Lakh completely tax-free for salaried individuals.
- Family Pension Deduction: Enhanced from ₹15,000 to ₹25,000.
2. Updated Tax Slabs Under the New Tax Regime
For Financial Year 2025-26 (Assessment Year 2026-27), the income tax slabs for individuals are structured as follows:
- Up to ₹3,00,000: NIL (0%)
- ₹3,00,001 to ₹7,00,000: 5% (Eligible for Section 87A Full Tax Rebate)
- ₹7,00,001 to ₹10,00,000: 10%
- ₹10,00,001 to ₹12,00,000: 15%
- ₹12,00,001 to ₹15,00,000: 20%
- Above ₹15,00,000: 30%
3. The Exact Breakeven Deduction Threshold
Our empirical tax modeling shows that if your total eligible Chapter VI-A deductions (Section 80C, 80D, HRA, Home Loan Interest under Section 24b) exceed ₹3,75,000, the Old Tax Regime delivers lower net tax payable. If your total deductions fall below this threshold, the New Tax Regime is mathematically superior.
4. Strategic Recommendation
Salaried individuals can choose their preferred regime at the time of filing annual ITR-1 or ITR-2 regardless of what was declared to their employer. However, taxpayers with Business or Professional Income (filing ITR-3 or ITR-4) can only opt out of the New Regime once in a lifetime by filing Form 10-IEA prior to the statutory due date.
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