Tax Due in FY 2025–2026: Previous vs. Current System

Written by : Knowledge Centre Team

2025-07-21

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Key Takeaways

The new tax regime offers lower tax rates but does not allow common deductions like HRA, 80C, or 80D.
The old tax regime continues to reward savings and investments with various exemptions and deductions.
Taxpayers earning up to ₹7 lakh under the new regime may benefit from full tax rebate via Section 87A.
The choice between regimes depends on your annual income and how much you invest in tax-saving instruments.
Individuals with higher deductions (like home loan, insurance, PF) may still find the old regime more tax-efficient.

“In this world, nothing can be said to be certain, except death and taxes.” These words by Benjamin Franklin, one of the founding fathers of the US, are still relevant. Taxes are certain, but the rates definitely change, as it happened recently in India. The Finance Minister, Nirmala Sitharaman, announced a new tax regime along with the Union Budget 2025. In one of the biggest income tax reforms in the country, the finance minister has introduced the new tax rate slabs.

The government, however, made the new tax rates optional and added a condition. If you opt for the New Tax Regime, you will get lower tax rates but will have to forego all the deductions allowed under the Old Tax Regime, like the premiums paid for life and health insurance.

Let us take a look at the income tax rates under the existing structure and the changes under the New Tax Regime vs the old one.

Old Tax Regime

Under the existing tax system, the income tax varies according to the age of the assessee. Taxpayers have been divided into three categories—below 60 years, between 60 and 80 years, known as senior citizens, and over 80 years, known as supersenior citizens.

For an individual below 60 years of age: An annual income of up to ₹3 lakhs is exempted from income tax, while income between ₹3 lakhs and ₹7 lakhs is taxable at 5%.An annual income between ₹12 lakhs and ₹15 lakhs is taxed at 20%, while income above ₹15 lakhs is taxed at 30%.
For an individual between 60 and 80 years: ll the income tax slabs remain the same, just the income exempted from tax is ₹3 lakhs instead of ₹2.5 lakhs.

For an individual over 80 years of age: An annual income of ₹5 lakh is exempted from income tax without availing any rebate. Tax on other slabs remains the same.

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Low-income earners with an annual income of up to ₹5 lakh have effectively got tax relief and a rebate under Section 87A of the Income Tax Act, 1961.

People who have an annual income of over ₹50 lakh have to pay an additional surcharge on the amount of the income tax. For instance, the surcharge for income between ₹50 lakh and ₹1 crore is 10%. It is 37% for income exceeding ₹5 crore, with different rates of surcharge for other income slabs.

Click here to use:- Income Tax Calculator

There is an additional 4% Health & Education Cess that needs to be paid on every front of the amount of income tax and surcharge being paid.

Did You Know?

More than 93% of income tax returns were filed online in FY 2023–24 using e filing 2.0.

Source: The Economic Times.

New Tax Regime

In contrast to the Old Tax Regime, the latest tax structure has more income slabs and lower tax for people earning less than ₹10 lakhs. Income below ₹4 lakh remains tax-free with a rebate. An annual income between ₹4 lakhs and ₹8 lakhs will be taxed at 5%, and income between ₹8 lakhs and ₹12 lakhs at 10%.

Similarly, income between ₹16 lakhs and ₹20 lakhs will be taxed at 20%, while an income between ₹20 lakhs and ₹24 lakhs will be taxed at 25%. The tax on income above ₹24lakhs is 30%, the same as under the Old Tax Regime.

Which is better?

On first look, the New Tax Regime seems better, but one needs to dig deeper. Under the New Tax Regime, the tax rates are low, especially for people earning less than ₹10lakhs. For instance, someone earning ₹10 lakh a year will save ₹44,200 in taxes under the New Tax Regime. However, under the latest tax structure, you will not be able to avail of any tax exemptions or deductions.

Some of the common exemptions are house rent allowance and leave travel allowance, which will not be available under the new tax regime. Similarly, some popular deductions that were earlier allowed under Section 80C and Section 80D of the Income Tax Act, 1961, will also not be available.

The suitability of the tax structure will vary depending on the level of investments one makes. Take into account all the exemptions you get and the deductions you are eligible for. Add up the exemptions and deductions, and deduct them from your annual income. If your taxable income is lower, then it is not advisable to adopt the latest tax structure.

Conclusion

The old tax regime incentivises savings and investments. People invest in financial products and are rewarded for it. Under the Old tax regime, individuals can claim deductions up to ₹1.5 lakh annually on eligible life insurance premiums under Section 80C of the Income Tax Act, 1961.

Glossary

e filing 2.0: The advanced income tax filing platform by the government of India for simpler and quicker ITR filing.
Income Tax Slab: The structure of tax rates against various ranges of income under the New and Old tax regimes.
Section 80C: A provision of the Income Tax Act for deduction up to ₹1.5 lakh for particular investments.
ULIP: Unit Linked Insurance Plan brings insurance together with equity/debt investment.
Section 10(10D): Tax-free maturity benefits from life insurance policies, subject to specific conditions.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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