The Indian government has introduced several updates to the new tax regime in the previous financial years. For FY2025-26 (AY 2026-27), the government has further updated the new tax regime. It has introduced a new slab structure, rebate limits, and revised certain deductions. These changes are designed to simplify tax compliance, make filing easier, and offer a simpler structure for taxpayers.**
Let’s look at the key highlights of the new tax regime as of FY2025-26, what income tax slabs are updated, discuss the available exemptions and deductions allowed in the new tax regime, and understand the strategies to maximise tax savings.**
Key Highlights of the New Tax Regime for FY 2025-26**
Here is a look at some of the revisions to the new tax regime that may make it more beneficial for certain taxpayers.
These changes also serve as a framework for what could evolve in the Income Tax Bill 2025-26.
1. Updated Income Tax Slabs for FY2025-26 (New Regime)4
The government has revised the income tax slabs under the new regime in FY2025-26 to make them more taxpayer-friendly. The new tax slabs continue to have progressive tax rates and, offer lower rates for lower-income brackets, while ensuring higher-income groups contribute proportionally.
Here is the updated income tax slab structure for FY 2025-26:
Taxable Income (₹)
| Tax Rate
|
0 – 4,00,000
| 0%
|
4,00,001 – 8,00,000
| 5%
|
8,00,001 – 12,00,000
| 10%
|
12,00,001 – 16,00,000
| 15%
|
16,00,001 – 20,00,000
| 20%
|
20,00,001 – 24,00,000
| 25%
|
Above 24,00,000
| 30%
|
2. Revised Tax Rebate Limits
One of the most significant updates in Budget 2025 was the enhancement of tax rebate limits under Section 87A. Taxpayers with an annual income of up to ₹12 lakh can now enjoy a rebate, effectively paying no taxes under the new regime. The maximum rebate limit is set at ₹60,000. One should review the threshold at regular intervals, as rebate limits may change each year.
3. Updated Basic Tax Exemption Limit
The basic tax exemption limit under the new tax regime has been increased to ₹4 lakh in FY2025-26 from the previous ₹3 lakh in FY 2024-25. This means those with an income up to ₹4 lakh have no tax liability at all if they opt for the new tax regime.
Note that, from FY 2024-25 onwards, the new tax regime has been made the default option for taxpayers. However, individuals still have the flexibility to opt for the old tax regime if it better suits their financial goals and tax-saving preferences.
What are Exemptions and Deductions in the New Tax Regime?**
Along with understanding what the income tax slabs in India are (for the new tax regime), it is also crucial to be clear on the concept of exemptions and deductions. While the new regime reduces the scope for tax-saving instruments, certain allowances remain available.
Differences Between Exemptions and Deductions
- Exemptions: These refer to specific income components excluded from taxation. For example, the House Rent Allowance (HRA) and Leave Travel Allowance (LTA) are traditional examples of exemptions.
- Deductions: These can reduce taxable income by accounting for specific expenses, investments, or contributions. Examples include deductions under Section 80C for a life insurance policy or investment such as ELSS or PPF.
Exemptions Available in the New Tax Regime
Although the new regime eliminates most exemptions, some are still permitted:
- Employer contributions to the National Pension System (NPS).
- Retirement benefits such as gratuity and leave encashment.
- Income from agriculture (under certain conditions).
Deductions Allowed in the New Tax Regime
Key deductions in the new tax regime include:
- Standard Deduction: A standard deduction of ₹75,000 is available for salaried individuals and pensioners.
- Contributions to Agnipath Scheme: Specific contributions under the scheme are deductible (only for those selected under the scheme, called Agniveers).
- NPS Contributions: Employer contributions to the NPS, up to 10% of salary (Basic + DA), are deductible.
- Deduction for Family Pension: Allowed under Section 57(iia), with the enhanced ₹25,000 limit from Budget 2024.
By understanding what the tax slabs are and which deductions in the new tax regime are allowed, taxpayers can better plan their finances.
Common Exemptions and Deductions Not Available under the New Tax Regime**
Several popular exemptions and deductions are omitted in the new regime:
- HRA and LTA.
- Deductions under Section 80C, including investments in a life insurance policy, such as ULIPs (except for Section 80CCD (2).
- Deductions for savings bank interest under Section 80TTA.
- Exemptions for medical reimbursement and education allowances.
Impact of the Omitted Deductions on Taxpayers
The removal of these exemptions has simplified the tax filing process but has also reduced tax-saving opportunities. Taxpayers need to explore alternative strategies to minimise their tax liabilities under the new regime. Using an income tax calculator is highly recommended, as it will help give you an idea of the benefits you can avail as per your income.
Deductions on Business Income Under the New Regime**
For businessowners, the variety of deductions available is less.
Key Business Deductions Not Permitted
Business owners face limitations on deductions under the new regime (Key deductions, such as):
- Additional depreciation under Section 32(1)(iia)
- Deductions available under Sections 32AD, 33AB, and 33ABA
- Deductions for donations or expenditure on approved scientific research under Sections 35(1)(ii), 35(1)(iia), 35(1)(iii), and 35(2AA)
- Deductions under Section 35AD and Section 35CCC
Along with the above, exemption for SEZ units under Section 10AA is also not permitted.
Implications for Business Owners
With fewer deductions available, business owners need to assess whether the new tax regime aligns with their financial goals. They may need to adjust their investment strategies or consider alternative tax-saving measures.
Important note:
If you have business or professional income, opting in or out of the new tax regime must be done through Form 10IEA. Also, note that switching rules may be more restrictive.
Consulting a financial advisor is recommended.
Tax-Saving Plans for the New Tax Regime**
Despite the reduced scope for exemptions and deductions, strategic planning can help taxpayers maximise their savings.
Best Tax-Saving Strategies for 2024
1. Invest in NPS: Contributions to the National Pension System remain deductible.
2. Utilise Standard Deduction: Salaried individuals should ensure they claim the ₹75,000 standard deduction.
3. Agnipath Scheme Contributions: Leverage deductions available under this scheme (if eligible).
Other Financial Products With Tax Benefits
While traditional options such as Section 80C deductions are not available, taxpayers can consider:
- Life insurance policies for long-term financial stability.
- Term insurance plans for comprehensive coverage and peace of mind.
Utilising the Income Tax Calculator for Maximum Savings
The income tax calculator is an indispensable tool for evaluating tax liabilities under the new regime. Taxpayers can use it to compare the old and new regimes, ensuring they make the most tax-efficient choice.
Old Regime vs. New Regime Deductions**
There are pros and cons when it comes to both regimes. The key difference between them is as follows:
- Old Regime: Offers more deductions and exemptions but requires thorough record-keeping and planning.
- New Regime: Simpler structure with fewer deductions, suitable for those seeking a hassle-free tax filing experience.
Taxpayers should evaluate their income levels, investment habits, and long-term financial goals to determine which regime aligns better with their needs.
The new tax regime for FY 2025-26 has a simplified structure and broader inclusivity, with higher rebates and a higher exemption threshold. While it limits the scope for tax-saving instruments, understanding what income tax slab in India is applicable for you, which deductions in the new tax regime are allowed, and leveraging the available options can help you optimise your financial planning. Using tools such as an income tax calculator, individuals can make informed decisions tailored to their unique financial situations.**
FAQs**
What are the deductions allowed in the new tax regime?
Under the new tax regime, most traditional deductions are not available. However, several key exemptions and deductions are still permitted:
- Standard Deduction (as per the latest notified limit for salaried individuals and pensioners).
- Employer’s NPS Contribution under Section 80CCD(2).
- Deduction for Agniveer Corpus Fund under Section 80CCH(2).
- Exemption on Voluntary Retirement under Section 10(10C).
- Gratuity exemption under Section 10(10).
- Leave Encashment exemption under Section 10(10AA).
- Specific allowances such as:
- Transport allowance for specially-abled employees
- Conveyance allowance for job-related travel
- Travel compensation for official tours or transfers
- Daily allowances for duty-related expenses when working away from the workplace
- Perquisites provided for official purposes, subject to documentation and prescribed conditions.
- Gifts up to ₹50,000 (subject to standard income-tax rules).
These permitted deductions help taxpayers receive limited but meaningful relief while filing under the new tax regime.
How can I maximise tax savings in the new regime?
To save tax in the new regime, you can focus on strategic investments such as NPS and use the income tax calculator to identify the most tax-efficient options.
Is the standard deduction applicable under the new regime?
Yes, a standard deduction of ₹75,000 is applicable for salaried individuals and pensioners.
What is the Section 10 exemption? Is it allowed in the new regime?
Most Section 10 exemptions (such as HRA and LTA) are not allowed in the new regime.
How does the new regime compare with the old regime in terms of rebates?
The new regime offers higher rebates for middle-class taxpayers, such as the full tax rebate on incomes up to ₹12 lakh.
How can I opt for the new tax regime in 2025-26?
From FY2024-25 onwards, the new tax regime is the default one. You do not have to opt for it. However, if you want to switch to the old regime, you will have to file Form 10-IEA.
** Tax exemptions are as per applicable tax laws from time to time.
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