New Income Tax Regime for FY 2024-25 (AY 2025-26) & What Taxpayers Should Know?
The Union Budget 2020 introduced a new income tax regime in the Income-tax Act, 1961 for individual taxpayers. Since then, it remained unchanged until the Union Budgets of 2023 and 2024 introduced several significant changes in the new tax regime. So, all taxpayers of every age group, including HUF, must be aware of the new income tax regime.
The finance minister announced that taxpayers can choose between the old and new tax regimes until March 31, 2023, but from April 1, 2023, the new tax regime is proposed to be the default regime.
As per the government, the new tax regime rules are supposed to simplify the tax structure. Further, the new regime offers lower tax rates, which makes it attractive for certain taxpayers; however, they are required to forego certain new tax deductions and exemptions to opt for the new regime.
Therefore, it is crucial for taxpayers to assess their finances including income from all the sources and tax-saving investments to make the most of the appropriate tax regime and optimize their tax obligations.
Let’s look at the new tax regime rates and other changes in it for the assessment year 2025-26.
New Income Tax Regime Rates for FY 2024-25 (AY 2025-26)
If you want to know the new tax slabs revised by Union Budget 2024, to plan and calculate your tax, check out the table below. These new tax slab rates are applicable from April 1, 2024, onwards.
Tax Deductions and Exemptions Under New Tax Regime for FY 2024-25
The Union Budget 2023 altered a few income tax deductions and exemptions in the new tax regime. Further, Budget 2024 hiked the standard deduction and NPS contribution.
So, here is a list of all the new tax deductions available under the new income tax regime that are allowed and not allowed for both the financial years, i.e., 2023-24 and 2024-25.
Go through these options for tax deduction in new tax regime to determine your tax liability.
Tax Deductions Allowed Under New Tax Regime
Tax Deductions Not Allowed Under New Tax Regime
As per the new tax regime rules, taxpayers opting for this income tax regime will have to forego up to 70 exemptions and deductions from the new tax regime in order to avail of the benefits of the lowered new tax slab rates.
Some of the common tax deduction in new tax regime that taxpayers cannot claim are:
What are the Changes in the New Tax Regime for FY 2024-25 (AY 2025-26)?
In addition to changes in the slabs in new tax regime, Budget 2024 proposed some more changes in the rules for new tax regime, which are as follows.
Note that apart from these changes, all other rules for the new tax regime remain the same as for FY 2023-24.
- The standard deduction has been hiked to ₹75,000 starting from April 1, 2024. For the previous financial year, the limit was ₹50,000.
- Further, the standard deduction limit for family pensioners has also been hiked to ₹25,000 from ₹15,000.
- NPS contribution limit for private sector employees has been raised from 10% to 14% of their basic salary. So, now for both private and public sector employees the deduction limit is 14%.
What are the Existing Changes in the New Tax Regime for FY 2024-25 (AY 2025-26)?
For FY 2023-24, which started on April 1, 2023, Budget 2023 proposed some changes in the rules for new tax regime, which are as follows:
- The tax slabs in the new tax regime have been reduced to five; earlier, there were six.
- Unlike the old tax regime, the new tax slab rates are the same for all the taxpayers, irrespective of their age, including HUF.
- Budget 2023 hiked the basic tax exemption limit to ₹3 lakhs from ₹2.5 lakhs.
- The rebate under Section 87A also increased to ₹7 lakhs from ₹5 lakhs, which implies that taxpayers can claim a rebate up to ₹ 25,000, which is double from the ₹12,500 in the previous financial year.
- The benefit of standard deduction of ₹50,000 for salaried people and pensioners has now been extended to the new tax regime as well. For family pensioners, the standard deduction of ₹15,000 is allowed for family pensioners.
How to Save Tax Under New Tax Regime?
Reducing tax liability while simultaneously achieving their financial goals is the main aim of every taxpayer as soon as the new fiscal year begins.
Since FY 2024-25 has revived most of the new tax regime deductions and benefits, the scope of tax saving under the new tax regime has become more limited than the old regime. So, here are some ways to save tax under the new regime:
- Invest in Tax-Efficient Options: Investing in options that offer tax-saving benefits along with low-risk returns should be every taxpayer’s priority. Check which instruments are available under the new regime and which are not before you start investing.
- Claim all the Deductions Possible: You can significantly lower your taxable income by utilising all the relevant tax deductions allowed under the new tax regime, such as for home loans, etc.
FAQs about New Income Tax Regime for FY 2024-25
How does the new tax regime work?
The new tax regime was introduced by Budget 2020 to offer lower tax rates but with fewer deductions and exemptions under Sections 80C, 80D, HRA, and others. After Budget 2023 it became the default tax regime. So, taxpayers need to assess whether the reduced tax rates are beneficial for them or do they want to avail exemptions and deductions.
What exemption is available under the new tax regime?
Taxpayers are given a full tax rebate on income up to ₹7 lakhs under the new tax regime. This means that taxpayers with an income of up to ₹7 lakhs will not have to pay any tax at all under the new tax regime!
Which is better for salaried taxpayers: the new tax regime or the old regime?
For salaried employees, the new tax slabs 2024 are better for you if you have invested less than ₹3 lakhs in tax saving schemes; if you’ve have invested more than ₹3 lakhs then go for the old tax regime. Additionally, it also depends on your salary.
What is the advantage of the new tax regime?
The tax rate under new tax regime is low and more suitable for low-income taxpayers. Also, as per the rules for the new tax regime, taxpayers get a standard deduction of ₹75,000, have zero tax liability if their income is up to ₹7 lakhs, and can enjoy basic exemption limit up to an income of ₹3 lakhs.
What is the disadvantage of the new tax regime?
The tax rate under the new tax regime might be low but it does not offer the benefits of claiming almost 70 tax exemptions and deductions that are available under the old regime.
Can I claim tax deductions under Section 80C for the new tax regime?
No, if you choose the new tax regime you are not eligible to claim tax benefits under section 80C; however, they are available under the old tax regime.
What deductions and exemptions are allowed in the new tax regime?
Some common exemptions and deductions under the new tax regime are available such as standard deduction, home loan, PPF, EPF, NPS, Agniveer Corpus Fund, savings schemes, allowances, retirement, deduction under Section 80JJAA, and more.
What is the new tax regime in 2024?
The new tax regime is now the default tax regime and income tax slab under new tax regime for the fiscal year 2024-25 were revised. The standard deduction and NPS contribution for private sector employees has also been hiked.
Who will benefit from the new tax regime?
The new tax regime is designed to benefit taxpayers who do not have significant deductions or exemptions to claim. Also, it is beneficial for people in the lower income bracket.
How much income is tax-free under new regime in India?
Under the new tax regime, income up to ₹7,00,000 is tax-free, after considering standard deduction of ₹75,000 and rebate under section 87A.
Can I switch to the old tax regime in future fiscal years if I choose the new tax regime this year?
Yes, individual taxpayers can switch to the old tax regime in the next financial year provided they do not have business income.
Who is not allowed to switch between the two regimes?
Individual taxpayers having business income are not allowed to switch between the two tax regimes every year.
What happens if I do not specify any tax regime in the beginning of the year?
If an individual taxpayer does not specify their preferred regime, their taxes will be deducted based on the new tax regime as it is proposed to be the default regime starting FY 2023-24. However, they can switch to their desired regime at the time of filing the income tax return.
Can I claim HRA in the new tax regime?
No, HRA (House Rent Allowance) cannot be claimed as a deduction in the new tax regime.
How can I reduce my tax liability in the income tax new tax regime?
You can do so by claiming the deductions available under the new tax regime like the standard deduction and family pension deduction. You can also invest in the few tax saving options available for this tax regime.
Is there ₹50,000 standard deduction in the new tax regime?
No, the standard deduction limit under the new tax regime has been hiked to ₹75,000 from FY 2024-25 (AY 2025-26). The ₹50,000 standard deduction was available only for FY 2023-24 (AY 2024-25).
Is deduction under 80D allowed in the new tax regime?
No, deductions under Section 80D for medical insurance premiums are not allowed for those who have opted for the new tax regime.
Do I have to pay tax on the PPF interest under the new tax regime?
No, the interest earned on PPF account is tax-free under both the old and new tax regimes.
Can I claim home loan interest in the new tax regime?
Yes, under the new tax regime you can claim deduction on the interest component of a home loan borrowed only for a rented property.
Do senior citizens have any specific tax benefits or exemptions under the new income tax regime in India?
No, the new tax regime rates and deductions are the same for all taxpayers, irrespective of their age. However, senior citizens and super senior citizens have reduced tax rates under the old tax regime, along with higher basic exemption limits and other deductions.
How much tax do senior citizens have to pay under income tax new tax regime?
As per the new tax regime, all taxpayers including senior citizens don’t have to pay any tax up to ₹3,00,000. Then as per the slabs under new tax regime, their tax will increase based on their salary. However, to save tax, they can invest in few tax saving options available under the new regime.