Income Tax / TDS for Salaried Individuals for FY 2025-26
As we embark on the financial journey in the new Financial Year of 2025-26, it is important to educate ourselves of the changes in the Income Tax provisions for the salaried employees in the new Financial Year
I. Major Updates
a. Tax Rates under the new tax regime undergo major changes as follows (Exhibit A)
b. Tax Rates under Old Tax Regime continue to remain the same (Exhibit B)
c. Key Observations under New Tax Regime
i. Basic Exemption Limit: Increased from ₹3,00,000 (FY 2024-25) to ₹4,00,000 (FY 2025-26).
ii. Tax Rebate (Sec 87A): Extended from ₹7,00,000 (FY 2024-25) to ₹12,00,000 (FY 2025-26), making income up to ₹12L tax-free after rebate. With additional Rs 75000/- Standard deduction, employee whose annual salary income is upto Rs 12,75,000/- can go tax free.
iii. Highest Tax Rate (30%) Threshold: Shifted from ₹15,00,000 to ₹24,00,000.
II. Regime Choice Guide
With major concessions granted in new tax regime, the regime choice is heavily skewed in favor of New Tax Regime from FY 2025-26. The below table depicts the Breakeven point required to be achieved to ascertain that the old tax regime is beneficial. It depicts the targeting deductions / exemptions that need to be achieved to ensure Old Tax regime is beneficial
III. Analysis
a. As per the table above, only the employees who have high HRA, 80G, 80E deductions apart from traditional deductions like 80C, 80D, Housing Loan may stand a chance to opt for old tax regime. To achieve a deduction of Rs 6.00 lakh minimum, the traditional deductions (80C, 80D, Housing Loan) with individual limits may not suffice.
b. Further as explained in Exhibit C below, the additional tax saving for employees who are already in new tax regime due to additional concessions granted extends from Rs30,000 to Rs 1.1 lakh annually (Edu cess not included)
c. To conclude, employees who opted for New Tax Regime should continue in the same regime provided no major additional deductions available and the ones in Old Tax Regime in FY 2024-25 should reconsider their decision in FY 2025-26 in view of the concessions extended in new tax regime and assessing the total deductions / concessions available in FY 2025-26
IV. Disclaimer
The above note is a personal interpretation of the author and does not constitute a legally binding obligation.
CA Darshan Balai
darshan@payrule.in
www.payrule.in