Kolkata: Ravi Agarwal, chairman of Central Board of Direct Taxes recently told the media that currently about 75% of the taxpayers have already adopted the new tax regime. He also stated that he is hopeful that there are about 8.5 crore taxpayers in India and before long about 95% of them would migrate to the new system. As FY26 kicks in, let’s have a look at the two tax systems.
The new tax regime that was introduced in the Budget 2020 has already gained immense popularity. The primary reason being a lower rate of tax, and to some extent, the abolition of the vexatious need for submission of proof for tax deductible investments and/or expenditure.
Big HRA component
As the financial year 2025-26 kicks in today (April 1, 2025), we can have a look at what in store for the common tax-payer in the current financial year. What is of special significance this year is that Union finance minister Nirmala Sitharaman declared significant income tax relief of Rs 12 lakh per year from this financial year. If the standard deduction of Rs 75,000 is considered, the effective tax free income level would rise to Rs 12.75 lakh a year.
According to number crunching done by consultancy major Deloitte, salaried individuals will find the new tax regime more beneficial. The only exception will be a situation where one can claim a huge house rent allowance, or HRA, exemption. Deloitte has calculated that those earning more than Rs 24 lakh a year should claim deductions in excess of Rs 8 lakh if they have to benefit from the old regime in comparison to the new tax system.
Huge home loan interest and principal
Concurred Himadri Mukhopadhyay, secretary, Income Tax Bar Association Calcutta. “We have done some number crunching and found out that if an individual is repaying a big amount of principal and interest component on home loan and is making full use of the provisions of Sections 80C and 80D etc, he/she can perhaps use the old tax regime better than the new one. Also if one has a substantial HRA component, it could be utilized for tax saving in the old system better than the new one. But still then, the difference wouldn’t be much,” said Mukhopadhyay.
The veteran income tax professional said this year the share of taxpayers migrating to the new system will perhaps exceed 90% of the entire taxpayer universe.
Unless one has a big home loan repayment burden and/or a big house rent allowance component, it is unlikely that a taxpayer will be able to save more tax in the old regime compared to the new one. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
