There are a few weeks left for the new financial year to begin. If you are employed, you will have to tell your employer at the beginning of the financial year whether you want to use the new income tax regime or the old one.
Individual taxpayers are allowed to switch between the new and old regime. This means that if you have used the old income tax regime in the financial year 2024-25, then you can use the new regime in the financial year 2025-26. The opposite can also be done. You have to keep in mind that in the Union Budget presented on July 23 , Finance Minister Nirmala Sitharaman made many big announcements for the new regime.
Income up to Rs 12 lakh is tax-free in the new regime
The Finance Minister had said in the Union Budget that in the new regime ( New Regime of Income Tax ), people earning up to Rs 12 lakh per annum will not have to pay tax. If you are employed, you will not have to pay tax on annual income up to Rs 12.75 lakh. The reason for this is that in the new regime, employed people also get a standard deduction of Rs 75,000. Apart from this, the Finance Minister also announced changes in the income tax slab in the new regime. There was no change in the tax slab of the old regime of income tax.
There is also a change in the slab of the new income tax regime
Now in the new income tax regime, there is no tax on income up to Rs 4 lakh. There is a 5% tax on income from Rs 4 lakh to Rs 8,00,000. There is a 10% tax on income from Rs 8 lakh to Rs 12,00,000. There is a 15% tax on income from Rs 12 to Rs 16,00,000. There is a 20% tax on income from Rs 16,00,000 to Rs 20,00,000. There is a 25% tax on income from Rs 20,00,000 to Rs 24,00,000. Now the new regime has become attractive as compared to the old regime.
There is no deduction under section 80C, 80D and home loan in the new regime
It is important to note that income up to Rs 12 lakh is tax-free only in the new regime. Therefore, if you are using the old regime, you will not get this benefit. For this, you will have to switch to the new income tax regime. The tax rate is low in the new regime, but most deductions are not available. For example, deductions available on section 80C, 80D, home loan, etc. are not available. If you have not taken a home loan and do not do much tax-saving, then you can decide to switch to the new regime.
