The new financial year has already begun, and that brings us to the point in time when we need to plan for our taxes for the year.
For FY 2025-26, the Finance Minister Nirmala Sitaraman has announced significant changes to India's tax structure that can impact taxpayers across income brackets. In this article, let's break down these changes and explore strategies to navigate them effectively.
Changes to the New Tax Regime
The Union Budget 2025 has introduced revolutionary shifts in India's taxation framework. These changes aim to simplify the tax structure while providing relief to middle-income earners.
First things first - the new tax regime remains the default option. Salaried individuals without business income particularly need to note this default assignment at the beginning of the assessment year.
The game-changing element for the new financial year is the zero tax up to ₹12 lakh. The rebate under Section 87A has been increased to ₹60,000, ensuring zero tax liability for anyone earning up to ₹12 lakh. For salaried employees, the standard deduction of ₹75,000 effectively makes income up to ₹12.75 lakh tax-free.
Changes to the New Tax Slabs
The government has also made changes to the tax slabs for FY2026. The restructured tax brackets represent a fundamental shift toward a more progressive taxation system.
Here's a comprehensive breakdown of the tax slabs under the new regime for FY2026:
Up to ₹4 lakh: Nil
₹4 lakh - ₹8 lakh: 5%
₹8 lakh - ₹12 lakh: 10%
₹12 lakh - ₹16 lakh: 15%
₹16 lakh - ₹20 lakh: 20%
₹20 lakh - ₹24 lakh: 25%
Above ₹24 lakh: 30%
In contrast, there is no change under the old regime structure:
Up to ₹2.5 lakh: Nil
₹2.5 lakh - ₹5 lakh: 5%
₹5 lakh - ₹10 lakh: 20%
Above ₹10 lakh: 30%
The new tax regime brings wider slabs and gradual rate increases. This means smoother tax payments as your income grows. If you earn between ₹8-16 lakh annually, you will see the biggest benefits.
Take someone making ₹15 lakh - they'll pay just ₹1.35 lakh in taxes under the new system instead of ₹2.10 lakh under the old one. That's ₹75,000 saved without claiming any deductions. The Finance Minister says some taxpayers could save up to ₹1.14 lakh per year.
How to Maximise Your Tax Benefits?
The new tax regime offers simplicity and lower base rates but fewer deductions. The old regime maintains higher base rates with more exemptions. Both systems present distinct advantages depending on individual financial situations.
Under the new regime, you can claim:
Standard deduction of ₹75,000 from salary income
Interest on home loan under Section 24B (limited to let-out property)
Employer's contribution to NPS under Section 80 CCD (2) up to 14% of salary for government employees and 10% for non-government employees
Employee's contribution to NPS under Section 80CCD(1B) up to ₹50,000
Contributions to Agniveer Corpus Fund under Section 80 CCH
Deduction to Family Pension Income up to ₹15,000 or 1/3 of such income, whichever is less
The new regime explicitly excludes several popular deductions, including:
House Rent Allowance (HRA) exemption
Leave Travel Allowance (LTA) exemption
Interest on housing loan for self-occupied property under Section 24
Standard deductions for family pension
Deductions under Chapter VI-A (80C, 80D, etc.) except those mentioned above
In contrast, the old regime allows numerous deductions:
Section 80C investments up to ₹1.5 lakh (PPF, ELSS, life insurance, etc.)
Section 80D for medical insurance premiums up to ₹50,000
Section 80CCD(1B) for additional NPS contribution up to ₹50,000
HRA exemption based on actual rent paid, salary, and location
LTA exemption for domestic travel twice in a block of four years
Interest on self-occupied home loans up to ₹2 lakh under Section 24
Special Cases and Considerations For FY 2025-26
For Senior Citizens
The tax deduction limit for senior citizens has doubled from ₹50,000 to ₹1 lakh under Section 80 TTB for interest income from deposits. This increase provides much-needed relief to retirees dependent on interest income. Additionally, the TDS threshold for interest on deposits for seniors has increased to ₹1 lakh from the previous ₹50,000, reducing compliance requirements and improving cash flow.
Senior citizens above 75 years with pension and interest income only continue to enjoy exemption from filing returns if the paying bank deducts appropriate tax, further simplifying compliance for the elderly.
Changes to TCS and TDS Regulations
The Budget introduces significant modifications to the Tax Collected at Source (TCS) provisions:
Complete removal of TCS on foreign remittances under the Liberalised Remittance Scheme (LRS) for education funded by loans from financial institutions
Increased threshold for TCS rates for overseas tour packages from ₹7 lakh to ₹10 lakh
Elimination of TCS on the purchase of goods with proper PAN/Aadhaar submission under section 206 C(1H)
These changes aim to reduce the compliance burden while ensuring adequate tracking of significant financial transactions.
Extended Window for Updated Returns
The time limit for filing updated income tax returns has been extended from 2 years to 4 years from the end of the relevant assessment year. This extension provides more flexibility to rectify errors or omissions in original returns, reducing the risk of penalties for unintentional mistakes.
For example, for FY 2025-26 (AY 2026-27), taxpayers can now file updated returns until March 31, 2031, compared to the previous deadline of March 31, 2029. This extended window comes with graduated additional tax payments: 25% of tax plus interest if filed within 12 months, 50% if filed within 24 months, and 75% if filed beyond 24 months.
NRI Taxation Updates
For Non-Resident Indians (NRIs), several clarifications have been issued regarding the taxation of overseas income. The budget reaffirms that only income earned in India or derived from Indian sources is taxable for NRIs.
Foreign-sourced income remains exempt even if received in Indian bank accounts, provided proper documentation is maintained.
NRIs also enjoy the continuation of special beneficial tax rates (12.5%) on certain dividend and interest income under specific Double Taxation Avoidance Agreements (DTAAs).
How to Plan Your Finances for FY 2025-26?
Here is how you can plan for your finances for the new financial year.
1. Choose the Right Regime
Start with a comprehensive assessment of your tax liability under both regimes based on your income structure and eligible deductions.
For most salaried individuals with annual income below ₹12 lakh or those claiming minimal deductions (less than ₹1.5 lakh annually), the new regime automatically results in lower taxes due to the increased rebate and restructured slabs.
For high-income individuals with significant deductions (home loan interest, HRA, 80C, 80D investments), calculate your effective tax rates after all deductions before deciding.
2. Recalibrate Your Investment Strategies
The diminished tax advantage of traditional tax-saving instruments under the new regime requires you to take a step back and analyse your investment strategy.
Profitability and returns rather than tax benefits
Liquidity and flexibility over lock-in periods
Asset allocation based on financial goals rather than tax considerations
Risk-adjusted returns instead of Section 80C compliance
Consider redirecting investments from traditional tax-saving options like 5-year fixed deposits and ELSS funds toward more flexible instruments like liquid funds, arbitrage funds, or direct equities that offer potentially higher returns without tax-saving constraints.
3. Strategic Home Loan Management
With self-occupied property loan interest no longer deductible under the new regime, you can consider:
Accelerated loan repayment to reduce overall interest outgo
Converting part of your home loan to an overdraft facility for flexible prepayment
Exploring loan balance transfer options to reduce interest rates
Evaluating the potential for converting self-occupied property to let-out property (where interest remains deductible) if you have multiple properties
4. Pay Attention to the Deadlines
Meeting these deadlines avoids interest penalties under Section 234A, 234B, and 234C, which can significantly increase your overall tax outgo.
April-May 2025: Employers issue Form 16, banks issue TDS certificates
June 15, 2025: First advance tax installment (15% of estimated tax)
July 31, 2025: Filing deadline for non-audit cases
September 15, 2025: Second advance tax installment (45% of estimated tax)
September 30, 2025: Filing deadline for audit cases
December 15, 2025: Third advance tax installment (75% of estimated tax)
March 15, 2026: Final advance tax installment (100% of estimated tax)
March 31, 2026: Last date for tax-saving investments for FY 2025-26
Conclusion
The new financial year brings substantial changes to India's taxation system. The new regime offers zero tax up to ₹12 lakh - revolutionary for the middle class. However, the old regime offers its deductions, which are not available in the new regime. You can choose one regime depending on your situation. There are also changes in the TDS in foreign remittance, and changes for senior citizens, which should be considered to ensure efficient tax planning.
