Old vs New Tax Regime: Major Deductions for Rs 12 Lakh Salary Earners May Be Discontinued From FY26 — Here’s the Reason
Salaried taxpayers with annual income up to ₹12 lakh may no longer require old regime deductions, as the new tax system is likely to result in minimal or no tax liability.
If your annual salary is around ₹12 lakh, the current financial year might be the last one where you can benefit from deductions available under the old tax regime. From the next financial year (FY 2025–26 / AY 2026–27), the new tax regime is expected to make income up to ₹12 lakh almost tax-exempt, reducing the necessity for tax planning under the old system.
At present, you still have the flexibility to opt between the old and new regimes while filing your Income Tax Return (ITR) for FY 2024–25 (AY 2025–26). The deadline for submission is 15th September this year. However, with the upcoming changes, many salaried individuals may permanently shift to the new tax regime from next year.
What Does the Old Tax Regime Offer?
Under the old regime, you can claim various exemptions and deductions such as:
– House Rent Allowance (HRA)
– Leave Travel Allowance (LTA)
– Home loan interest under Section 24(b)
– Deductions under Sections 80C to 80U (which includes PPF, ELSS, LIC premium, children’s tuition fees, etc.)
These help in reducing taxable income but require careful documentation and planning.
Benefits Under the New Regime
The new regime provides limited deductions but offers higher rebate thresholds. Here’s a quick comparison:
– Rebate under Section 87A: ₹5 lakh (old) vs ₹7 lakh (new)
– Standard deduction: ₹50,000 (old) vs ₹75,000 (new)
– Maximum rebate: ₹12,500 (old) vs ₹25,000 (new)
While some benefits such as the standard deduction (Section 16) are available in both regimes, commonly used exemptions like HRA, LTA, and home loan interest are not available in the new one.
Under the revised system, only specific benefits such as the employer’s contribution to NPS (Section 80CCD(2)) and contributions to the Agniveer Corpus Fund (Section 80CCH(2)) are allowed. Most of the standard tax-saving options under Section 80C do not apply.
What Does It Mean for You?
The government is actively encouraging taxpayers to migrate to the simplified new tax system, which is easier to comply with but does not offer deductions based on investments.
For individuals with income up to ₹12 lakh, the new regime may result in negligible or zero tax, even without claiming deductions. Hence, if you are choosing the old regime this year, make sure you utilise all available tax benefits — as this could be the last year they’re accessible.
