Tax planning techniques to minimise outgo and optimise financial outcomes

The old tax regime is a choice only if your income is in the ₹12 Lakh to ₹24 Lakh bracket.

April is the month when employees have to submit the details of their intended tax-saving investments during the year to their employers. They also have to indicate their choice of income tax regime—the old, with-exemptions structure or the default, new tax regime that allows minimal tax deductions.

New financial year, new tax rules

Salaried individuals are set for huge tax savings in the financial year 2025-26, thanks to the tax sops announced in Budget 2025.

Finance Minister Nirmala Sitharaman announced major tax breaks for individual taxpayers, with the rebate limit going up from Rs 7 lakh to Rs 12 lakh under the new tax regime. The tax slabs, too, have been tweaked such that the 30 percent tax rate kicks in only after Rs 24 lakh.

Also read | Taxpayers, CAs challenge I-T notices on rebate claims before appellate body

New headline - Old and new income tax regime slabs (2025-26)

New tax regime more attractive

One of the big tax planning implications of the changes to the new tax regime is that it has become substantially more attractive than the old tax regime. The benefits of the new regime are not only available for people in low- and middle-income groups, but also for assessees in the higher income brackets.

Also read | Here’s how much income tax you will pay from April 1

Let us start with a person earning Rs 12.75 lakh as basic salary and no tax-saving investments. How will the tax outgo look under old and new tax regimes?

Three factors are working in favour of the new tax regime in FY26. First is the higher standard deduction. and second, the more liberal tax slabs. And three, it is the tax rebate of up to Rs 60,000 available to those with incomes of up to Rs 12 lakh under the new structure. When the impact of these three are combined, the tax saving under the new regime is to the tune of Rs 1,87,200.

Scenario two: Higher exemptions

Let us now consider a person earning an income of Rs 35 lakh per annum. In addition, the assessee also has availed of tax savings avenues—Rs 1.5 lakh under Section 80C, Rs 2 lakh under Section 24 for home loan interest and Rs 0.75 lakh medical insurance for self and aged parents.

In the above instance, the assessee is in a higher tax bracket and also has tax-saving contributions under Section 80C, Section 80C and Section 24 of the Income-tax Act. Despite that, those opting for the new tax regime will pay nearly Rs 1.17 lakh less tax. Clearly, this would make the new regime the preferred choice for most.

Also read | New income tax rules: A guide to Budget ’25 tax changes that kick in from April 1

The old tax regime is a reasonable choice only if you are in the Rs 12 lakh to Rs 24 lakh income bracket. Besides, it is the key deductions like HRA, Section 80C, Section 80D, loss on self-occupied property, etc., that will come into play. All these deductions must be at least Rs 8 lakh for the old tax regime to make sense. Also, it must be looked at in the context of the affordability of the person. For instance, Rs 8 lakh of outlay on income of Rs 20 lakh can be tough, unless the investments, HRA, loss on property and the like are well above Rs 8 lakh. The new regime will make a lot more sense from FY26.

Also read | The FY26 Investment Playbook: Here's how you could manage your money this year

The author is co-founder and CEO of Finnovate

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.