Why you shouldn’t pick new tax regime by default for ITR 2025 even if your salary is below Rs 12 lakh

The income-tax law provides that a business loss can be carried forward and set-off for a period of eight years.

As the ITR filing deadline of September 15, 2025 approaches, many salaried individuals and taxpayers are preparing to file their income tax returns for the financial year 2024–25. At first glance, this may seem like a routine exercise. After all, Budget 2025 created a buzz by announcing no tax on income upto Rs 12 lakh and tweaking the new tax regime slabs. It’s no surprise then that many people are assuming these changes apply immediately. But that assumption could cost you more tax than you need to pay.

Here’s the key detail that many have missed: the new tax regime changes—particularly the tax rebate on income upto Rs 12 lakh—will only apply from financial year 2025–26, which begins on April 1, 2025. That means for the income you earned between April 1, 2024, and March 31, 2025, none of these new benefits are available. So, if you're filing your ITR in July 2025, you're still governed by the older rules.

So just because the new tax regime is default doesn’t mean it’s the best option—at least not this year. “There is no one-size-fits-all rule—it has to be tailor-made. Always compare both regimes. For those with a large HRA component, the old tax regime is often more beneficial,” says Balwant Jain, a Mumbai-based chartered accountant.

Therefore, for FY 2024–25, the old tax regime—with its bouquet of exemptions and deductions—can result in significantly lower tax liability for those who have planned their finances accordingly. If you have invested in instruments eligible under Section 80C, such as PPF, ELSS, life insurance, or paid tuition fees for your children, you can claim up to Rs 1.5 lakh in deductions. Add to this the benefit of health insurance premiums under Section 80D, home loan interest deduction under Section 24(b), HRA exemptions for those living in rented accommodation, and the standard deduction of Rs 50,000, and your total deductions can easily exceed Rs 3–4 lakh.

This is where the comparison gets interesting. According to Neeraj Agarwala, Partner at Nangia & Co LLP, the old tax regime continues to be more beneficial at different income levels. “Despite the government’s clear push towards the new tax regime, the old tax regime still remains highly relevant for many taxpayers in FY 2024–25. Taxpayers availing of significant deductions under sections like 80C (up to Rs 1.5 lakh), 80D (medical insurance), HRA, interest on home loans (section 24(b)) and education loan interest, often find the old regime more beneficial despite higher nominal slab rates,” says Agarwala.

For instance, at a gross income of Rs 15 lakh, you need deductions of approximately Rs 4 lakh under the old regime for it to be more tax-efficient than the new one. For incomes above Rs 20 lakh, if your total deductions exceed approximately Rs 4.5 lakh, sticking with the old regime is the smarter choice, explains Agarwala,

Many salaried individuals automatically meet or exceed these thresholds without even realizing it. Yet, they may unknowingly choose the new tax regime simply because it’s now the default. It is important to understand that opting for the new regime means accepting lower tax rates without the option to claim deductions, ideal for those who have not big ticket deductions available such as home loans and HRA.

Tax reforms announced in a budget apply prospectively, not retrospectively. The tax rebate on income upto Rs 12 lakh only begins from April 1, 2025—meaning you willl benefit from it only when you file your ITR in 2026 for FY 2025–26.

So, what’s the right approach now? Start by reviewing all your tax-saving investments and expenses. Gather documentation and use a tax calculator or consult a tax advisor to compare your liability under both regimes for FY 2024–25. If you find the old regime leads to a lower tax bill, make sure to actively choose it while filing your return.

In short, don’t let the default setting choose for you. While the new tax regime might become more attractive starting next year, it’s not the right fit for everyone this year. For FY 2024–25, the old regime still has plenty of relevance—and financial advantages—if you have played your cards right. Check your deductions, compare your options, and file smart.