New Tax System Effective April 1, 2025: No Tax on Income Up to ₹12 Lakh. Taxpayers to Choose Between Old and New Regimes.
New tax rules: Several significant changes to income tax will come into effect with the commencement of the new financial year on April 1, 2025. These changes aim to make the new tax regime more attractive and convenient, directly impacting salaried individuals. Finance Minister Nirmala Sitharaman announced the new income tax system in Budget 2024, incorporating substantial improvements. These improvements aim to simplify and benefit the tax system for ordinary taxpayers.
No Tax on Income Up to ₹12 Lakh Under the New Tax Regime
The most significant change in the new tax regime is the exemption from tax on annual income up to ₹12 lakh. This exemption applies only under the new tax regime. Taxpayers must now evaluate whether adopting the new regime is preferable to remaining under the old one. The new regime also simplifies tax slabs and reduces tax rates.
Government Emphasizes New Tax Regime; Old Regime Still Offers Deduction Benefits
However, the new tax regime doesn't offer certain tax benefits like investment and deduction allowances available under the old regime. Benefits such as Section 80C deductions, home loan interest deductions, and health insurance premium relief are available only under the old regime. Therefore, taxpayers with home loans or those claiming HRA might find the old tax regime more advantageous.
New or Old Tax Regime: Which Should You Choose?
If you don't invest in tax-saving schemes and prefer simple tax calculations, the new tax regime might be more suitable. Conversely, those who invest to save taxes might find the old regime more beneficial. The optimal tax regime depends on your income, expenses, and investment habits. Therefore, it's advisable to consult a tax consultant before the new financial year begins.
Changes in TDS in the New Financial Year
From the first week of the new financial year, companies will ask their employees to choose their preferred tax regime – old or new. Tax Deducted at Source (TDS) will then be deducted from salaries from April onwards, based on the employees' chosen option. It is crucial for taxpayers to determine which tax regime offers the most benefit, requiring a careful assessment of their income, investments, and expenses.
