Tax planning for FY 2025-26: How much deduction is required to pay less tax under old tax regime?

5 min read | Updated on June 13, 2025, 11:36 IST

SUMMARY

The Union Budget 2025 introduced significant changes to the income tax structure for individuals, particularly under the new tax regime. With zero tax liability for income up to ₹12 lakh, many people will shift towards the new tax regime. But the old regime may still be good if you can claim big deductions.

You need higher deductions to save tax under the old tax regime. | Image source: Shutterstock

It will always be beneficial for you to opt for the new tax regime in FY 2025-26 if your income does not exceed ₹12 lakh, regardless of your deduction amount. But when your income exceeds ₹12 lakh, you need to evaluate whether to choose the new regime or continue with the old regime, especially if your potential deductions range from ₹5 lakh to ₹8 lakh.

Understanding the tax regimes

New Tax Regime (FY 2025–26): The new tax regime, introduced as a simplified alternative, has lower tax rates but very few exemptions and deductions.

Key features of the new regime:

Standard deduction: ₹75,000 for salaried individuals and pensioners.

Tax Slabs under the New Regime:

₹0 – ₹4 lakh: 0%
₹4 – ₹8 lakh: 5%
₹8 – ₹12 lakh: 10%
₹12 – ₹16 lakh: 15%
₹16 – ₹20 lakh: 20%
₹20 – ₹24 lakh: 25%
Above ₹24 lakh: 30%

Individuals with incomes taxable as per slab rates of up to ₹12 lakh can claim a rebate under Section 87A, reducing tax liability to zero.

Note: Common deductions under sections such as 80C (investments), 80D (medical insurance), and HRA (house rent allowance) are not allowed under this regime. Only the standard deduction of ₹75,000 and the employer's contribution to EPF or NPS remain deductible.

Old tax regime: It has higher tax rates but allows taxpayers to claim a wider range of deductions and exemptions, enabling significant reductions in taxable income for those with eligible investments and expenses.

Key deductions allowed:

Section 80C: Deduction up to ₹1.5 lakh for investments in PPF, ELSS, life insurance premiums, etc.
Section 80D: Deduction up to ₹1 lakh for health insurance premiums (including for senior citizen parents).
Section 24(b): Interest paid on home loans is deductible up to ₹2 lakh.
House Rent Allowance (HRA): Deductible subject to specific conditions related to rent paid and city of residence.
Standard Deduction: ₹50,000 for salaried individuals and pensioners.

Tax rate

₹0 – ₹2.5 lakh: Nil
₹2.5 lakh – ₹5 lakh: 5%
₹5 lakh – ₹10 lakh: 20%
Above ₹10 lakh: 30%

Individuals with income up to ₹5 lakh can claim a rebate under Section 87A, reducing tax liability to zero.

Comparative analysis: Tax before cess under both regimes

*Other than the standard deduction, which is ₹50,000 in the old regime and ₹75,000 in the new regime.

As observed in the table, even if your income exceeds ₹13 lakh, a deduction ranging from ₹5 lakh to ₹8 lakh can still result in lower taxes under the old regime.

In some cases, this could even lead to a tax liability of zero under the Old Regime. However, the critical question is: Is it practically possible to have a deduction ranging from ₹5 lakh to ₹8 lakh when your income is between ₹13 lakh and ₹18 lakh?

Is it practical to claim ₹5–8 lakh worth of deductions?

Let’s break it down. Let’s take two cases: one with paying the rent and another one owning the house and paying EMI.

Section	Nature of Deduction	Maximum limit (₹)	Tentative amount (₹)
80C	LIC, PPF, ELSS, Home Loan Principal, etc.	1,50,000	1,50,000
80D	Medical Insurance (self + family)	50,000 – 75,000	50,000
24(b)/HRA	Home Loan Interest (self-occupied house) OrHRA (Rent paid minus 10% of basic salary)	2,00,000	1,50,000
80CCD(1B)	NPS additional investment	50,000	50,000
80E	Interest on Education Loan	Actual	50,000
80G	Donations to charity	50% or 100%	40,000
Others	LTA, 80TTA (interest on savings) etc.		10,000
Total			5,00,000

The new tax regime introduced in the Union Budget 2025 is undoubtedly attractive for individuals with lower incomes or limited investments in tax-saving instruments.

With zero tax up to ₹12 lakh. However, once your income exceeds ₹12 lakh, especially if it falls in the range of ₹13 to ₹18 lakh, the old regime still holds strong relevance, provided you can claim substantial deductions ranging from ₹5 lakh to ₹8 lakh.

This is especially practical for individuals paying EMIs for home loans, insurance premiums, medical cover for elderly parents, education loans, and those residing in rented accommodations.

That said, achieving such high levels of deductions may not be for everyone. Therefore, the choice between the old and new regime must be made after a careful assessment of your income profile, lifestyle needs, and long-term financial goals.

Disclaimer: The views and opinions expressed above are those of respective experts/commentators and do not reflect the views of Upstox. This content is only for informational purposes and should not be considered investment advice from Upstox.