Since the FY26 income tax season has started and several income tax forms are now available for filing on the Income Tax Portal, it is crucial for taxpayers to ascertain where their income falls within the most recent income tax slabs in order to estimate how much tax they must pay for AY 26–27.
The new income tax regime is the default regime for individual taxpayers under the new Income-tax Act, 2025, which took effect on April 1, 2026. For taxpayers who want to claim deductions under several well-known sections, such as Section 80C, Section 80CCD(1B), Section 80D, Section 24, and others, the previous system might still be more appropriate.
Income tax brackets for those under 60
FY 2025–2026 Income Tax Slabs (AY 2026–2027)
A New Tax System
Income tax brackets for elderly individuals aged 60 to 80
Income tax slabs for extremely elderly individuals over 80
Source: Income Tax Department
How can taxpayers decide if they are in the “old regime wins” or “new regime wins” category?
According to Ramachandran Krishnamoorthy, Associate Partner, Managed Services, BDO India, the easiest way to categorize taxpayers for FY 2025–26 (AY 2026–27) is to compare the benefits of the lower tax rates and higher rebate available under the new regime with the amount of deductions and exemptions they can claim under the old regime.
The Quick Thumb Rule
These are approximate break-even points that change based on the combination of NPS, home loan interest, HRA, and other deductions.
Because of its lower rates and larger rebate threshold, the new regime usually benefits taxpayers who don’t claim large deductions. Nonetheless, the previous system may still be advantageous to people with significant investments and deductions, such as HRA, housing loan interest, and section 80C investments. According to Ashish Mehta, a partner at Khaitan & Co., salaried persons with incomes up to about Rs 12.75 lakh may pay NIL tax under the new regime (given the standard deduction), however this can vary based on their individual deductions.
What are the biggest mistakes taxpayers make while choosing a tax regime during ITR filing?
Here are the biggest mistakes, according to Ramachandran Krishnamoorthy:
1. Comparing Tax Before Claiming All Deductions
A common error is to compare:
- New regime tax on actual income, versus
- Old regime tax after claiming only 80C.
Taxpayers often forget:
- HRA exemption
- Home-loan interest
- 80D (medical insurance)
- NPS (80CCD(1B))
- LTA
- Donations (80G)
The old regime may look unattractive until all deductions are included.
2. Ignoring Employer NPS Contribution in the New Regime
Many salaried employees assume all NPS benefits disappear in the new regime.
Employer contributions to NPS can still provide a deduction under the new regime, which can materially reduce taxable income.
3. Using Payroll Declarations Instead of Actual Year-End Figures
Employees often compare regimes using the declarations submitted to HR at the beginning of the year.
At ITR filing, the actual position may be different:
- Higher home-loan interest
- Additional tax-saving investments
- Medical insurance purchased during the year
- HRA exemption changes
The comparison should be based on actual numbers, not projections.
4. Ignoring Capital Gains and Other Income
Many people compare only salary income.
However, the final tax liability may also include:
- Equity capital gains
- Mutual fund gains
- Interest income
- Rental income
- Business income
The optimal regime should be determined using total income, not just salary.
5. Forgetting House Property Benefits
This is particularly relevant for property owners.
Common omissions:
- Home-loan interest deduction on self-occupied property.
- Interest deduction against house-property income for let-out property.
- Impact of rental income and municipal taxes.
For taxpayers with real estate holdings, this can significantly affect the outcome.
6. Assuming the New Regime Always Wins Below Rs 12 Lakh
The rebate under the new regime has made many people believe that the choice is automatic.
But if taxable income under the old regime falls substantially because of deductions, the old regime can still be competitive.
A proper calculation is still necessary.
7. Not Considering Future Years
Some taxpayers choose a regime based only on the current year.
Examples:
- A home loan has just started, so interest deductions will be large for several years.
- A house under construction may become eligible for deductions after possession.
- Retirement contributions may increase.
The better regime can change over time.
8. Believing Tax-Saving Investments Should Be Made Solely to Justify the Old Regime
A classic mistake is:
“I need a Rs 1 lakh more deduction, so I’ll invest Rs 1 lakh to save tax.”
The tax saved is usually much less than the amount invested.
Investments should be made because they fit financial goals, not merely to make the old regime appear better.
9. Business Owners Forgetting the Regime Switching Rules
For individuals with business or professional income, switching between regimes is subject to specific restrictions.
Many taxpayers discover this only after filing.
If business income is involved, the decision requires additional care.
Which documents should taxpayers review before making their final choice?
According to Ashish Mehta, before deciding, taxpayers should review key documents such as Form 16, salary structure, housing loan statements, investment proofs, and insurance receipts. A parallel tax computation under both regimes, using complete and accurate data, is essential to arrive at the most tax-efficient outcome.
Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Tax laws and regimes are subject to frequent changes by the government. Readers should verify details with official Income Tax Department notifications or consult a Chartered Accountant before making any financial decisions.
