The proposals introduced by Finance Minister Nirmala Sitharaman in the Finance Bill 2025 have been widely appreciated by stakeholders for their tax-friendly approach, particularly for those taxed under Section 115BAC of the Income Tax Act, 1961 (‘the Act’). Optically, the proposals made in the said bill look more fascinating as they have narrowed down the tax rates which shall be applicable on broader tax brackets from AY 2026-27 onwards.
However, “one needs to be mindful to evaluate the impact of deductions that need to be forgone if one chooses to be taxed under section 115BAC of the Act. In certain scenarios, the old tax regime may still offer a comparative advantage over the new regime,” says Rahul Gupta, Partner, SN Dhawan & Co LLP.
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Let’s understand this with an example in the case of salaried individual for Assessment Year 2026-27:-
ParticularsUnder old tax regime (Amount in INR)Under New Tax regime (Amount in INR)Gross Total Income14,00,00014,00,000Less: Deductions/exemptions eligible under old tax regime but not under new tax regime(6,00,000)NilLess: Standard deduction(50,000)(75,000)Total Income7,50,00013,25,000Tax Payable (at rates proposed in Finance Bill,2025)65,00081,900
On the other hand, there shall be a scenario wherein the income chargeable to tax under the proposed new tax regime shall be beneficial to the taxpayer. In this regard, following are the key steps that one needs to follow to optimise his income tax liability:-
Step-1 : List the investments and expenses that one intends or is obligated to incur during the Financial Year.
Step-2 : Evaluate the amount of expenses or investments that are eligible to get deductions/exemptions under the old tax regime but not under the new tax regime.
Step-3 : “Prepare a comparative chart to evaluate the optimum tax liability under the old tax regime vis-à-vis the new tax regime. In this regard, one may choose to use the tax calculator available under the income tax website,” says Gupta.
At the end, it is important to highlight that Section 115BAC of the Income Tax Act, which pertains to the new tax regime, is applicable by default unless the taxpayer chooses to opt out under specific scenarios:-
- For taxpayers with business income: They must file a prescribed form to choose the old tax regime.
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