The structure of the new tax regime broadly continues the policy approach introduced under the Income-tax Act, 1961offering taxpayers the flexibility to choose between the regular tax system and a simplified tax regime with lower rates but fewer deductions. The VakilKaro Brief: Understanding the New Tax Regime under the Income-tax Act 2025 The Update The Income-tax Act 2025 introduces a structured new tax regime under Section 202 for individuals, HUFs, and certain other taxpayers.
The structure of the new tax regime broadly continues the policy approach introduced under the Income-tax Act, 1961offering taxpayers the flexibility to choose between the regular tax system and a simplified tax regime with lower rates but fewer deductions. The new law defines the applicable slab rates, lists the deductions that remain available, and prescribes the procedure for exercising or withdrawing the option.
Key Takeaways
- The structure of the new tax regime broadly continues the policy approach introduced under the Income-tax Act, 1961offering taxpayers the flexibility to choose between the regular tax system and a simplified tax regime with lower rates but fewer deductions.
- The VakilKaro Brief: Understanding the New Tax Regime under the Income-tax Act 2025 The Update The Income-tax Act 2025 introduces a structured new tax regime under Section 202 for individuals, HUFs, and certain other taxpayers.
- The Action Individuals and HUFs should compare tax liability under both regimes before selecting the option while filing their income tax return.
- The applicable due dates are summarized below: Category of Assessee Due Date Assessees with transfer pricing reporting requirement 30 November Companies and taxpayers subject to audit 31 October Business taxpayers not requiring audit 31 August Other taxpayers 31 July These due dates correspond to the return filing deadlines under the Income-tax Act.
- Conclusion The new tax regime under the Income-tax Act 2025 continues the government’s effort to simplify the tax structure by offering lower tax rates with fewer deductions.
The VakilKaro Brief: Understanding the New Tax Regime under the Income-tax Act 2025
The Update
The Income-tax Act 2025 introduces a structured new tax regime under Section 202 for individuals, HUFs, and certain other taxpayers.
The Impact
Taxpayers can opt for lower tax rates but must give up most exemptions and deductions except a limited set allowed by the law.
The Action
Individuals and HUFs should compare tax liability under both regimes before selecting the option while filing their income tax return.
Who Can Opt for the New Tax Regime
The new tax regime under Section 202 is available to the following categories of taxpayers:
• Individuals
• Hindu Undivided Families (HUFs)
• Associations of persons (other than co-operative societies)
• Bodies of individuals
• Artificial juridical persons
Eligible taxpayers can choose between the regular tax system and the new tax regime depending on which results in lower tax liability.
Tax Slab Rates Under the New Regime
The Income-tax Act 2025 prescribes the following slab rates for taxpayers opting for the new regime:
Total Income Tax Rate
Up to ₹4,00,000 Nil
₹4,00,001 – ₹8,00,000 5%
₹8,00,001 – ₹12,00,000 10%
₹12,00,001 – ₹16,00,000 15%
₹16,00,001 – ₹20,00,000 20%
₹20,00,001 – ₹24,00,000 25%
Above ₹24,00,000 30%
Deductions and Exemptions Allowed
Although most exemptions are removed under the new regime, a limited number of deductions and benefits remain available.
Allowed Benefit Relevant Provision
Standard deduction up to ₹75,000 Section 19
Gratuity exemption Section 19
Commutation of pension Section 19
Retrenchment compensation Section 19
Voluntary retirement compensation Section 19
Leave encashment Section 19
Employer contribution to NPS (up to 14%) Section 124
Contribution to Agniveer Corpus Fund Section 125
Deduction for additional employee cost (30% for 3 years) Section 146
These limited deductions allow certain employment-related and retirement benefits to remain tax-efficient even under the simplified tax structure.
Deductions and Exemptions Not Permitted
The new regime disallows several exemptions and deductions that were previously available under the traditional tax system.
Major disallowed benefits include:
• House Rent Allowance (HRA)
• Leave Travel Allowance (LTA)
• Children education allowance
• Various special allowances such as uniform allowance and remote locality allowance
• Deduction for interest on housing loan for self-occupied property
• Additional depreciation on machinery
• Most deductions under Chapter VIII (similar to Chapter VI-A of the earlier Act)
Loss from house property cannot be set off against other heads of income under the new regime.
How to Exercise the Option for the New Tax Regime
The method of exercising the option depends on whether the taxpayer has business income.
If the taxpayer does not have business income:
• The new tax regime is the default option.
• The taxpayer must opt out if they wish to use the normal tax system.
• The option can be changed every year while filing the return of income.
If the taxpayer has business income:
• The option to choose the new tax regime can be exercised once.
• Once selected, it continues for subsequent years.
• The taxpayer can withdraw the option only once in their lifetime.
• After withdrawal, the taxpayer cannot re-enter the new regime again.
The option must be exercised while filing the return of income under Section 263.
Due Dates for Exercising the Option
The option to adopt or opt out of the new tax regime must be exercised before the due date for filing the income tax return.
The applicable due dates are summarized below:
Category of Assessee Due Date
Assessees with transfer pricing reporting requirement 30 November
Companies and taxpayers subject to audit 31 October
Business taxpayers not requiring audit 31 August
Other taxpayers 31 July
These due dates correspond to the return filing deadlines under the Income-tax Act.
Conclusion
The new tax regime under the Income-tax Act 2025 continues the government’s effort to simplify the tax structure by offering lower tax rates with fewer deductions.
While the regime may benefit taxpayers with limited deductions, individuals who claim multiple exemptions or housing loan benefits may find the traditional tax system more advantageous.
Taxpayers should therefore carefully evaluate their income structure, deductions, and long-term tax planning before choosing between the two regimes each year.
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New Tax Regime under Income-tax Act 2025 for Individuals and HUFs Explained+
The structure of the new tax regime broadly continues the policy approach introduced under the Income-tax Act, 1961offering taxpayers the flexibility to choose between the regular tax system and a simplified tax regime with lower rates but fewer deductions. The VakilKaro Brief: Understanding the New Tax Regime under the Income-tax Act 2025 The Update The Income-tax Act 2025 introduces a structured new tax regime under Section 202 for individuals, HUFs, and certain other taxpayers.