As the income tax return (ITR) filing season gains momentum in India, over 1 crore taxpayers have already submitted their returns for the financial year 2024–25. However, confusion continues to surround the new tax rule announced in Budget 2025, which promises zero tax on income up to ₹12 lakh under the new regime.
If you're planning to take advantage of this benefit while filing your return this year, here's an important clarification: The ₹12 lakh tax exemption rule does not apply to the current assessment year. This benefit will only come into effect from Financial Year 2025–26, i.e., income earned after April 1, 2025.
The much-publicized rule allowing tax exemption on income up to ₹12 lakh was announced by the government in the Union Budget 2025. However, it comes into effect only from FY 2025–26, which starts on April 1, 2025 and ends on March 31, 2026.
Therefore, any income earned during FY 2024–25 (April 1, 2024 to March 31, 2025) will be taxed as per the current tax slabs. Taxpayers filing their returns now will need to follow existing tax rules, and not the upcoming benefit.
Taxpayers still have the option to choose between the old tax regime and the new tax regime for the current ITR filing. Experts recommend evaluating the pros and cons of both before selecting one.
According to CA Balwant Jain, taxpayers whose salary includes a higher House Rent Allowance (HRA) component may find the old regime more beneficial, as it allows multiple deductions and exemptions.
Similarly, Neeraj Agarwal, Partner at Nangia & Co LLP, explains that the old regime benefits individuals who have made significant tax-saving investments. For example:
Section 80C: Deduction up to ₹1.5 lakh for tax-saving investments.
Section 80D: Deduction for health insurance premiums (up to ₹75,000).
HRA Exemption: For those living in rented houses.
Section 24(b): Deduction on home loan interest.
Standard Deduction: ₹50,000 for all salaried individuals.
All these can add up to deductions worth ₹3–4 lakh, making the old regime attractive for certain income groups.
For ₹15 lakh annual income: The old regime is beneficial only if deductions claimed exceed ₹4 lakh.
For ₹20 lakh income: The old regime provides savings only if deductions go beyond ₹4.5 lakh.
If you haven't invested in tax-saving instruments, the new regime may offer lower tax liability due to simplified slabs — though without deductions.
Do not assume the ₹12 lakh tax-free rule applies to this year’s return — it starts from FY26.
Choose your tax regime after comparing calculations under both old and new systems.
Claim all eligible deductions under Section 80C, 80D, HRA, and other applicable clauses if using the old regime.
Digital tax filing portals often have built-in calculators to help you evaluate both options before final submission.
From next year onwards, more taxpayers are likely to benefit from the new regime's ₹12 lakh exemption.
The tax landscape is set to change significantly next year, but for now, taxpayers must navigate with the current rules in place. Avoid any confusion by understanding what applies this year, make informed choices between old and new regimes, and file your ITR before the deadline to enjoy a stress-free tax season.
Stay updated and tax smart!
