Understanding Income Tax Disclosures for AY 2025-26 Under Old and New Regimes

Filing income tax returns can feel overwhelming for many taxpayers. With numerous rules and regulations to follow, navigating the system can be tricky. For the Assessment Year (AY) 2025-26, understanding the differences between the traditional (old) tax regime and the new tax regime is vital. This post aims to clarify key income tax disclosures under both regimes, so you can make informed decisions and seamlessly file your tax returns. Let’s break it down.

Overview of Old and New Tax Regimes

In India, taxpayers can choose between an old tax regime and a new tax regime. The old tax regime provides various exemptions and deductions to help lower taxable income, whereas the new tax regime, introduced in the FY 2020-21, offers lower tax rates but eliminates most deductions and exemptions.

Choosing the right regime can alter your final tax liability significantly. Studies show that nearly 80% of taxpayers chose the old regime in the previous assessment year, emphasizing the need for clarity in understanding both options.

Key Income Tax Disclosures Under the Old Regime

When filing under the old tax regime, you will need to disclose certain information to claim various exemptions and deductions:

1. Deductions Under Section 80C

You can claim deductions up to ₹1.5 lakh under Section 80C. This includes investments like:

• Public Provident Fund (PPF)

• Employee Provident Fund (EPF)

• National Savings Certificates (NSC)

  
  

For example, if you invest ₹1 lakh in PPF and ₹50,000 in NSC, you can claim the full ₹1.5 lakh deduction. Ensure you provide accurate details of these investments, as meticulous reporting can lead to significant tax savings.

2. Deductions for Home Loan Interest

If you've taken out a home loan, you can deduct interest paid under Section 24(b) of the Income Tax Act. For instance, if you paid ₹2 lakh in interest during the year, you can claim that amount, provided you maintain necessary documentation like interest certificates from your lender.

3. Exemptions on House Rent Allowance (HRA)

If you're salaried and receive HRA, you can claim an exemption. To benefit, disclose the amount of HRA received and the rent paid—include your rent agreement. For instance, if your HRA is ₹30,000 a month and you pay ₹25,000 in rent, you may claim this exemption, potentially saving thousands in taxes.

4. Health Insurance Premiums

Deductions for health insurance premiums under Section 80D can help lower your tax liability. You can claim deductions up to ₹25,000 for premiums paid for yourself, spouse, and children, and ₹50,000 for senior citizens. If you pay ₹20,000 for your family's health insurance, make sure to report this accurately to take full advantage.

Key Income Tax Disclosures Under the New Regime

While the new tax regime simplifies tax reporting, it requires careful attention, as many deductions are unavailable. Here are the key disclosures:

1. Total Income Declaration

In the new regime, you must declare your total income without the option for deductions. Ensure to outline every source of income, whether it's from salary, rental properties, or investments, clearly and exhaustively.

2. No Deductions

In this regime, most deductions under Section 80 do not apply. It's crucial to assess which deductions you'd previously claimed under the old regime. Without careful evaluation, you may face higher tax liabilities.

3. Informed Choice of Regime

When opting for the new regime, disclose your choice clearly on your income tax return form. This decision should be based on a thoughtful review of your financial situation, particularly in consultation with a financial advisor.

Comparing the Impact of Both Regimes

Comparing the two regimes helps to understand their implications:

1. Tax Rates

The new regime features lower tax rates, with reductions of up to 25% across the income slabs. For instance, individuals earning between ₹2.5 lakh and ₹5 lakh pay only 5% tax, compared to 10% in the old regime. However, this comes at the cost of losing exemptions and deductions.

2. Complexity vs. Simplicity

The old regime allows for more strategic planning through deductions but may complicate the filing process. The new regime is easier to navigate but requires precise reporting of total income, providing less room for error.

3. Personalized Approach

Choosing between the two regimes depends on individual financial scenarios. If you earn a higher salary with significant deductions, the old regime might be beneficial. Conversely, if you have little taxable income, the simplicity of the new regime may be more advantageous.

Preparing for AY 2025-26: Useful Tips

To prepare for AY 2025-26 effectively, consider these strategies:

1. Maintain Comprehensive Records: Organize all necessary documents, such as investment receipts, loan interest certificates, and relevant financial documents.

   
   

2. Consult a Tax Professional: Don’t hesitate to seek advice if unsure about which regime to choose or how to file correctly.

   
   

3. Stay Informed on Changes: Tax regulations can change annually. Stay updated on new modifications to income tax laws.

   
   

4. Utilize Online Tools: Today, most tax filings can be completed online. Take advantage of tools provided by the Income Tax Department to estimate tax liabilities under both regimes.

   
   

Eye-level view of a calculator on a desk with tax documents

Looking Forward to AY 2025-26

As we approach AY 2025-26, understanding income tax disclosures under both the old and new regimes is essential. A clear grasp of required disclosures, potential deductions, and available exemptions empowers you to make informed choices when filing your taxes. By preparing appropriately and staying informed, taxpayers can confidently navigate the complexities of the income tax system. Consider consulting a financial expert to clarify any doubts and maximize your savings!