As April commences, the implementation of Budget 2025-26 will also take effect, introducing new income tax regulations. Many individuals find themselves perplexed by the distinctions between the new and old tax systems, struggling to determine which regime is more advantageous. Each tax system possesses its unique features and benefits.

Old Tax System

The traditional tax system provides various deductions, such as those under sections 80C, 80D, and HRA, along with multiple tax slabs. It also allows for investment opportunities that facilitate tax savings. Conversely, the new tax system features reduced tax rates and offers limited exemptions, yet it may be perceived as more straightforward than its predecessor. Notably, there is no tax on income up to Rs 12 lakh. Taxpayers can select either system based on their individual circumstances.

New Tax System

Under the new tax regime, taxpayers can benefit from three specific types of exemptions. It is essential to be informed about these. Contributions made by employers to the National Pension System qualify for tax deductions under Section 80CCD (2), with the employer’s contribution capped at 10% of the employee’s basic salary and dearness allowance, which remains tax-exempt. However, contributions made by employees do not receive this exemption.

Additionally, it is important to note two other tax deductions. Gratuity received by government employees upon retirement is tax-exempt as per Section 10(10). For non-government employees, gratuity is tax-free up to a limit of Rs 20 lakh. Furthermore, the standard deduction for salaried employees and pensioners has been raised to Rs 75,000 under the new tax regime.

Another important update

Under this new regulation, the fee for ATM cash withdrawals will rise from May 1, 2025. While individuals can withdraw cash from ATMs without charge up to a certain limit, an interchange fee applies once that limit is surpassed. Currently, individuals incur a fee of Rs 21 per transaction for withdrawals that exceed the limit, but starting May 1, this fee will increase to Rs 23 per transaction. This adjustment has been implemented collaboratively by the Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI).