Taxpayers choosing the OLD TAX REGIME for the Assessment Year 2025-26 will face increases scrutiny when claiming deductions, as the Income Tax Department has introduced stringent disclosure requirements. The changes are part of an effort to curb false deduction claims, with the verification process now automated to speed up Income Tax Return (ITR) processing and reduce errors. New ITR rules tighten grip on old tax regime filers on HRA, Section 80C, and Section 24b claims get tough.
Tax Evaders under scanner
In a nation with a population of 142 crores, approximately 10 crores individuals file income tax annually. However, only a small number of business owners, government employees, and private sector workers contribute their taxes honestly, while a significant portion evades payment.
Official statistics reveal that the number of income taxpayers in India has risen markedly over the last decade. For the Assessment Year (AY) 2023-24, the taxpayer count reached 10.4 crores, up from 5.7 crores in 2014-15, reflecting an 86% increase over nine years. As of February 28, 2025, more than 9.11 crores registered users had submitted their Income Tax Returns (ITR) for the fiscal year 2024-25. By July 31, 2024, a record 7.28 crores ITRs were filed for AY 2024-25. Among these, 5.27 crores returns were submitted under the New Tax Regime, while 2.01 crores were filed under the Old Tax Regime, indicating that approximately 72% of taxpayers preferred the new system. It is noteworthy that many of these returns were "zero-tax returns."
The number of individuals actually paying income taxes rose from 16.6 million in 2013-14 to 28.1 million in 2023-24. Meanwhile, tax evasion persists, with individuals employing various tactics to avoid government scrutiny. The Income Tax Department is actively working to identify and address these tax evaders.
IT Dept to Cross-Verify Claims (Old Tax Regime)
The integrated backend system automatically verifies claims during income tax returns (ITR) filing by correlating them with PAN and Aadhaar. This signifies a more efficient digital verification process. Data will be cross-checked using information gathered from multiple sources to ensure precision.
• Sources include insurance companies, banks, the Vahan (mParivahan) app, employers, and government platforms.
What Has Changed?:
• Elimination of one-time entries (such as ₹1.5L under section 80C): This reflects a move towards requiring more detailed disclosures.
• Taxpayers must now provide a breakdown of investments: This includes Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), Life Insurance Corporation (LIC), etc.
• Comprehensive proof of investments will need to be submitted.
• Automated verifications and instant error notifications: Immediate alerts will be sent for any discrepancies found in entries.
Additional Information Required For:
• House Rent Allowance (HRA): Employer details and proof of rent paid.
• Landlord PAN (if rent exceeds ₹1 lakh): This facilitates verification for higher rent payments.
• Loans (80E, 80EE, 80EEA, 80EEB): Pertains to various loan deductions. Required details include bank name, loan account number, sanction date, and balance as of March 31.
• For Electric Vehicle (EV) loan deductions: Information required includes vehicle registration number and loan details, verified through the mParivahan app.
• Insurance (80C, 80D): Covers various deductions for insurance premiums. Necessary details include policy number, insurer name, and investment date.
Differences between Old & New regimes…
The Indian government launched the new tax regime in Budget 2020, aiming to simplify the tax framework and reduce tax rates, while the old regime continues to offer various exemptions and deductions for tax benefits. Here are the main distinctions….
1. Tax Slabs and Rates:
Old Tax Regime: Features fewer tax slabs, but higher rates. The basic exemption limit for individuals below 60 years was ₹2.5 lakh, while it was ₹3 lakh for senior citizens (aged 60-80 years) and ₹5 lakh for super senior citizens (aged 80 and above).
New Tax Regime (Default since FY 2023-24): Provides more tax slabs with generally lower tax rates. For FY 2024-25, the basic exemption limit is ₹3 lakh for individuals. For salaried taxpayers choosing the new regime, income up to ₹12.75 lakh can be tax-free due to increased rebates and standard deductions.
When comparing income tax slabs and rates for individuals less than 60 years for FY 2024-25/AY 2025-26, the Old Tax Regime allows for no tax up to ₹2.5 lakh, while the New Tax Regime has a higher limit of ₹3 lakh.
The New Tax Regime generally applies lower percentage rates for higher income brackets, such as 5% for incomes between ₹3 lakh and ₹7 lakh, and 10% for ₹7 lakh to ₹10 lakh, with progressively higher rates thereafter.
In contrast, the Old Tax Regime has a more abrupt progression, applying a 20% rate for incomes between ₹5 lakh and ₹10 lakh, and 30% for earnings above ₹10 lakh. Both regimes apply a 30% tax rate on incomes exceeding ₹15 lakh, but in the Old Tax Regime, the 30% rate applies to earnings above ₹10 lakh.
2. Deductions and Exemptions:
Old Tax Regime: This regime permits taxpayers to access numerous deductions and exemptions that help lower their taxable income. Notable deductions include Section 80C (covering investments in PPF, ELSS, life insurance premiums, etc., up to ₹1.5 lakh), Section 80D (for health insurance premiums), HRA (House Rent Allowance), LTA (Leave Travel Allowance), and interest on home loans (as per Section 24(b)). In total, there are approximately 70 deductions and exemptions available, promoting saving habits through tax incentives.
New Tax Regime: While this regime provides lower tax rates, it significantly restricts the number of deductions and exemptions available. Common deductions such as HRA, LTA, Section 80C, and Section 80D are generally not permitted. Nonetheless, a few important deductions are still allowed, including: -
Standard Deduction: Initially set at ₹50,000 and now raised to ₹75,000 for salaried employees for the FY 2024-25.
Deduction under Section 80CCD (2): For employer contributions to the NPS. - Deduction on Family Pension: Increased from ₹15,000 to ₹25,000 for the new regime starting FY 2024-25.
Deduction for Contributions to the Agniveer Corpus Fund: Under Section 80CCH (2).
Enhanced Leave Encashment Exemption: Rose from ₹3 lakh to ₹25 lakh for non-government employees.
3. Simplicity and Flexibility:
Old Tax Regime: Characterized by complexity due to the extensive record-keeping required for investments and expenses to qualify for various deductions.
New Tax Regime: Focuses on simplification and ease of filing, featuring significantly fewer deductions, which often reduces the need for documentation.
4. Default Option and Switching:
Starting in FY 2023-24, the New Tax Regime has been established as the default choice. Taxpayers wishing to remain under the Old Tax Regime must actively select this option, usually by submitting Form 10-IEA (for those with business or professional income) or by indicating their choice in their income tax return form.
Salaried individuals typically have the option to switch between the two regimes each financial year. However, individuals with business or professional income have more limited opportunities to switch once they have opted out of the new regime.
Which regime is better?
The decision between the old and new tax regimes is influenced by an individual’s financial habits, income level, and the extent of tax-saving investments or expenses.
The Old Tax Regime tends to be more advantageous for those making substantial tax-saving investments (such as in PPF, ELSS, and life insurance) and having eligible expenses (like HRA and medical insurance premiums) that can significantly lower their taxable income.
Conversely, the New Tax Regime may be more beneficial for individuals with lower incomes, fewer investments in tax-saving products, or for those seeking a simpler tax framework with minimal paperwork. It can also be advantageous for higher earners if their deductions under the old regime are not considerable.
