The year 2025 marked a shift in how small taxpayers approach investments and tax planning. Tax rates and indexation rules on all assets, including real estate, equity and debt, changed this year. The choice between the new and the old regimes has become simpler. The increasing popularity of the new regime has also put an end to the financial year-end rush of investing in tax-saving products, experts say.
“Now taxpayers need to decide whether to commit to the new tax regime, which is simpler, has less deductions and puts more cash in hand; or to opt for the old regime, which requires more paperwork and then plan investments, insurance and EMIs around those choices,” said Abhishek Kumar, founder at Sebi-registered investment advisor at SahajMoney.
Sudhir Kaushik, co-founder and CEO at TaxSpanner, said that with lower slab rates and fewer exemptions, active tax planning is less pressing. “However, less tax planning should not be equated with no planning at all.”
Real estate loses its tax sheen
The real estate sector saw one of the major changes. “With indexation benefits withdrawn and a uniform 12.5% long-term capital gains tax applicable to properties bought after 23 July 2024, real estate no longer works as a tax-arbitrage investment,” said Kaushik.
The shift to the new regime limits tax deductions on home loans, further weakening the tax appeal of property investments. If you are moving to the new regime, remember it does not allow a deduction on home loan interest on self-occupied houses. For let-out houses, however, the full interest deduction is allowed, but losses on such properties can be set off only against rent. Moreover, carrying such losses forward is not permitted.
The tax bill on home sales has also risen. Earlier, indexation cushioned inflation and reduced taxable gains, but that buffer is gone. For properties purchased until 22 July 2024, sellers can still choose between the lower of 20% with indexation or 12.5% without it. However, the entire gain is added to annual income, which can push some investors into higher surcharge brackets.
Finally, reinvestment-based exemptions under Sections 54 and 54EC of the Income Tax Act are also impacted. Property sellers must now reinvest the full, non-indexed gains, as opposed to the earlier indexed gains, to get the exemption. This raises the capital commitment required to save tax, making the strategy less flexible going forward.
Planning as a family
With revised slab rates under the new income-tax regime, taxpayers now need deductions of over ₹8 lakh to benefit from the old one. While the new regime is the default choice for many, the old regime can still be beneficial for families with large, unavoidable expenses, such as rent, joint home loans, or high insurance premiums.
House rent allowance (HRA) exemption is only allowed in the old regime, but it’s an expense most families bear in metro cities. In cities such as Mumbai, Bengaluru or Gurgaon, where rents are high, it may make sense for one spouse to stay in the old regime and claim full HRA, while the other opts for the new regime’s lower rates.
Take the example of Ananya and Kunal, a dual-income couple in Mumbai renting a flat for ₹75,000 a month, or ₹9 lakh a year. Ananya earns ₹42 lakh and Kunal ₹38 lakh annually. Assuming basic pay is 40% of CTC and HRA is 50% of basic, splitting the rent leaves neither with enough HRA to justify the old regime. If Ananya opts for the old regime and pays the entire rent, she can claim an HRA exemption of ₹7.32 lakh. Along with the standard deduction and 80C benefits covered by provident fund contributions, over ₹9 lakh of her income becomes tax-free, while Kunal shifts to the new regime. The combined household tax outgo falls.
This logic can extend to decisions on who pays insurance premiums, services home loans or even holds property before a sale to optimise capital gains, said Kumar. “Couples and families now need to coordinate their income, deductions and regime choice as a unit, not in isolation,” he said.
Family-level planning can also use the ₹12 lakh rebate limit under the new regime, said Ajay Pruthi, founder of PLNR and a Sebi-registered investment advisor. “Money can be gifted to major children or low-income senior parents to invest in debt funds or fixed deposits, with income taxed in their hands and potentially falling within the rebate threshold.”
This strategy, however, comes with caveats. Gifting to major children or parents does not result in clubbing of income, so interest income or gains on the sale of debt funds will be taxed in the hands of the child or parent. “That’s why it’s important that the family members are in low or no income slabs, so that any income till ₹12 lakh will be tax exempt,” said Pruthi.
Importantly, once gifted, you lose legal control over the money. Additionally, other family members are entitled to a share in the debt funds or fixed deposits (FDs) under the succession laws. For instance, if the parent dies intestate, their other children and surviving spouse also become legal heirs. Tax savings should not come at the cost of losing ownership or family harmony.
End of tax-saving rush, not planning
The easing of deductions means taxpayers are no longer scrambling in March to buy tax-saving products, but year-end planning still matters. One key strategy is capital gains harvesting. This is particularly useful when switching from a regular to a direct mutual fund plan, as the switch is treated as a sale. By realising gains of up to ₹1.25 lakh (tax-exempt limit) and reinvesting them, investors can reset their cost without triggering tax, said Pruthi of PLNR. Booking losses in underperforming mutual funds can also help offset gains from other investments.
For decades, tax planning revolved around exhausting deductions before the year closed. The 2025 changes and a more attractive new regime have reduced that pressure, but not the need for planning. Going into 2026, the focus shifts from chasing exemptions to asset allocation, timing of gains and family-level income distribution.
