How couples can plan taxes to make the most of old and new regimes

Tax-saving component of the house rent allowance (HRA) makes the old tax regime more beneficial in some cases. One such case is of married couples, who can use HRA strategically to save tax based on their salary and tax slabs.

Also read: Goodbye old tax regime; new regime now more attractive

Popular deductions falling short

After Budget 2025, the break-even limits— minimum deductions needed to make the old tax regime worthwhile—have nearly doubled. For incomes above ₹24 lakh, taxpayers now need at least ₹8 lakh in deductions and exemptions to save more under the old system. With other tax benefits too small to bridge the gap, HRA remains the key tool to reach this threshold.

However, rent would need to be really high for HRA to tip the balance in the old regime’s favour. This is because the popular deductions of 80C, medical insurance, and NPS along with ₹50,000 standard deduction can give you tax-exempt income of only upto ₹2.75 lakh. The remaining ₹5.25 lakh has to come from big components like HRA or car lease. 

Nitesh Buddhadev says car lease is not a widely available option as only a select big companies extend this benefit to their employees in managerial positions.

Apart from those earning high salaries, double income families living in a city like Mumbai, Gurgaon, or Bangalore also end up shelling out a huge amount in rent. But, many couples split bills to ensure that the burden of household expenses doesn’t fall on one, especially big expenses such as rent, but also so that both can get the benefit of HRA. 

Also read: New tax regime: Deductions and exemptions explained

However, beginning FY25-26, it would augur well for one of the spouses to foot the entire rent so that this unavoidable expense can be used to reduce the net household tax outgo.

Let’s understand with an example.

How a couple can plan

Preeti and Rahul, a married couple living in Mumbai, pay ₹60,000 in monthly rent ( ₹7.2 lakh annually). Preeti earns ₹35 lakh annually, while Rahul earns ₹30 lakh, excluding deductions like EPF, gratuity, and variable pay.

If they split the rent and both claim HRA, each must claim over ₹3.6 lakh in deductions (beyond the standard deduction and 80C) just to break even. Assuming their basic salary is 40% of gross income and HRA is 50% of basic, Preeti and Rahul qualify for HRA exemptions of ₹2.2 lakh and ₹2.4 lakh, respectively.

Preeti’s company provides her with a leased car at ₹15,000 per month ( ₹1.8 lakh annually) and fuel reimbursements up to ₹15,000 per month ( ₹1.8 lakh annually) for official use. These additional exemptions add up to ₹3.6 lakh, making the old tax regime more beneficial for her.

However, Rahul works remotely and is not allowed to lease a car through his employer. Even if he invests ₹50,000 in NPS, claims flexi-pay benefits of phone and wifi bills, meal card, and claims leave travel allowance (LTA) for his and Preeti’s annual domestic vacation, he will not have enough deductions. Rahul will be better off in the new regime.

If Rahul opts for the new tax regime while Preeti stays in the old one, it makes sense for Preeti to claim the full rent under HRA. By paying the entire annual rent herself, she can maximise her HRA exemption and significantly reduce her taxable income. 

Under the same HRA calculation assumptions, Preeti can claim ₹5.8 lakh as HRA exemption, more than double compared to ₹2.2 lakh that she would if the rent was split. When combined with tax-free components like car lease benefits, fuel reimbursements, ₹1.5 lakh under 80C, and the standard deduction, a total of ₹11.4 lakh of her income becomes tax-exempt.

Also read: Selling agricultural land remains tax-free. But there is a catch

This optimised approach results in an additional tax saving of ₹1.02 lakh compared to the scenario where she and Rahul split the rent.

To save tax further, she can get more deductions in the form of LTA for the couple’s domestic travel and all the work-related flexi-pay benefits. Of course, Preeti should be careful that in maximising tax saving she should not disrupt her cash flows as she may not be left with much disposable income to invest for her future. However, this isn’t an issue if the couple pools their incomes, consolidates finances, and strategically aligns their investments.

By planning finances in advance, both the spouses can benefit separately under the two regimes.

Ideally, the spouse who has other big-ticket expenditures like home loan or education loan on which interest is allowed as a deduction, should claim the full HRA to increase their tax-saving under the old regime.

Rahul and Preeti are hypothetical examples used for illustrative purposes only.