The Union Budget 2025 has introduced significant changes in the tax structure, making it essential for taxpayers to analyze the benefits of the old and new tax regimes. The government has proposed a ₹60,000 rebate for incomes up to ₹12 lakh under the new tax system, making it more appealing for middle-income earners. However, the choice between the two regimes depends on multiple factors, including income level, deductions, and exemptions.
To help you make an informed decision, this article provides an in-depth comparison of both tax regimes, highlighting their key differences, benefits, and suitability based on various income brackets.
Understanding the Old and New Tax Regimes
🔹 The Old Tax Regime
The old tax regime follows a progressive tax structure, offering tax slabs of 5%, 20%, and 30%, depending on income levels. The biggest advantage of this system is the availability of various deductions and exemptions under different sections of the Income Tax Act, such as:
- Section 80C: Deduction of up to ₹1.5 lakh on investments like PPF, EPF, and life insurance premiums.
- House Rent Allowance (HRA): Exemption for salaried employees staying in rented accommodation.
- Standard Deduction: A flat ₹50,000 deduction for salaried individuals.
- Other deductions: Under Sections 80D (health insurance), 80E (education loan interest), and 24(b) (home loan interest).
This regime is suitable for individuals who invest in tax-saving instruments and claim deductions to lower their taxable income.
🔹 The New Tax Regime (Post-Union Budget 2025)
The new tax regime has a simplified tax structure with lower tax rates but fewer deductions. The major highlight of the Union Budget 2025 is the ₹60,000 rebate for incomes up to ₹12 lakh (₹12.75 lakh for salaried individuals) under Section 87A. The updated tax slabs under this regime are:
| Income Bracket (₹) | Tax Rate (%) |
|---|---|
| Up to 3 lakh | Nil |
| 3 lakh – 6 lakh | 5% |
| 6 lakh – 9 lakh | 10% |
| 9 lakh – 12 lakh | 15% |
| 12 lakh – 15 lakh | 20% |
| Above 15 lakh | 30% |
Since it eliminates most deductions, this system provides more transparency and ease of compliance but might not be ideal for those who benefit significantly from tax-saving investments.
Which Tax Regime is Better for You?
To determine the best option, let’s examine tax implications at different income levels.
✅ Income Up to ₹12 Lakh
- New Regime Benefits: The ₹60,000 rebate makes the new tax regime more beneficial for those earning up to ₹12 lakh (₹12.75 lakh for salaried individuals).
- Old Regime Considerations: If a taxpayer invests ₹5.25 lakh in tax-saving schemes, they might still benefit from the old regime, but it requires careful financial planning.
Verdict: The new tax regime is preferable for most individuals in this bracket unless they maximize deductions under the old system.
✅ Income Between ₹12 Lakh – ₹15.75 Lakh
- If a taxpayer earning ₹13.75 lakh does not claim HRA, the old regime results in a tax of ₹57,500, while the new regime requires ₹75,000 in taxes.
- Even for those earning up to ₹15.75 lakh, the old system remains beneficial if they invest ₹5.25 lakh in savings schemes.
- However, for individuals not utilizing deductions, the new system offers lower tax rates and simpler compliance.
Verdict: The old regime is better for individuals who maximize tax-saving investments. Otherwise, the new regime provides a hassle-free alternative.
✅ Income Between ₹20 Lakh – ₹25 Lakh
- For ₹20 lakh earners, the new regime is more beneficial, as they would need to pay only ₹2 lakh in taxes, compared to ₹2.4 lakh under the old regime, even after investing ₹5.25 lakh in savings.
- However, for those earning ₹24.75 lakh or more, experts suggest that if total deductions (excluding standard deduction) exceed ₹8 lakh, the old regime remains preferable.
Verdict: For income between ₹20 lakh and ₹24.75 lakh, the new tax regime is better unless the taxpayer has significant deductions exceeding ₹8 lakh.
✅ Income Above ₹25 Lakh
- A taxpayer with ₹24 lakh income can save ₹60,000 under the new regime.
- Under the old regime, after investing ₹5.25 lakh, they would pay ₹3.60 lakh in taxes, whereas, under the new regime, they pay ₹3 lakh.
Verdict: The new regime is more beneficial unless the taxpayer has extremely high deductions under the old system.
Key Takeaways: Choosing the Right Tax Regime
| Income Level | Best Choice | Reason |
|---|---|---|
| Up to ₹12 lakh | New Regime | ₹60,000 rebate makes it more beneficial. |
| ₹12-₹15.75 lakh | Old Regime (if investing ₹5.25 lakh in savings) | More tax savings through deductions. |
| ₹20-₹24.75 lakh | New Regime | Lower taxes unless deductions exceed ₹8 lakh. |
| Above ₹25 lakh | New Regime | Higher savings compared to the old system. |
Conclusion
The choice between the old and new tax regimes depends on individual financial planning, investments, and expected deductions. While the new tax regime is more beneficial for incomes up to ₹12 lakh and for high-income earners with minimal deductions, the old tax regime remains advantageous for those who maximize their savings through tax-exempt investments.
By carefully analyzing your income structure and tax-saving options, you can make the best decision to minimize your tax liability and optimize your financial growth.
FAQs
🔹 1. Which tax regime should salaried individuals choose?
Salaried individuals should compare their total deductions under the old regime with the lower tax rates of the new regime. If deductions exceed ₹5.25 lakh, the old system might be better.
🔹 2. Does the new tax regime allow any deductions?
The new regime eliminates most exemptions, except the ₹50,000 standard deduction for salaried employees.
🔹 3. Can I switch between tax regimes every year?
Yes, salaried employees can choose a tax regime every financial year, while business owners must stick to their choice once opted.
🔹 4. Which tax regime is better for high-income earners?
For those earning above ₹24.75 lakh, the new tax regime is beneficial unless deductions exceed ₹8 lakh.
🔹 5. Is HRA exempted under the new tax regime?
No, HRA is only applicable under the old tax regime.
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Kishan is a knowledgeable writer specializing in agriculture and the latest government job recruitments, delivering clear and insightful content to inform and empower readers.
