Old vs new tax regime: The income tax slabs proposed in the Union Budget 2025 under the new tax regime include a ₹60,000 rebate for income up to ₹12 lakh ( ₹12.75 lakh for salaried individuals) under Section 87A.
This makes the old tax regime, which has 5 per cent, 20 per cent, and 30 per cent slabs and allows deductions for tax-saving investments, less attractive in comparison.
According to a report by The Times of India, the finance ministry has consistently supported the idea of separating investment and savings schemes from income tax liabilities, allowing taxpayers to make independent choices based on their own benefits.
The new tax regime offers more benefits than the old one for incomes up to ₹12 lakh ( ₹12.75 lakh for salaried individuals), even when utilising the full deductions and exemptions of ₹5,75,000 and 30 per cent of salary as house rent allowance.
However, it’s unlikely for someone earning ₹12.75 lakh to invest in tax-saving schemes, claim house rent allowance ( ₹3,82,500), and take the standard deduction, adding up to ₹9,57,000, The Economic Times reported.
Know details of differences between old and new tax regimes:
- The new tax regime results in higher taxes after ₹12 lakh income. Staying with the old tax regime is beneficial only if the taxpayer invests ₹5.25 lakh in tax-saving schemes.
- For people earning ₹13.75 lakh without HRA, the old tax system has a lower tax of ₹57,500 compared to ₹75,000 under the new system. This is also true for income up to ₹15.75 lakh, but it requires investing ₹5.25 lakh in savings schemes. Even with HRA, the old system is better.
- For people earning ₹20 lakh ( ₹20.75 lakh for salaried ones), the new tax regime is better than the old one. Even after investing ₹5.25 lakh in savings schemes, the old system would require ₹2.4 lakh in tax, while the new system would only require ₹2 lakh, with no deductions allowed.
- Quoting experts, The Financial Express reported that for people earning above ₹24.75 lakh, the new tax regime is beneficial only if their total deductions and exemptions excluding the standard deduction are under ₹8 lakh.
- Under the new tax regime, a taxpayer with an income of ₹24 lakh will save ₹60,000. In the old regime, after investing ₹5.25 lakh in savings schemes, the tax would be ₹3.60 lakh, compared to ₹3 lakh under the new regime.