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The Union Budget 2025 introduced significant changes to the new tax regime, making it more attractive for taxpayers. While the old tax regime remains unchanged, the new tax regime has revised tax slabs, an increased standard deduction, and a simplified tax structure. This blog compares both tax regimes, helping individuals make an informed choice based on their financial situation.
Old Tax
Regime: Structured with Deductions
The old tax regime follows a progressive tax
structure with higher tax rates but allows various deductions and exemptions
that help taxpayers reduce their taxable income.
Income Tax
Slabs (Old Regime)
|
Income Slab |
Tax Rate |
|
Up to
₹2.5 lakh |
Nil |
|
₹2.5 lakh
to ₹5 lakh |
5% |
|
₹5 lakh
to ₹10 lakh |
20% |
|
Above ₹10
lakh |
30% |
Deductions
and Exemptions
Taxpayers in the old regime can claim multiple
deductions, including:
- Section
80C: Up to ₹1.5 lakh for investments in PPF, ELSS, EPF, life
insurance, etc.
- Section
80D: Deductions on medical insurance premiums.
- House
Rent Allowance (HRA): Tax relief on rental expenses.
- Interest
on Home Loan: Deductions under Section 24(b).
This regime benefits those with substantial
investments in tax-saving instruments.
New Tax
Regime (Post-Budget 2025): Simpler & Lower Tax Rates
The new tax regime, introduced as an
alternative to the old system, has been modified in Budget 2025 to reduce tax
liabilities for middle-class earners.
Revised
Income Tax Slabs (New Regime)
|
Income
Slab |
Tax Rate |
|
Up to ₹4
lakh |
Nil |
|
₹4 lakh
to ₹8 lakh |
5% |
|
₹8 lakh
to ₹12 lakh |
10% |
|
₹12 lakh
to ₹16 lakh |
15% |
|
₹16 lakh
to ₹20 lakh |
20% |
|
₹20 lakh
to ₹24 lakh |
25% |
|
Above ₹24
lakh |
30% |
Standard
Deduction Increase
The standard deduction under the new regime
has been increased to ₹75,000 from the previous ₹50,000.
Limited
Deductions and Exemptions
Unlike the old tax regime, the new system does
not allow most deductions. However, the lower tax rates compensate for this,
making it a straightforward option for taxpayers who prefer fewer complexities.
Key
Highlights of Budget 2025’s Taxation Policy
- Individuals
with an annual income up to ₹12 lakh are now exempt from income tax
under the new regime, considering the standard deduction.
- For
incomes above ₹12.75 lakh, the new tax rates apply as per the
revised slabs.
- The
old tax regime remains unchanged, offering deductions to those who opt for
it.
Which Tax
Regime Should You Choose?
New Tax Regime is Ideal for
· Individuals with no major investments in tax-saving instruments.
· Those who prefer lower tax rates and a simpler filing process.
· Salaried individuals earning below ₹12 lakh (due to tax exemption after the standard deduction).
Old Tax Regime is Better for:
· Individuals who invest in PPF, ELSS, insurance policies, and other tax-saving instruments.
· Those claiming HRA, medical insurance benefits, and home loan interest deductions.
· High-income earners who benefit from substantial deductions.
Final
Thoughts
The Union Budget 2025 has made the new tax
regime more appealing by revising tax slabs and increasing the standard
deduction. However, the old tax regime remains beneficial for those who
leverage deductions effectively. Choosing between the two depends on individual
financial planning, investment habits, and tax-saving strategies.
Before making a decision, evaluate your
taxable income, eligible deductions, and long-term financial goals. If you’re
unsure, consulting a tax advisor can help optimize your tax-saving strategy.
Would you choose the new tax regime or stick
to the old one? Let us know your thoughts in the comments!
The old and new tax regimes after the Union
Budget 2025
|
Aspect |
Old Tax Regime |
New Tax Regime (Post-Budget 2025) |
|
Income
Tax Slabs |
- Up to
₹2.5 lakh: Nil |
- Up to
₹4 lakh: Nil |
|
Standard
Deduction |
₹50,000 |
₹75,000 |
|
Deductions
& Exemptions |
Various
deductions available (80C, 80D, HRA, etc.) |
Limited
deductions; most exemptions removed |
|
Tax-Free
Income |
Up to ₹5
lakh (with rebate) |
Up to ₹12
lakh (with standard deduction) |
|
Best For |
Individuals
with tax-saving investments |
Those
preferring lower tax rates without deductions |