The Union Budget 2025 brought significant changes to the income tax structure, sparking debates about whether the old or new tax regime is more beneficial. With a proposed rebate of ₹60,000 for incomes up to ₹12 lakh (₹12.75 lakh for salaried individuals) under Section 87A, taxpayers are re-evaluating their choices. In this detailed analysis, we’ll explore the advantages and drawbacks of both tax regimes, helping you make an informed decision.
Union Budget 2025: Key Highlights
- A ₹60,000 rebate for incomes up to ₹12 lakh under the new tax regime.
- Simplified tax structures to encourage independent financial decisions.
- Revised tax slabs to provide better incentives for middle-income groups.
Let’s break down the details and see which tax regime works best for different income groups.
What is the Old Tax Regime?
The old tax regime follows a traditional structure with multiple tax slabs:
- 5% for incomes up to ₹2.5 lakh
- 20% for incomes between ₹5 lakh and ₹10 lakh
- 30% for incomes above ₹10 lakh
This system allows for deductions such as:
- Section 80C: Investments up to ₹1.5 lakh
- House Rent Allowance (HRA)
- Standard Deduction of ₹50,000
- Medical Insurance Premium (Section 80D)
Benefits of the Old Tax Regime
- Higher tax savings through deductions and exemptions.
- Suitable for individuals with significant investments.
What is the New Tax Regime?
The new tax regime introduced in Union Budget 2020 and updated in 2025 offers lower tax rates but fewer exemptions:
- 5% for incomes up to ₹2.5 lakh
- 10% for incomes up to ₹5 lakh
- 15% for incomes up to ₹7.5 lakh
- 20% for incomes up to ₹10 lakh
- 25% for incomes up to ₹12 lakh
- 30% for incomes above ₹12 lakh
Benefits of the New Tax Regime
- Simplified tax structure.
- No need for extensive tax planning.
- Higher rebates for middle-income earners.
Old vs New Tax Regime: Which is Better After Union Budget 2025?
The Union Budget 2025 introduced changes that make the comparison more nuanced.
Income Up to ₹12 Lakh: New Tax Regime Wins
With the ₹60,000 rebate, the new tax regime becomes more attractive for those earning up to ₹12 lakh.
Why Choose the New Tax Regime?
- Lower effective tax rates.
- No need to invest in specific schemes to save taxes.
Income Between ₹13 Lakh and ₹15 Lakh: Old Tax Regime Has an Edge
For individuals earning between ₹13 lakh and ₹15 lakh, the old tax regime can be more beneficial, especially if they claim HRA and other deductions.
Example Calculation
- Old Tax Regime: Tax liability of ₹57,500 after investing ₹5.25 lakh in savings schemes.
- New Tax Regime: Tax liability of ₹75,000 without any deductions.
Income Above ₹20 Lakh: New Tax Regime Becomes Advantageous
For high-income earners, the new tax regime provides better tax savings.
Expert Insight
According to financial experts, taxpayers earning above ₹24 lakh should consider the new tax regime unless their deductions exceed ₹8 lakh.
Comparative Table: Old vs New Tax Regime
Income Range (₹) | Old Tax Regime (with Deductions) | New Tax Regime | Better Choice |
---|---|---|---|
Up to 12 Lakh | ₹60,000 tax liability | ₹60,000 rebate | New |
13-15 Lakh | ₹57,500 tax liability | ₹75,000 | Old |
20 Lakh and above | ₹2.4 Lakh | ₹2 Lakh | New |
FAQs
1. What is the key change in the Union Budget 2025 regarding income tax?
The Union Budget 2025 introduced a ₹60,000 rebate for incomes up to ₹12 lakh under the new tax regime.
2. Is the old tax regime still beneficial after the Union Budget 2025?
Yes, for individuals with substantial investments and HRA claims, the old tax regime can still be advantageous.
3. How does the new tax regime simplify tax filing?
The new tax regime eliminates the need for extensive tax planning and documentation of deductions.
4. What are the tax slabs under the new tax regime post-2025?
The new tax regime includes tax rates ranging from 5% to 30% for different income brackets.
5. Can I switch between the old and new tax regimes?
Yes, taxpayers can switch between regimes at the beginning of the financial year.
6. Which tax regime is better for high-income earners?
For incomes above ₹20 lakh, the new tax regime generally offers better savings.
Conclusion
The Union Budget 2025 has reshaped the tax landscape, offering a more attractive new tax regime for middle-income earners while keeping the old regime relevant for those with substantial investments. Understanding your financial situation and tax-saving goals is crucial in making the right choice. Stay informed and choose wisely!
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