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Though there is a standard deduction of Rs 75,000 under new tax regime, there are no deductions available for investments under this regime. It means if income exceeds Rs 12.75 lakh in FY 2025-26, tax will be applicable on the entire income and no deductions…Read More
Know Comparison Between Old Tax Regime Vs New Tax Regime.
The Union Budget 2025-26 has made the new income tax regime further attractive by making annual income up to Rs 12 lakh tax-free and revamping slabs. Taxpayers who have plain salary income are most likely to go for this regime but what about those who have investments, educations expenses for their children, and other savings like NPS? Here’s why old tax regime is still a better option for some taxpayers:
Income Tax Rates Under The New Regime After Budget 2025 (for FY 2025-26)
- Income up to Rs 4,00,000: Nil
- Income from Rs 4,00,001 to Rs 8,00,000: 5%
- Income from Rs 8,00,001 to Rs 12,00,000: 10%
- Income from Rs 12,00,001 to Rs 16,00,000: 15%
- Income from Rs 16,00,001 to Rs 20,00,000: 20%
- Income from Rs 20,00,000 to Rs 24,00,000: 25%
- Income above Rs 24,00,000: 30%
Importantly, those earning up to Rs 12.75 lakh a year (including a standard deduction of Rs 75,000) will have to pay zero tax during FY25-26. It is a rebate.
Though there is a standard deduction of Rs 75,000 under this regime, there are no deductions available for investments under this regime. It means if income exceeds Rs 12.75 lakh in FY 2025-26, tax will be applicable on the entire income and no deductions (like HRA, ELSS, 5-Year FD, NPS) can be availed of.
To benefit them (those earning above Rs 12.75 lakh), the income tax slabs have been revamp in the Budget 2025-26 in such a manner than it can save them taxes by up to Rs 1,20,000 as compared with the current slabs.
Over and above this, there is a marginal relief of around Rs 30,000 to benefit those whose income lie ‘just above’ the threshold limit. So, effectively, those earning around Rs 13 lakh will pay zero tax during FY 2025-26.
Tax Rates Under The Old Tax Regime
The old tax regime has been left unchanged in the Budget 2025. Under this regime, income up to Rs 5 lakh is tax-free on account of rebate. Here are the income tax slabs under the old tax regime:
- Income up to Rs 2,50,000: Nil
- Income from Rs 2,50,001 to Rs 5,00,000: 5%
- Income from Rs 5,00,001 to Rs 10,00,000: 20%
- Income above Rs 10,00,000: 30%
For senior citizens aged 60-80 years, the basic exemption limit is Rs 3,00,000. For super senior citizens (above 80 years), it is Rs 5,00,000.
The Old Tax Regime allows deductions under various sections, such as:
Section 80C: Up to Rs 1,50,000 for investments like PPF, ELSS, and LIC premiums.
Section 80D: Health insurance premiums.
Section 24(b): Interest on home loan up to Rs 2,00,000.
Other exemptions like HRA and LTA.
Old Vs New: Which Income Tax Regime Is Better?
According to an income tax practitioner, “The income tax regime is undoubtedly a natural choice for those earning up to Rs 12.75 lakh. However, for those earning above it, there is a need for case-by-case tax computation based on the investments and other deductions to determine which regime is better for them. It is always better to compute your taxes under both the regimes before choosing one.”
Divya Baweja, partner of Deloitte India, was quoted as saying by NDTV: “To decide whether to opt for the old regime or the new regime, one would need to see that if a taxpayer were to follow the old regime, what kind of deductions or exemptions he/she should be looking at to claim benefit akin to the new regime. That comparison factor would be based on the specific individual scenario. Basis the same, one would need to evaluate the regime which is more beneficial With the widening of the slabs in the new regime, the taxpayer would need to have higher deductions or exemptions to equate the tax under the new regime.”
