As the dawn of the new financial year approaches in FY 2025-26, taxpayers find themselves at a crossroads, contemplating the choice between the Old and New Tax Regimes. The upcoming fiscal year, commencing on April 1, 2025, heralds a revamped tax structure that promises substantial savings for individuals navigating the complex realm of taxation.
According to the recent pronouncement by the finance minister, the revised rebate and slabs in the new regime will render salary income up to Rs 12.75 lakh exempt from taxes. Furthermore, salaried employees stand to benefit from a standard deduction of Rs 75,000. These new provisions unveiled by the finance minister guarantee that salary income up to Rs 12.75 lakh will now remain tax-free under the revised tax regime.
Under the old tax regime, income up to Rs 2,50,000 enjoys tax-free status, with subsequent tax brackets set at 5%, 20%, and 30% for higher income strata. However, the New Tax Regime for 2025 brings forth distinct advantages by significantly reducing tax liabilities across various income thresholds.
Comparing the Tax Slabs
Let’s delve into a comparative analysis of the tax slabs under the New Tax Regime for 2025-26 and the Old Tax Regime for the same period:
New Tax Regime 2025-26
– Income Tax Slabs (Rs) Income Tax Rate (%)
– From 0 to 4,00,000 0
– From 4,00,001 to 8,00,000 5
– From 8,00,001 to 12,00,000 10
– From 12,00,001 to 16,00,000 15
– From 16,00,001 to 20,00,000 20
– From 20,00,001 to 24,00,000 25
– From 24,00,001 and above 30
Old Tax Regime 2025-26
– 0-2.5 lakh NIL
– 2.5 to 5 lakh 5% above 2.5 lakh
– 5 lakh to 10 lakh 12.5K + 20% above 5 lakh
– Above 10 lakh 1,12,500 + 30% above Rs 10 lakh
The comparison between the two regimes reveals that the new regime could potentially lead to an 8% reduction in taxes for certain taxpayers. For example, consider a scenario where, before the proposed changes in Budget 2025, a taxpayer’s dues amount to Rs 15,32,960. With the implementation of the new tax structure, this tax liability diminishes to Rs 14,07,120, resulting in a noteworthy difference of Rs 1,25,840. This shift primarily benefits individuals who may not have substantial investments or deductions under sections like 80C, which previously offered relief within the confines of the old tax system.
Further scrutiny reveals that individuals with an annual income of Rs 2.5 crore can experience tangible savings under the new regime. Prior to the budgetary modifications, the tax payable stood at Rs 95,42,000. However, post-adjustment, this figure would plummet to Rs 93,99,000, translating to savings amounting to Rs 1,43,000 and reflecting a 1.5% decrease in tax liabilities. This exemplifies the overarching objective of the new regime to streamline tax filing processes, offering reduced rates without necessitating an array of deductions from taxpayers.
Impact on Medical Insurance and Home Loan Interest
The new tax regime also opens doors for individuals paying premiums on medical insurance or interest on home loans—common deductions in the old regime. Although the new regime does not incorporate these deductions directly, the overall reduction in tax rates compensates for this omission by alleviating the effective tax burden. For instance, individuals availing deductions such as a Rs 25,000 medical insurance premium or a Rs 2 lakh home loan interest may discover the new regime to be financially advantageous.
In conclusion, the choice between the old and new tax regimes hinges on individual circumstances encompassing income sources and existing deductions. For those with limited investments under Section 80C or individuals not heavily reliant on intricate tax-saving mechanisms, the new regime emerges as an appealing option. The allure of lower tax rates and simplified procedures may entice a broad spectrum of taxpayers seeking to curtail their tax burdens without navigating the labyrinth of complex deduction claims. As taxpayers weigh their options, the crux lies in evaluating personal financial landscapes against the tapestry of these transformative alterations.
