New Regime vs Old Regime for Salaried

With Budget 2025 bringing notable updates to the income tax structure, especially under the new regime, salaried individuals are now faced with a key decision—stick with the old regime or switch to the new one. The government has made the new regime more attractive by offering a higher standard deduction, revised tax slabs, and an increased rebate under Section 87A. This section helps you understand how these changes impact salaried earners, especially how incomes up to ₹12.75 lakh can now be tax-free under the new regime.

However, still, the old regime remains beneficial for people who aim to maximise tax-saving deductions. This is achieved under various sections, namely, under Section 80C, 80D, HRA, and other provisions. Let’s break down the latest tax slab changes and their implications.

New Regime Tax Slabs After Budget 2025

The Union Budget 2025 introduced significant revisions to India’s income tax structure under the new tax regime, aiming to provide relief to taxpayers and simplify the tax system. Below is a detailed overview of these changes:

1. 1. Revised Income Tax Slabs Under the New Regime

The updated tax slabs for Financial Year (FY) 2025-26 (Assessment Year 2026-27) are as follows:

1. 1. Enhanced Standard Deduction

Salaried employees and pensioners are now entitled to a standard deduction of ₹75,000 under the new tax regime, an increase aimed at reducing taxable income and providing greater relief.

1. 1. Increased Rebate Under Section 87A

The rebate under Section 87A has been significantly enhanced:

1. 1. Eligibility: Resident individuals with a total income up to ₹12,00,000.
   2. Rebate Amount: Up to ₹60,000.

This means that individuals earning up to ₹12,00,000 will have zero tax liability after claiming this rebate.

1. 1. No Tax Liability for Salaried Individuals Earning Up to ₹12.75 Lakh

For salaried individuals, the combination of the ₹75,000 standard deduction and the Section 87A rebate effectively means that those with a gross income up to ₹12,75,000 will have no tax liability under the new regime. Here’s the breakdown:

1. 1. Gross Income: ₹12,75,000
   2. Less: Standard Deduction: ₹75,000
   3. Net Taxable Income: ₹12,00,000
   4. Tax on ₹12,00,000: Calculated as per slabs
   5. Less: Rebate under Section 87A: Up to ₹60,000
   6. Effective Tax Payable: ₹0

Old Tax Regime Slabs FY 2025-26

The Old Tax Regime follows a progressive tax structure. But it allows individuals to claim multiple deductions and exemptions.

Key Benefits of the Old Regime:

• Higher tax outflow due to standard tax rates but lower taxable income because of deductions.
• Exemptions for HRA, LTA, and home loan interest under Section 24B.
• Deductions under Sections 80C, 80D, 80E, and others help reduce taxable income

You can also learn more about how to save tax beyond section 80C.

Difference Between New & Old Tax Regime

The key difference between the new and old tax regimes is that the new regime has removed many tax deductions. However, it has increased the overall taxable income, making tax calculations simple, with lower slab rates.

Following is a simple comparison:

New vs Old Regime – Deductions & Exemptions

As explained, many of the deductions that were provided previously have been removed under the new regime. Here is a detailed list of deductions:

Although the new regime is selected by default, taxpayers can choose which regime to opt for as per their needs. Knowing which one is best suited as per the income and expenses can help individuals save money in taxes.

The following table can help:

Tax Under Old vs New Regime for FY 2025-26

The choice of which tax regime is better for FY 2025-2026 is subject to an individual’s income level and deductions. Below is a simplified comparison of tax payable under both regimes based on the Union Budget 2025 tax slabs:

Assumptions:

• Old Regime: Standard deduction of ₹50,000 and deductions of ₹1,50,000 (80C, 80D, NPS, Home Loan, etc) are considered where applicable.
• New Regime: Standard deduction of ₹75,000 is applied. The enhanced rebate under Section 87A allows for zero tax liability on incomes up to ₹12,00,000.

From the above table, we can understand that,

• Income up to ₹12 lakh: Tax-free under both regimes (rebate under Section 87A applies).
• Income from ₹12 lakhs to ₹18 lakhs: The old regime is usually better if deductions exceed ₹2.5 lakh.
• Income from ₹18 lakh to ₹20 lakh: Both regimes may be similar—the old regime is better if deductions are high; otherwise, the new regime works well.
• Income above ₹20 lakh: The new regime gradually becomes more beneficial due to lower tax rates and fewer documentation requirements.
• Income above ₹25 lakh: The new regime is the better choice for most taxpayers, as deductions in the old regime no longer provide a significant advantage.

Calculating Payable Income Tax

An example can help understand how both regimes can impact an individual. Let us consider a taxpayer with an annual income of ₹10,50,000.

Tax Calculation Example Under the New Tax Regime

To help understand the impact of these changes, here’s an example of tax calculation for a salaried individual under the new regime:

Let’s say the Gross Income is ₹12,75,000

1. 1. Standard Deduction: ₹75,000
      • Net Income: ₹12,75,000 – ₹75,000 = ₹12,00,000
   2. Tax Calculation on ₹12,00,000:

This means:

1. Up to ₹4,00,000: 0% = ₹0
2. ₹4,00,001 to ₹8,00,000: 5% of ₹4,00,000 = ₹20,000
3. ₹8,00,001 to ₹12,00,000: 10% of ₹4,00,000 = ₹40,000
4. Total Tax Before Rebate: ₹20,000 + ₹40,000 = ₹60,000
5. Less: Rebate under Section 87A: ₹60,000
6. Total Tax Payable: ₹60,000 – ₹60,000 = ₹0

So, the tax payable = ₹0 (even considering 4% Cess)

Tax Calculation Example Under the Old Regime

The old regime provides various opportunities to deduct tax payable through various options like HRA, investments, etc. Let us consider the same person under the old regime.

Gross Annual Income: ₹12,75,000

Eligible Deductions under Old Regime:

• Standard Deduction: ₹50,000
• Section 80C (EPF, LIC, ELSS, etc.): ₹1,50,000
• Section 80D (Health Insurance): ₹25,000

Total Deductions: ₹2,25,000

This means:

• The first ₹2.5 lakh is fully exempt.
• The next ₹2.5 lakh (₹5L – ₹2.5L) is taxed at 5% = ₹12,500.
• The remaining ₹5 lakh (₹10L – ₹5L) is taxed at 20% = ₹65,000.
• The remaining ₹50,000 (₹10.5L – ₹10L) is taxed at 30% = ₹15,000

Total tax before cess: ₹12,500 + ₹1,00,000 + ₹15,000 = ₹1,27,500

Add 4% cess = 4% of ₹1,27,500 = ₹5,100

Final tax payable = ₹1,27,500 + ₹5,100 = ₹1,32,600

Comparing New Vs Old tax Regime tax Calculation

Note: This is a simple representation of how both regimes work and is not a final verdict of how income tax calculation is done. Although the calculations are accurate, this can differ as various other factors are considered while calculating the income tax.