Union Budget 2025: In the Union Budget 2025, Finance Minister Nirmala Sitharaman revealed an increase in the basic tax exemption limit in the new tax regime. The limit has been raised from Rs 3 lakh to Rs 4 lakh, providing a significant benefit to a large portion of salaried taxpayers. With no income tax burden for those earning up to Rs 12.75 lakh, many individuals are contemplating whether to transition to the new tax regime or stick with the old one, which offers higher exemptions and deductions.
The shift towards the New Tax Regime (NTR) has been steadily growing, and the recent change is expected to encourage more individuals to transition to NTR due to its enhanced appeal. In the Assessment Year (AY) 2024-25, out of the total 7.28 crore Income Tax Returns (ITRs) filed for AY 2024-25, 5.27 crore (72 percent) were submitted under NTR, compared to 2.01 crore ITRs filed under the Old Tax Regime (OTR).
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Old Tax Regime vs New Tax Regime
Under the New Tax Regime, both individuals receiving a salary and pensioners can now benefit from a standard deduction of Rs 75,000. This adjustment, in addition to the raised nil-tax threshold of Rs 12 lakh as declared in the budget, extends the tax-free income cap to Rs 12.75 lakh for those employed in salaried positions.
According to BankBazaar's calculations, the newly introduced tax changes will give more money in the pockets of citizens, enabling them to contribute to the economy in multiple ways. The minimum tax slab has been raised to Rs 12 lakhs from Rs 7 lakhs. The most striking change in the new regime is the removal of income tax for those earning up to Rs 12 lakhs and the revised tax slabs, which now see the 30% tax bracket apply only for those earning above Rs 24 lakhs. This means significant savings for middle-class earners.
For example, those earning Rs 15 lakh, are set to 25% more under New Tax Regime over the Old Tax Regime. The total savings under the New Tax Regime will be Rs 36,400 more than the 2024 tax slabs under the New Tax Regime and Old Tax Regime.
Here are the tax savings calculations in details:
Old Tax Regime vs New Tax Regime: Take-home salary
As per the BankBazaar's calculations, a taxpayer with taxable income of Rs 15 lakh, will pay Rs 1.09 lakh as tax under New Tax Regime 2025 as compared Rs 1.45 lakh under New Tax Regime 2024 and Rs 2.73 lakh under Old Tax Regime.
Similarly, the potential tax savings for individuals earning Rs 18 lakh under the new tax regime:
New Tax Regime 2024 Income Rs. 3 to Rs 7 lakh: Tax savings of Rs 20,000 Income Rs 7 lakh to Rs 10 lakh: Tax savings of Rs 30,000 Income Rs 10 lakh to Rs 12 lakh: Tax savings of Rs 30,000 Income Rs 12 lakh to Rs 15 lakh: Tax savings of Rs 60,000 Income Rs 15 lakh to Rs 18 lakh: Tax savings of Rs 90,000
Total Tax under current regime: Rs 2,30,000
New Tax Regime 2025 Under the proposed new tax regime, the potential tax savings for individuals earning Rs 18,00,000 are as follows:
Income Rs 4 lakh to Rs 8 lakh: Tax savings of Rs 20,000 Income Rs 8 lakh to Rs 12 lakh: Tax savings of Rs 40,000 Income Rs 12 lakh to Rs 16 lakh: Tax savings of Rs 60,000 Income Rs 16 lakh to Rs 18 lakh: Tax savings of Rs 40,000 Total Tax under proposed regime: Rs 1,60,000
By utilising the new tax regime, individuals can save up to Rs 80,000 compared to the existing regime.
Old Tax Regime vs New Tax Regime 2025: Tax slabs
Under the Old Tax Regime, taxpayers are able to claim various exemptions and deductions in addition to higher tax rates. The tax slabs were as follows:
Income up to Rs 2,50,000: Nil Income from Rs 2,50,001 to Rs 7,00,000: 5% Income from Rs 7,00,001 to Rs 10,00,000: 10% Income from Rs 10,00,001 to Rs 12,00,000: 15% Income from Rs 12,00,001 to Rs 15,00,000: 20% Income above Rs 15,00,000: 30%
Revised Income Tax Slabs Under New Tax Regime (FY 2025-26) Income up to Rs 4 lakh – No tax Rs 4 lakh – Rs 8 lakh – 5% Rs 8 lakh – Rs 12 lakh – 10% Rs 12 lakh – Rs 16 lakh – 15% Rs 16 lakh – Rs 20 lakh – 20% Rs 20 lakh – Rs 24 lakh – 25% Above Rs 24 lakh – 30%
Note: It is recommended by tax experts that individuals with a fixed salary evaluate their total exemptions and deductions under the previous tax system before finalising their choice.