Effects of Budget 2025: Comparing benefits of Old and New Tax Regimes for salaried taxpayers

Tax and Budget 2025: Finance Minister Nirmala Sitharaman made significant announcements that have delighted middle-class taxpayers. The changes include raising the rebate limit from Rs 7 lakh to Rs 12 lakh under the New Tax Regime (NTR). Additionally, Sitharaman made adjustments to the tax slabs, benefiting taxpayers in higher income brackets and giving them more control over their finances.

The NDA government has implemented a range of incentives lately to promote the acceptance of the new tax regime. These measures indicate the government's desire for taxpayers to shift to the new regime and gradually eliminate the old one. While the new tax system is currently the primary option, the old regime will still be maintained.

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All taxpayers who have been relying on the Old Tax Regime (OTR) due to substantial deductions are advised to reassess their tax calculations under both systems and make an informed decision.

New Tax Regime: Additions and changes after Budget 2025

After Budget 2025, the tax slabs in the new tax regime were updated. For salaried individuals, income up to Rs 4 lakh will be exempt from tax. In the income bracket of Rs 4 lakh to Rs 8 lakh, a 5% income tax will be imposed. This rate will increase to 10% for the income bracket of Rs 8 lakh to Rs 12 lakh. Tax rates for the income brackets of Rs 12 lakh to Rs 16 lakh, Rs 16 lakh to Rs 20 lakh, and Rs 20 lakh to Rs 24 lakh are set at 15%, 20%, and 25%, respectively.

The tax slabs and rates are as follows:

0-4 lakh rupees: Nil

4-8 lakh rupees: 5%

8-12 lakh rupees: 10%

12-16 lakh rupees: 15%

16-20 lakh rupees: 20%

20-24 lakh rupees: 25%

Above 24 lakh rupees: 30%

New Tax Regime: How tax slabs were updated

Adjustments have been made to the tax slabs in the following manner:

The zero tax ceiling has been increased from Rs 3 lakh to Rs 4 lakh.
The 5% tax bracket now ranges from Rs 4 lakh to Rs 8 lakh, up from Rs 3 lakh to Rs 7 lakh.
The 10% tax slab previously applicable for income between Rs 7 lakh and Rs 10 lakh has now been revised to Rs 8 lakh to Rs 12 lakh.
The 15% tax bracket, previously for income between Rs 12 lakh and Rs 15 lakh, now applies to income between Rs 12 lakh and Rs 16 lakh.
The 30% tax slab for income over Rs 15 lakh has been further segmented:
Income between Rs 16 lakh and Rs 20 lakh will now be taxed at 20%.
Income between Rs 20 lakh and Rs 24 lakh will be taxed at 25%.
Any income above Rs 24 lakh will now be taxed at 30%.

Old Tax Regime: Does it suit anyone anymore?

The old tax system continues to offer tax-saving deductions; if you are able to qualify for a sufficient number of them, it could still be the more tax-efficient choice.

In the Budget 2025-26, the basic exemption limit under the new tax regime has been increased to Rs 4 lakh from Rs 3 lakh. The basic exemption limit for the old regime remains unchanged at Rs 2.5 lakh. Additionally, for senior citizens aged 60-80 years, the basic exemption limit under the old tax regime is set at Rs 3 lakh, while for super senior citizens above 80 years, it is Rs 5 lakh.

According to Value Research, Old Tax Regime will be beneficials for if your combined deductions (including 80C, 80D, House Rent Allowance (HRA)/home loan interest, NPS, etc.) surpass the specified amount mentioned in the table below. Otherwise, the new regime is the wiser choice, offering simplicity with reduced paperwork, fewer computations, and lower tax rates.

Annual income (Rs)	Deductions needed to match NTR (Rs)	Tax liability in old regime (Rs)	Tax liability in new regime (Rs)
Up to 12.75 Lakh	Go for New Tax Regime	-	0
15 lakh	5,43,750	97,500	97,500
18 lakh	6,41,667	1,50,800	1,50,800
20 lakh	7,08,333	1,92,400	1,92,400
25 lakh	8,00,000	3,19,800	3,19,800
30 lakh	8,00,000	4,75,800	4,75,800
40 lakh	8,00,000	7,87,800	7,87,800

Amount of required deductions excludes standard deduction of Rs 50,000 tax liability includes 4% cess

Tax deductions above Rs 15 lakhs

As per Value Education's explanation, for individuals with incomes between Rs 15-18 lakh, it is recommended to aim for a deduction amount of approximately Rs 5-6.5 lakh, which equates to roughly one-third of your income. This target can be within reach if you take advantage of various tax-saving options such as investments under Section 80C (EPF, PPF, ELSS), NPS (80CCD(1B)), health insurance (80D), and home loan interest or HRA.

However, exceeding an income of Rs 18 lakh may pose challenges in achieving such a substantial deduction amount. Therefore, one can look at the New Tax Regime in this situation.