New Tax Regime vs Old Tax Regime: Which offers better deductions and exemptions?
In a major relief for taxpayers, the Union Budget 2025 has revamped the new tax regime, freeing individuals earning up to Rs 12 lakh annually from income tax liability. Additionally, salaried taxpayers will benefit from a Rs 75,000 standard deduction, effectively raising the tax-free threshold to Rs 12.75 lakh. The revised tax structure also introduces a 25% tax slab for incomes between Rs 20 lakh and Rs 24 lakh.
Revised Tax Slabs Under the New Regime
- Income up to Rs 4 lakh: Nil
- 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%
Old Tax Regime vs. New Tax Regime
While the new regime offers lower tax rates, the old tax regime allows deductions under Section 80C, providing up to Rs 1.5 lakh in exemptions for investments in PPF, ELSS, and LIC premiums.
Tax Slabs Under the Old Regime
- Income up to Rs 2.5 lakh: Nil
- Rs 2.5 lakh – Rs 5 lakh: 5%
- Rs 5 lakh – Rs 10 lakh: 20%
- Above Rs 10 lakh: 30%
Deductions Available Under the New RegimeDespite eliminating most exemptions, the government has retained:
Section 24(b): Deduction for interest on housing loans (for rental properties).
Section 80CCD(2): Deduction for employer contributions to the National Pension Scheme (NPS), up to 14% of salary.
Which Tax Regime Should You Choose?
For individuals who do not invest heavily in tax-saving instruments, the new tax regime could be more beneficial due to lower tax rates and a higher exemption limit. However, those who claim multiple deductions under the old regime may find it financially advantageous.
With these sweeping tax reforms, the government aims to simplify tax compliance, encourage spending, and provide relief to middle-class taxpayers. Experts recommend that individuals carefully evaluate both regimes before making a decision.