Story by Raksha Bhattacharjee
The new tax regime is made more alluring by the projected Union Budget 2025, which offers a ₹60,000 rebate on incomes up to ₹12 lakh.
Old Vs New tax regime
The Union Budget 2025 proposes income tax slabs under the new tax regime, which includes a ₹60,000 refund under Section 87A for income up to ₹12 lakh (₹12.75 lakh for salaried individuals).Because of this, the previous tax system, which had slabs of 5%, 20%, and 30% and permitted deductions for investments that reduced taxes, is no longer as alluring.
The Times of India reports that the finance ministry has continuously backed the notion of isolating savings and investment plans from income tax obligations so that taxpayers can make decisions on their own based on their personal advantages.
Even with the full deductions and exemptions of ₹5,75,000 and 30% of salary as housing rent allowance, the new tax regime gives more benefits than the previous one for incomes up to ₹12 lakh (₹12.75 lakh for salaried individuals).
The Economic Times stated that it is improbable that an individual earning ₹12.75 lakh would engage in tax-saving schemes, claim ₹3,82,500 in housing rent allowance, and take the standard deduction, which would total ₹9,57,000.
Become familiar with the specifics of the new and previous tax regimes:
After earning ₹12 lakh, taxes increase under the new tax system. Only when the taxpayer invests ₹5.25 lakh in tax-saving measures does it make sense to stick with the previous tax system.
Former tax system
Under the former tax system, the tax rate for individuals earning ₹13.75 lakh without HRA was ₹57,500, whereas under the new system, it was ₹75,000. Even for incomes up to ₹15.75 lakh, this is valid; nevertheless, ₹5.25 lakh must be invested in savings plans.
Despite HRA, the old system is still superior. The new tax system is preferable to the previous one for those making ₹20 lakh (₹20.75 lakh for salaried individuals). The old method would have required ₹2.4 lakh in taxes, even after investing ₹5.25 lakh in savings plans; the new system would only require ₹2 lakh, with no deductions permitted.
The Financial Express cited experts when reporting that the new tax regime is only advantageous for individuals making over ₹24.75 lakh if their total deductions and exemptions, excluding the basic deduction, are less than ₹8 lakh.
An individual with a ₹24 lakh income will save ₹60,000 under the new tax system. Previously, the tax on a ₹5.25 lakh savings program investment would have been ₹3.60 lakh, but under the new regime, it would have been ₹3 lakh.