Budget 2025: Compare Tax Savings Between Old and New Regimes
The Indian tax system offers salaried individuals two distinct options for filing their Income Tax Return (ITR): the old tax regime and the new tax regime. Each regime has its own tax slabs, exemptions, and deductions, which significantly impact the overall tax liability.
Under the new tax regime, introduced in 2020, taxpayers benefit from concessional tax rates and a streamlined filing process.
However, the regime limits the availability of traditional exemptions such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), and deductions under Section 80C, 80D, and others. In contrast, the old tax regime offers over 70 exemptions and deductions, allowing taxpayers to reduce taxable income by investing in specified instruments.
Recent Changes to the New Tax Regime
The government has taken steps to make the new tax regime more appealing. Budget 2023 raised the basic exemption limit to ₹3 lakh from ₹2.5 lakh and increased the rebate under Section 87A to ₹7 lakh. This means taxpayers with income up to ₹7 lakh do not pay any tax under the new regime. Additionally, the surcharge for income above ₹5 crore has been reduced from 37% to 25%.
Budget 2024 further increased the standard deduction for salaried employees to ₹75,000 from ₹50,000, while the exemption limit on leave encashment for non-government employees was raised from ₹3 lakh to ₹25 lakh. These changes make the new tax regime more competitive, especially for individuals with fewer eligible deductions under the old regime.
How to Choose the Right Regime Using the Income Tax Calculator
For this, taxpayers can use an income tax calculator to compare the new and old tax regimes. The calculator includes fields like income, age group, and any claim of deductions. Comparing tax liabilities under both the systems, the taxpayers can easily determine as to which system will cost them least.
The new tax regime benefits people with an annual income of up to ₹7.75 lakh easily. Nevertheless, those taxpayers who can avail substantial deductions such as House Rent Allowance (HRA), medical expenses, or investments in Public Provident Fund (PPF) may get benefit under the old tax regime. It is advised that taxpayers should assess their financial position and intimate their employer about their decision to avoid wrong TDS deductions.
