New Tax Regime vs Old Tax Regime Slabs

Comparative analysis of new tax regime vs. old tax regime highlights importance of understanding nuances of each system and making informed decisions based on individual financial situations.

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Under the Union Budget 2025, Finance Minister Nirmala Sitharaman has initiated significant changes in the tax structure, especially regarding the New Tax Regime for Assessment Year 2025-26. The changes are aimed at simplifying tax filing for the taxpayer, to benefit the middle class, and to ensure the tax is more progressive. Let’s move further to discuss the prime features of the new tax regime and the benefits through comparison with Old Tax Regime.

Key Highlights of the New Tax Regime for AY 2025-26

The Union Budget 2025 has introduced significant reforms in income tax slabs, TDS limit changes, and tax computation under the Concessional Tax Regime (CTR). These changes aim to reduce the tax burden on middle-class taxpayers and simplify tax compliance. Here’s a detailed breakdown of the latest tax slab revisions, a tax calculator for 2025, and changes in TDS (Tax Deducted at Source) limits.

Income Tax Slabs in Union Budget 2025

The India income tax slabs 2025 under the revised Concessional Tax Regime (CTR) are as follows:

Taxable Income (INR)	New Rate (%)
Up to 4,00,000	NIL
4,00,001 to 8,00,000	5%
8,00,001 to 12,00,000	10%
12,00,001 to 16,00,000	15%
16,00,001 to 20,00,000	20%
20,00,001 to 24,00,000	25%
Above 24,00,000	30%

The surcharge and health & education cess remain unchanged. Additionally, the rebate threshold under CTR has been increased from ₹7 lakh to ₹12 lakh, effectively making income up to ₹12.75 lakh tax-free for salaried individuals after the standard deduction of ₹75,000.

Union Budget Income Tax Calculator 2025

Here’s an approximate calculation of tax savings under the new regime:

Taxable Income (INR)	Tax Under Old CTR (INR)	Tax Under New CTR (INR)	Tax Savings (INR)
12,00,000	83,200	NIL	83,200
15,00,000	1,45,600	1,09,200	36,400
24,00,000	4,26,400	3,12,000	1,14,400
60,00,000	17,04,560	15,78,720	1,25,840
1.50 Crore	50,11,240	48,79,680	1,31,560
2.50 Crore	93,47,000	92,04,000	1,43,000

TDS Limit Changes in Budget 2025

The Union Budget 2025 has also rationalized TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) provisions to reduce compliance burdens. Here are the key changes:

Section	Nature of Payment	Current Threshold (INR)	Proposed Threshold (INR)
193	Interest on securities (debentures)	5,000	10,000
194	Dividend for individual shareholders	5,000	10,000
194A	Interest from banks, post offices (senior citizens)	50,000	1,00,000
194A	Interest from banks, post offices (others)	40,000	50,000
194A	Other cases of interest	5,000	10,000
194-I	Rent	2.4 lakh per year	50,000 per month

TCS Limit Updates

The Liberalised Remittance Scheme (LRS) threshold for TCS has been raised from ₹7 lakh to ₹10 lakh.
TCS on education-related remittances using loans has been removed.

Overview of New Tax Regime and Old Tax Regime

New Tax Regime

The new tax regime was introduced in April 2023 to simplify the tax structure and reduce tax rates.
The basic income exemption limit set at Rs 3 lakh for all taxpayers.
Offers more income tax slabs with lower tax rates compared to the old regime.
Standard deduction of Rs 50,000 from salary/pension income available.
Allows deduction for employer’s contribution to NPS account up to 10% of salary (14% for government employees).

Old Tax Regime

Traditional tax regimes existed before the introduction of the new regime.
Allows taxpayers to claim various deductions and exemptions from gross total income to reduce taxable income.
Offers deductions under sections such as 80C, 80D, 80E, and others for investments, insurance premiums, and loan interest payments.

New Tax Regime vs Old Tax Regime: Comparative Analysis

	New Tax Regime	Old Tax Regime
Introduction	Introduced in April 2023	Traditional tax regime existing prior to the new regime
Basic Income Exemption Limit	Rs 3 lakh for all taxpayers	Varies depending on taxpayer category and deductions
Tax Rates and Slabs	More income tax slabs with lower rates	Fewer slabs with comparatively higher rates
Standard Deduction	Rs 50,000 from salary/pension income	Available, but limited to specific categories
Employer’s NPS Contribution	Up to 10% of salary (14% for government employees)	Deductions available for employer’s NPS contribution
Deductions Available	Limited to standard deduction and employer’s NPS contribution	Wide range of deductions under various sections (80C, 80D, etc.)
Flexibility vs. Simplicity	Simplified structure with fewer deductions	Offers flexibility with multiple deductions
Tax Planning Strategies	Requires careful planning due to limited deductions	Offers more options for tax planning and optimization
Long-term Financial Goals	May be suitable for individuals seeking simplicity	Beneficial for those prioritizing tax savings through deductions
Considerations	Individual income level, eligibility for deductions	Long-term financial goals, tax planning objectives

Tax Rates and Slabs

New regime offers lower tax rates across multiple income slabs compared to the old regime.
However, availability of deductions under the old regime can sometimes result in lower tax liability for certain taxpayers.

Deductions and Exemptions

Old regime provides a wide range of deductions and exemptions, including those under sections 80C, 80D, and 80E.
New regime limits deductions to a standard deduction of Rs 50,000 and employer’s NPS contribution.

Flexibility vs. Simplicity

Old regime offers flexibility with multiple deductions, allowing taxpayers to tailor their tax planning strategies.
New regime offers simplicity with fewer deductions, making tax compliance easier for some taxpayers.

Considerations for Taxpayers

Income Level: Tax liability under each regime varies based on the taxpayer’s income level and the amount of deductions claimed.
Deduction Eligibility: Taxpayers must evaluate their eligibility for deductions and exemptions available under both regimes.
Long-term Financial Goals: Taxpayers should consider their long-term financial goals and tax planning objectives when choosing between the regimes.

How to Choose Between Old and New Tax Slabs?

To decide between the two regimes:

Calculate your total eligible deductions and exemptions under the old regime.
Compare your tax liability under both regimes.
Choose the regime with the lower tax liability.
Inform your employer of your choice for the appropriate TDS deduction.

Consider any losses from house property, capital gains, or business and profession when making your decision.

Conclusion

The choice between the old and new tax regimes depends on individual financial situations. The old regime encourages savings through various exemptions and deductions, while the new regime offers simplicity and lower rates. Evaluate your personal deductions and exemptions to determine the best fit for your tax situation.

New Tax Regime vs Old Tax Regime FAQs

Which is better, a new tax regime or an old tax regime?

For those with fewer investments to claim, the new regime offers advantages, while the old regime is more favorable for taxpayers eligible for deductions such as HRA and home loan.

What is the disadvantage of new tax regime?

The new tax regime does not provide specific incentives for taxpayers to save, such as in Equity Linked Savings Scheme (ELSS) or Public Provident Fund (PPF) schemes.

Can we shift from new to old regime?

Current income tax laws allow an individual to select either old or new tax regime at the time of filing an income tax return (ITR). The tax regime can be chosen irrespective of what was chosen for the purpose of tax deduction on salary earlier in the financial year.