Since its introduction in 2020, the New Tax Regime has gradually gained traction as an alternative to the Old Tax Regime. Unlike the traditional system, which allowed various deductions and exemptions, the New Tax Regime offers lower tax rates with minimal documentation requirements.
Union Budget 2025 has further sweetened the deal by increasing the tax-free income limit to ₹12 lakh under the New Tax Regime, while salaried individuals can enjoy an additional ₹75,000 standard deduction, effectively making their income tax-free up to ₹12.75 lakh.
This shift signals a clear intention from the government—to phase out the Old Tax Regime in favor of a simpler, more efficient tax structure.
Old vs New Tax Regime – A Comparison of Tax Liabilities
To understand the financial impact, let’s compare the tax implications for a salaried individual under both tax regimes.
| Total Income (₹) | Tax under Old Tax Regime (₹) | Tax under New Tax Regime (₹) | Tax Saving (₹) |
|---|---|---|---|
| 12,00,000 | 59,800 | 0 | 59,800 |
| 20,00,000 | 2,80,800 | 1,23,750 | 1,57,050 |
| 50,00,000 | 12,16,800 | 10,62,500 | 1,54,300 |
| 2,50,00,000 | 93,21,000 | 91,81,250 | 1,39,750 |
| 6,00,00,000 | 2,51,76,216 | 2,28,31,250 | 23,44,966 |
Key Changes in the New Tax Regime Under Budget 2025
- No tax on income up to ₹12 lakh – Previously, only those earning up to ₹7 lakh were eligible for tax-free income under the New Tax Regime. This limit has now been raised significantly.
- Higher standard deduction for salaried individuals – Salaried employees now get ₹75,000 as a standard deduction, increasing the effective tax-free income limit to ₹12.75 lakh.
- Simplification of tax compliance – The New Tax Regime eliminates the need for taxpayers to maintain complex documentation related to deductions such as HRA, LTA, and housing loan interest.
- Attractive benefits for high-income earners – The reduced surcharge for individuals earning more than ₹5 crore (from 37% to 25%) continues under the New Tax Regime, making it more appealing to high-net-worth individuals (HNIs).
Why the Old Tax Regime is Becoming Less Relevant
For years, the Old Tax Regime allowed taxpayers to claim deductions under various sections like:
- Section 80C – Investments in PPF, ELSS, life insurance premiums (up to ₹1.5 lakh)
- Section 80D – Health insurance premiums (up to ₹25,000)
- Section 24(b) – Home loan interest (up to ₹2 lakh)
However, the tax savings under the Old Tax Regime no longer justify the effort required to claim deductions. For most taxpayers, the New Tax Regime now offers a lower tax burden with zero documentation hassles.
Who Should Still Consider the Old Tax Regime?
Despite the growing appeal of the New Tax Regime, some individuals may still benefit from the Old Tax Regime, particularly those who:
- Have significant tax-saving investments in PPF, ELSS, NPS, or life insurance
- Pay high rent and claim HRA exemptions
- Have home loans and benefit from interest deductions under Section 24(b)
- Have long-term financial commitments tied to tax-saving instruments
For such individuals, a detailed comparison of their tax liabilities under both regimes is essential before making the switch.
Is This the End of the Old Tax Regime?
With every budget, the government has made it clear that the New Tax Regime is the future. The increase in the tax-free limit to ₹12 lakh is likely to encourage more taxpayers to transition away from the Old Tax Regime.
For many, the New Tax Regime now offers greater take-home pay and simplified tax filing, making the Old Tax Regime increasingly redundant. While the Old Tax Regime still exists, its relevance is diminishing with every policy change.
FAQs
What is the biggest advantage of the New Tax Regime?
The New Tax Regime offers lower tax rates and no documentation requirements, making tax filing easier for individuals.
Is it compulsory to shift to the New Tax Regime?
No, individuals still have the option to choose between the Old and New Tax Regimes, depending on which is more beneficial for them.
Who benefits the most from the New Tax Regime?
Middle-class salaried individuals earning up to ₹12.75 lakh benefit the most, as they now pay zero tax under the New Tax Regime.
Are deductions like HRA, 80C, and home loan interest available under the New Tax Regime?
No, the New Tax Regime does not allow deductions for HRA, Section 80C investments, or home loan interest. However, it offers lower tax rates and a higher tax-free threshold.
Which tax regime is better for high-income earners?
For individuals earning more than ₹5 crore, the New Tax Regime is more attractive due to the lower surcharge rate of 25%.
Can I switch between the Old and New Tax Regimes every year?
Salaried individuals can switch between the regimes annually, but businesses and professionals must commit to one regime long-term.
Will the Old Tax Regime be discontinued in the future?
While the Old Tax Regime still exists, the government has been making the New Tax Regime more attractive with every budget, signaling a possible phase-out in the coming years.
What should I do if I have long-term tax-saving investments?
If you have significant investments in tax-saving schemes like PPF, NPS, and ELSS, compare your tax liabilities under both regimes before deciding.
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