New vs old tax regime: Which income tax regime to choose, what should save your money? Read this to clear all your income tax confusions
The new income tax slabs under the new tax regime proposed in Budget 2025 - with a tax rebate of Rs 60,000 on income up to Rs 12 lakh (and Rs 12.75 lakh for salaried people) under Section 87A - leaves the old tax regime, with three slabs of 5%, 20%, and 30%, with little appeal. This is after the old tax regime offers all the deductions against investments in the tax savings scheme from gross taxable income.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
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New vs Old tax regime: Here's a decoder to help you choose the right one
Will you pay more under new tax regime or old? Calculate here
The finance ministry has long favoured delinking investment and savings schemes from income tax liability so taxpayers can make an independent and informed choice solely to maximise their benefits, according to a report published in The Times of India.
The new tax regime is better than the old tax regime for income up to Rs 12 lakh (Rs 12.75 lakh for salaried people), even if one avails of the maximum possible deductions and exemptions of Rs 5,75,000 and 30% of salary as house rent allowance (see table below). However, it is purely theoretical for someone earning Rs 12.75 lakh to invest in tax savings schemes, avail of the House Rent Allowance (Rs 3,82,500), and take the standard deduction, totalling up to Rs 9,57,000.
However, the tax incidences under the new tax regime increase sharply after the Rs 12 lakh level. The decision to continue to pay income tax under the old tax regime would make sense only if the taxpayer invests Rs 5.25 lakh in tax-saving schemes.
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Even if the taxpayer with an income of Rs 13.75 lakh does not avail of HRA, his tax liability of Rs 57,500 under the old system will be lower than his outgo of Rs 75,000 under the new regime. The same is true for income up to Rs 15.75 lakh, where the tax liability without HRA in the old tax regime will be lower than the new regime, but the rider of Rs 5.25 lakh investment in savings schemes holds. Even with HRA, the old regime would be a better choice.
The picture changes at incomes of Rs 20 lakh (Rs 20.75 lakh for salaried) where the new tax regime, will be beneficial over the old tax regime. Setting HRA aside, a taxpayer's liability on income of Rs 20 lakh will be Rs 2,40,000 under the old tax system even after investing Rs 5.25 lakh in savings schemes, against Rs 2 lakh in the new system, where no deductions are allowed.
Under the new tax regime, the taxpayer will also save Rs 60,000 at the income level of Rs 24 lakh. Under the old tax system, his income tax liability after investing the maximum possible Rs 5.25 lakh in savings schemes would be Rs 3.60 lakh, as against Rs 3 lakh in the old scheme.
If a taxpayer earns more than Rs 15,75,000 and claims HRA of more than Rs 3 lakh, he should opt for the old tax system, provided he invests Rs 5.25 lakh in savings schemes.
How to choose a tax regime if your income is Rs 12.75 lakh, Rs 25.75 lakh, 55 lakh, 2.5 crore
If you are still confused by the above analysis, pick a case study nearest to your annual salary to know the best possible way to choose a tax regime for the upcoming financial year.
Retired professor with an annual income of Rs 12.75 lakh
It has been a great day for people like retired professors with an annual income of Rs 12.75 lakh. Budget 2025 proposes to give him the income tax slash, TDS limit on FD interest going up and his cancer meds getting cheaper. It is time to chill like his grandkids tell him to!
Tax under old tax regime: Rs 1,40,00 (provided investments under Section 80C of Rs 1.5 lakh are done)
Tax under new tax regime (Before Budget 2025): Rs 83,200
Tax proposed under new tax regime: Rs 0; Gain of Rs 83,2000 (100% less tax)
Filmmaker with annual income of Rs 25.75 lakh
His set-in-Switzerland shot-in-Kashmir love drama may not make it past the censors, but he is planning to take his next vacation abroad, thanks to the neat packet he's left with.
Tax under old tax regime: Rs 4,75,800 (provided investments under Section 80C of Rs 1.5 lakh are done, medical insurance premium of Rs 25,000, Deduction on home loan interest is Rs 2 lakh by purchasing an apartment.)
Tax under new tax regime (Before Budget 2025): Rs 4,57,600
Tax proposed under new tax regime: Rs 3,43,200; Gain of Rs 1,14,400 (25% less tax)
Radiologist with annual income of Rs 55 lakh
She can breathe easy on that vacation home she's planning to buy in Goa, which will be exempt. she will save a bit under the new tax regime. Evidently, just enough to upgrade that LED, thanks to dipping prices.
Tax under old tax regime: Rs 15,44,400 (provided investments under Section 80C of Rs 1.5 lakh are done, medical insurance premium of Rs 25,000, Deduction on home loan interest is Rs 2 lakh by purchasing an apartment.)
Tax under new tax regime (Before Budget 2025): Rs 15,32,960
Tax proposed under new tax regime: Rs 14,07,120; Gain of Rs 1,25,840 (8% less tax)
Adventure sports entrepreneur with annual income of Rs 2.5 crore
He is tackling the rapids he's used to, but Budget 2025 has left him cruising in gentle waters. He will gain a little more under the new tax regime. And with the middle class ready to spend, his business should be booming.
Tax under old tax regime: Rs 95,55,000 (provided investments under Section 80C of Rs 1.5 lakh are done, medical insurance premium of Rs 25,000, Deduction on home loan interest is Rs 2 lakh by purchasing an apartment.)
Tax under new tax regime (Before Budget 2025): Rs 95,42,000
Tax proposed under new tax regime: Rs 93,99,000; Gain of Rs 1,43,000 (1.5% less tax)
(With inputs from The Times of India) #sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
This story originally appeared on: India Times - Author:Faqs of Insurances
