The Union Budget 2025 has introduced significant changes to the income tax structure in India, prompting many taxpayers to reconsider whether to opt for the old tax regime or the new one. Here’s a detailed comparison of both regimes to help you decide which is better for your financial situation.
1. Rebate for Lower Incomes: Under the new tax regime, individuals earning up to ₹12 lakh (or ₹12.75 lakh for salaried individuals) can benefit from a rebate of ₹60,000 under Section 87A. This makes it more appealing for those with lower incomes.
2. Higher Basic Exemption Limit: The new tax regime raises the basic exemption limit from ₹3 lakh to ₹4 lakh, allowing more people to earn without paying taxes.
3. Simplified Tax Slabs: The new tax slabs are designed to simplify the tax calculation process. For example:
- Income up to ₹4 lakh: No tax
- Income from ₹4 lakh to ₹8 lakh: 5%
- Income from ₹8 lakh to ₹12 lakh: 10%
- Income from ₹12 lakh to ₹16 lakh: 15%
- Income from ₹16 lakh to ₹20 lakh: 20%
- Income above ₹20 lakh: 25% and above
4. Standard Deduction: Salaried individuals and pensioners can now claim a standard deduction of ₹75,000, which further increases their tax-free income.
5. No Need for Deductions: The new regime separates income tax from investment decisions, allowing taxpayers to choose their investments without worrying about tax deductions.
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1. Deductions and Exemptions: The old tax regime allows taxpayers to claim various deductions and exemptions, such as those under Section 80C for investments in specified savings schemes. This can be beneficial for individuals who invest heavily in such schemes.
2. Lower Taxes at Higher Incomes: For individuals earning between ₹13.75 lakh and ₹15.75 lakh, the old regime may result in lower taxes if they invest enough in tax-saving schemes. For instance, someone earning ₹13.75 lakh without House Rent Allowance (HRA) would pay ₹57,500 in taxes under the old system compared to ₹75,000 under the new system.
3. More Favorable for High Earners: Individuals with incomes above ₹24.75 lakh may find the old regime more advantageous if they have significant deductions and exemptions that can lower their taxable income substantially.
4. Investment Flexibility: The old regime allows taxpayers to maximize their investments in various savings schemes while benefiting from tax deductions.
- If your income is below or around ₹12 lakh and you do not plan on making substantial investments in tax-saving schemes, the new tax regime is likely more beneficial due to its higher exemptions and rebates.
- If you earn between ₹13.75 lakh and ₹15.75 lakh and can invest significantly in tax-saving instruments, you might benefit more from sticking with the old regime.
- For those earning over ₹20 lakh, especially if they do not have significant deductions, the new regime could provide a clearer path to lower taxes.
In conclusion, choosing between the old and new tax regimes depends on your specific financial situation, including your income level and investment habits. It is advisable to calculate your potential tax liability under both regimes based on your expected income and investments before making a decision.
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