The Indian government introduced significant revisions to the income tax structure in the Union Budget for the fiscal year 2025-26. The aim is to simplify the taxation structure, lower tax rates, and encourage more numbers of taxpayers to adopt the new tax regime. With these changes, individuals and businesses alike have an opportunity to optimize their tax liabilities and increase their disposable income.
This article will discuss the new tax regime, its benefits, and the amount of tax that can be saved compared to the old regime.
Overview of the New Tax Regime 2025
The new tax regime retains the framework introduced in 2020 but with substantial revisions to tax slabs and standard deductions. The major changes include:
- Increased Basic Exemption Limit: The exemption limit has been raised from ₹2.5 lakh to ₹3 lakh.
- Revised Tax Slabs:
- Income up to ₹3,00,000: Nil
- ₹3,00,001 to ₹7,00,000: 5%
- ₹7,00,001 to ₹10,00,000: 10%
- ₹10,00,001 to ₹12,00,000: 15%
- ₹12,00,001 to ₹15,00,000: 20%
- Above ₹15,00,000: 30%
- Introduction of Standard Deduction: A deduction of ₹75,000 is now available for salaried individuals.
- Tax Rebate Extended: Under Section 87A, individuals earning up to ₹7,00,000 will not have to pay any income tax.
Comparison Between Old and New Tax Regime
| Income Level (₹) | Old Regime (₹) | New Regime (₹) | Tax Saved (₹) |
| 7,00,000 | 26,000 | 0 | 26,000 |
| 10,00,000 | 1,17,000 | 42,500 | 74,500 |
| 15,00,000 | 1,95,000 | 1,25,000 | 70,000 |
| 20,00,000 | 3,37,500 | 2,55,000 | 82,500 |
| 25,00,000 | 5,20,000 | 4,05,000 | 1,15,000 |
The table illustrates the tax savings at different income levels. With the new tax regime, individuals can save a substantial amount, particularly in the mid to high-income brackets.
Impact of the Revised Standard Deduction
The increase in the standard deduction to ₹75,000 plays a very crucial role in reducing the taxable income of individuals. For instance, an individual earning ₹12,75,000 will effectively have a taxable income which is ₹12,00,000 after accounting for the standard deduction, thereby falling into the 10% tax bracket. This process of adjustment ensures that individuals with income up to ₹12,75,000 are eligible for exemption for paying income tax, and save the income, providing remarkable relief to middle-income earners is an unique feature of the new tax regime which is highly beneficial for the middle class taxpayer groups.
Potential Tax Savings for Different Income Groups
Let’s analyse how much tax can be saved in different income groups under the new regime.
Example 1: Income up to ₹7,00,000
- Tax under old regime: ₹26,000
- Tax under new regime: ₹0 (Due to rebate under Section 87A)
- Total tax savings: ₹26,000
Example 2: Income of ₹10,00,000
- Tax under old regime: ₹1,17,000
- Tax under new regime: ₹42,500
- Total tax savings: ₹74,500
Example 3: Income of ₹15,00,000
- Tax under old regime: ₹1,95,000
- Tax under new regime: ₹1,25,000
- Total tax savings: ₹70,000
Example 4: Income of ₹20,00,000
- Tax under old regime: ₹3,37,500
- Tax under new regime: ₹2,55,000
- Total tax savings: ₹82,500
Example 5: Income of ₹25,00,000
- Tax under old regime: ₹5,20,000
- Tax under new regime: ₹4,05,000
- Total tax savings: ₹1,15,000
Maximizing the Tax Savings Under the New Regime of 2025
While the new tax regime reduces the scope for traditional deductions, taxpayers can still employ several kinds of strategies to optimize their tax liabilities:
- Standard Deduction: The element of standard deduction of ₹50,000 is available to salaried individuals, reducing the taxable income directly.
- National Pension System (NPS) Contributions: Contributions to the NPS are eligible for tax deduction under Section 80CCD(1B), up to ₹50,000.
- Employer’s Contribution to NPS: Employer contributions to an employee’s NPS account are exempt up to 10% of the employee’s salary (basic + dearness allowance) under Section 80CCD (2).
- Health Insurance Premiums: The policy of Premiums paid for health insurance can be claimed as like the deductions under Section 80D, subject to specified limits.
- Interest on Home Loan: Interest paid on housing loans for self-occupied properties could be claimed as a deduction under Section 24(b), up to ₹2,00,000 per annum.
- Charitable Donations: Donations to specified charitable institutions are eligible for the criteria deduction under Section 80G, subject to certain conditions.
Who Should Opt for the New Tax Regime?
The new tax regime is beneficial for:
- Salaried Individuals Without High Deductions: Those who do not claim exemptions like HRA, 80C (PF, LIC, ELSS), 80D (health insurance), etc.
- Individuals in Higher Income Brackets: People earning ₹10 lakh or more can see substantial tax savings.
- Young Professionals: Those who have just started their careers and do not have multiple investments or tax-saving instruments.
- Business Owners & Freelancers: Those who prefer lower tax rates over complex deductions.
Should You Still Consider the Old Tax Regime?
While the new tax regime offers lower tax rates, the old regime allows deductions like:
- ₹1,50,000 under Section 80C (LIC, PF, ELSS, tuition fees)
- ₹50,000 standard deduction
- ₹25,000-₹50,000 under Section 80D (health insurance)
- ₹2,00,000 on home loan interest (Section 24)
For taxpayers who heavily invest in tax-saving instruments, the old regime may still be beneficial.
Strategies for Maximizing Tax Savings
- Assess Your Eligibility for Deductions: Evaluate the total deductions you can claim under the old tax regime. If your eligible deductions are substantial, the old regime might offer better tax savings.
- Leverage the Standard Deduction and NPS Contributions: Under the new regime, make full use of the ₹75,000 standard deduction and maximize contributions to the NPS to reduce taxable income.
- Consider Your Income Level: Analyse your income bracket to determine which regime offers lower tax liability. For some income levels, the new regime’s lower rates may be more advantageous even without deductions.
- Plan Investments Wisely: Align your investment choices with tax-saving opportunities. Instruments like the NPS not only provide retirement benefits but also offer tax advantages under both regimes.
Conclusion
The new tax regime of 2025 is very different and unique because it provides excellent opportunities to individuals by helping them to save on their tax liabilities, especially for those who do not claim multiple deductions. However, the absence of certain exemptions and deductions necessitates a careful comparison between the old and new regimes to make an informed decision. Utilizing online income tax calculators can assist in determining and navigating the most beneficial option based on individual income and eligible deductions. Taxpayers should carefully assess their income, investment habits, and long-term financial goals before making a choice between the old and new regimes. For most middle-income earners, the revised slabs and increased exemptions make the new regime an attractive alternative. It’s highly advisable to consult with a tax professional to get a better understanding of tax law and its provisions and various changes that took place in the new tax regime so that you can make wise decisions as per your requirements.
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