Budget 2025: Old versus new tax regime sparks debate on which one to choose

As the anticipation builds for the Union Budget 2025, set to be tabled on February 1, taxpayers are again drawing parallels and debating pros and cons of old and new tax regimes. 

 

“The Union Budget 2025 brings the old versus new tax regime debate back into focus, highlighting the need for tailored financial planning. The old regime’s exemptions suit those who prioritise savings, while the new regime’s simplified structure appeals to taxpayers seeking flexibility and lower upfront deductions. This divergence underscores India’s economic diversity and the evolving aspirations of its citizens. Financial literacy plays a key role in empowering individuals to make informed choices,” said Mahek Tomer, founder & CEO, India’s Future Investors.

 

Rajarshi Dasgupta, Executive Director-Tax, AQUILAW explains the tax rates under both regimes:

 

	Old Tax Regime (FY 2022-23, FY 2023-24 and FY 2024-25)			New Tax Regime
Income Slabs	Age < 60 years & NRIs	Age of 60 Years to 80 years	Age above 80 Years	FY 2022-23	FY 2023-24	FY 2024-25
Up to Rs 2,50,000	NIL	NIL	NIL	NIL	NIL	NIL
Rs 2,50,001 - Rs 3,00,000	5%	NIL	NIL	5%	NIL	NIL
Rs 3,00,001 - Rs 5,00,000	5%	5%	NIL	5%	5%	5%
Rs 5,00,001 - Rs 6,00,000	20%	20%	20%	10%	5%	5%
Rs 6,00,001 - Rs 7,00,000	20%	20%	20%	10%	10%	5%
Rs 7,00,001 - Rs 7,50,000	20%	20%	20%	10%	10%	10%
Rs 7,50,001 - Rs 9,00,000	20%	20%	20%	15%	10%	10%
Rs 9,00,001 - Rs 10,00,000	20%	20%	20%	15%	15%	10%
Rs 10,00,001 - Rs 12,00,000	30%	30%	30%	20%	15%	15%
Rs 12,00,001 - Rs 12,50,000	30%	30%	30%	20%	20%	20%
Rs 12,50,001 - Rs 15,00,000	30%	30%	30%	25%	20%	20%
Rs 15,00,000 and above	30%	30%	30%	30%	30%	30%

 

Shefali Mundra, Tax expert-ClearTax explains key differences between old and new tax regime:

 

Standard deduction: The new regime offers a higher standard deduction of Rs 75,000 for salaried individuals, compared to Rs 50,000 in the old regime.

 

Deductions and exemptions: The new regime generally forgoes most deductions and exemptions available under various sections, such as 80C, 80D, and HRA, which were only available in the old regime. 

  Rebate: A tax rebate is available on income up to Rs 7 lakh under the new tax regime and up to Rs 5 lakh under the old regime.

 

Let’s understand with an example: 

 

Consider a salaried individual earning Rs 13 lakh per annum:

 

Under the old regime, assuming they utilise a standard deduction of Rs 50,000 and additional deductions (like 80C, 80D) of Rs 1.5 lakhs, their taxable income would be Rs 11 lakh, resulting in a tax liability of around Rs 1,48,200 including cess.

 

Under the new regime, with a standard deduction of Rs 75,000 and no other deductions, their taxable income would be Rs 12.25 lakh. The tax liability would be approximately Rs 88,400 including cess.  Income Tax Calculator

 

In this scenario, while the total tax liability appears lower under the new regime, it’s crucial for individuals to carefully assess their potential for deductions. The choice between regimes should be based on one’s specific financial situation and the ability to leverage tax-saving deductions available under the old regime.