Budget 2025: Which tax regime is better for deductions, exemptions

Individuals earning up to Rs 12,00,000 per annum exempted from income tax; salaried taxpayers get additional Rs 75,000 standard deduction

The Union Budget’s proposals for the new tax regime offer complete exemption for people earning up to Rs 12 lakh annually. It expands tax slabs and introduces a 25 per cent slab for incomes between Rs 20 lakh and Rs 24 lakh. Despite these changes, taxpayers who have traditionally utilised tax-saving instruments may still prefer the old tax regime.

 

Changes in income tax slabs in the new regime

 

The most notable announcement was the new regime's revision of income tax slabs in the new regime. The new structure is as follows:

 

Income up to Rs 4 lakh: Nil

 

Income from Rs 4 lakh to Rs 8 lakh: 5 per cent

 

Income from Rs 8 lakh to Rs 12 lakh: 10 per cent

 

Income from Rs 12 lakh to Rs 16 lakh: 15 per cent

 

Income from Rs 16 lakh to Rs 20 lakh: 20 per cent

 

Income from Rs 20 lakh to Rs 24 lakh: 25 per cent

 

Income above Rs 24 lakh: 30 per cent

 

“Finance Minister Nirmala Sitharaman has completely exempted individuals earning up to Rs 12,00,000 per annum from paying income tax, with salaried taxpayers benefitting from an additional Rs 75,000 standard deduction, effectively raising the tax-free threshold to Rs 12,75,000. This reform is aimed at boosting disposable income, stimulating domestic consumption, and providing substantial relief to the salaried class,” said Kunal Savani, partner, Cyril Amarchand Mangaldas. “However, for those earning beyond this threshold, a revised tax structure has been introduced, ensuring a fair and proportionate tax contribution.”

 

Deduction in new tax regime:

 

Section 24(b): Deduction for interest on housing loan for rental property

 

Section 80CCD (2): Deduction for employer’s contribution to the national pension scheme (NPS), limited to 14 per cent of salary

 

Tax slabs under the old tax regime:

 

Income up to Rs 2,50,000: Nil

 

Income from Rs 2,50,001 to Rs 5,00,000: 5 per cent

 

Income from Rs 5,00,001 to Rs 10,00,000: 20 per cent

 

Income above Rs 10,00,000: 30 per cent

 

The old tax regime also allows for various deductions, including:

 

Section 80C: Deductions up to Rs 1,50,000 for investments in PPF, ELSS, and LIC premiums.

 

Section 80D: Deductions for health insurance premiums.

 

Section 24(b): Deductions for home loan interest up to Rs 2,00,000.

 

Additional exemptions, such as benefits like HRA and LTA.  Shefali Mudra, tax expert at ClearTax, explained the two tax regimes: 

Source: Cleartax