Budget 2025 has introduced a major change in the country’s tax system, making the new tax regime more attractive for middle-class taxpayers. Under the new regime, people earning up to Rs 12 lakh annually will no longer have to pay any income tax. They can now keep their entire income.
Additionally, the government has raised the Basic Exemption Limit from Rs 3 lakh to Rs 4 lakh. A new tax slab has also been added, making the New Tax Regime more appealing than ever. A 25% tax rate has been introduced for incomes between Rs 20 lakh and Rs 24 lakh.
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People Earning Rs 24-30 Lakh Can Save This Much
Disposable income is the amount left after paying taxes. With the changes proposed in Budget 2025, people will now have more money to spend. Since the government has made annual income up to Rs 12 lakh completely tax-free, managing expenses like education, healthcare, and home loan EMIs will become easier.
These changes will reduce the annual tax liability of middle-class taxpayers earning Rs 24-30 lakh by about Rs 1.1 lakh.
Who Should Choose the Old Tax Regime?
Although the new tax regime offers lower tax rates and a higher exemption limit, it does not allow many deductions. This makes the old tax regime a better option for some taxpayers.
1. People Who Invest in Tax-Saving Schemes
If you invest in tax-saving options like the Public Provident Fund (PPF), National Pension System (NPS), or Sukanya Samriddhi Yojana (SSY), the old tax regime might be more beneficial. The new tax regime does not offer deductions for these investments, reducing overall tax savings.
2. Employees Claiming House Rent Allowance (HRA)
Employees receiving a high House Rent Allowance (HRA), especially those earning up to Rs 1 lakh per month, can claim tax exemptions under the old tax regime. However, the new tax regime does not provide this benefit.
Answering the million-dollar question: Old regime or new regime?
Here’s a table that answers all your questions
For example, at ₹13.25 lakhs of income, you’ll need more than ₹5 lakhs of deductions in old regime to pay less tax than new regime
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3. High-Income Earners (Above Rs 24 Lakh Annually)
For individuals earning more than Rs 24 lakh per year and falling in the 30% tax bracket, the new tax regime may not be very attractive. As income increases, tax benefits under the new tax regime decrease, making the old tax regime a better option for higher savings.
What Deductions Are Not Allowed in the New Tax Regime?
While the new tax regime offers a higher exemption limit and standard deduction, many common exemptions are not included, such as:
- House Rent Allowance (HRA)
- Conveyance expenses
- Leave Travel Allowance (LTA)
- Telephone and internet expenses
- Tax-saving investments (PPF, NPS, SSY)
- Home loan and education loan interest
- Medical insurance premium
Which Tax Regime is Right for You?
The best tax regime for you depends on your financial situation. The new tax regime is not beneficial for everyone. Carefully compare both options before making a decision.
Use a Tax Calculation Tool
If you are unsure which tax regime will help you save more, you can use the Income Tax Department’s online tax calculator. This tool allows you to compare tax liabilities under both regimes and choose the most beneficial option for you.