Tax season is back, and so is the age-old dilemma—stick to the Old Regime with its maze of deductions or embrace the New Regime with its sleek, no-strings-attached structure?
One lets you play the long game with tax-saving investments, the other lets you lower tax rates upfront. One demands meticulous planning, the other says, “Less paperwork, more take-home!”
With Budget 2025 shaking things up, it’s time to find out which regime truly works in your favor. Let the tax showdown begin!
Old Vs New Regime
Category | Old Regime | New Regime (2025) |
Income Tax Slabs | Up to ₹2.5 lakh: Nil | Up to ₹4 lakh: Nil |
₹2.5 lakh to ₹5 lakh: 5% | ₹4 lakh to ₹8 lakh: 5% | |
₹5 lakh to ₹10 lakh: 20% | ₹8 lakh to ₹12 lakh: 10% | |
Above ₹10 lakh: 30% | ₹12 lakh to ₹16 lakh: 15% | |
– | ₹16 lakh to ₹20 lakh: 20% | |
– | ₹20 lakh to ₹24 lakh: 25% | |
– | Above ₹24 lakh: 30% | |
Standard Deduction | ₹50,000 | ₹75,000 |
Tax Rebate | Income up to ₹5 lakh tax-free | Income up to ₹12 lakh tax-free |
Deductions & Exemptions | Allows deductions (80C, 80D, HRA, etc.) | No major deductions are allowed |
Best For | Individuals with high tax-saving investments | Individuals preferring lower tax rates without deductions |
Here is a detailed overview of the New tax regime
Revised Income Tax Slabs Under the New Tax Regime
The new tax regime has been restructured to offer more favourable rates for individual taxpayers:
Income Range (₹) | Tax Rate |
Up to ₹4 lakh | Nil (0%) |
₹4 lakh to ₹8 lakh | 5% |
₹8 lakh to ₹12 lakh | 10% |
₹12 lakh to ₹16 lakh | 15% |
₹16 lakh to ₹20 lakh | 20% |
₹20 lakh to ₹24 lakh | 25% |
Above ₹24 lakh | 30% |
This restructuring is designed to increase disposable income for the middle class, thereby boosting consumption and savings.
Enhanced Standard Deduction
To further benefit salaried individuals and pensioners under the new tax regime:
- Standard Deduction: Increased from ₹50,000 to ₹75,000.
- Family Pension Deduction: Enhanced from ₹15,000 to ₹25,000.
These enhancements aim to reduce taxable income, providing additional financial relief.
How income of 12 lakh will not be taxable under the New tax regime?
Under the New Tax Regime 2025, income up to ₹12 lakh can effectively become non-taxable due to various deductions and rebates. Here’s how it works:
Tax-Free Income Calculation for up to ₹12 Lakh
Let’s break down how income up to ₹12 lakh can effectively be non-taxable:
Step 1: Standard Deduction of ₹75,000
- The government has increased the standard deduction from ₹50,000 to ₹75,000.
- This means, for someone earning ₹12 lakh, the taxable income reduces to ₹11.25 lakh.
Step 2: Rebate Under Section 87A (Up to ₹7 Lakh)
- If taxable income after deductions is up to ₹7 lakh, a full rebate under Section 87A applies.
- This means, even if tax is calculated, it will be nullified by the rebate.
Step 3: Additional Tax Benefits for Middle-Class Taxpayers
- The government has introduced an additional deduction of ₹2.5 lakh under Section 16(IA) for salaried employees.
- If applicable, this further reduces taxable income to around ₹8.75 lakh.
Step 4: Lower Tax Rates on the Remaining Income
- Even if taxable income is slightly above ₹7 lakh, the lower tax rates under the new regime ensure that tax liability remains minimal.
Zero Tax for up to ₹12 Lakh Income In India
With all the deductions and rebates applied, a person earning ₹12 lakh can legally reduce taxable income below ₹7 lakh, making them eligible for a full rebate under Section 87A.
Thus, despite earning ₹12 lakh, the net tax payable becomes zero due to the combination of rebates, standard deduction, and lower tax rates.
This reform makes the new tax regime more attractive for middle-class salaried individuals, ensuring higher take-home income and boosting spending power.
When can you file a return under the new tax regime declared in the Union Budget 2025?
You can file your Income Tax Return (ITR) under the New Tax Regime declared in the Union Budget 2025 starting from April 1, 2025, for the Assessment Year (AY) 2026-27 (corresponding to Financial Year 2025-26).
Important Dates for Filing ITR under New Tax Regime (2025-26)
- April 1, 2025 – Start of ITR filing for FY 2025-26 under the new tax regime.
- July 31, 2026 – Due date for individuals and salaried taxpayers to file ITR (unless extended by the government).
- October 31, 2026 – Due date for businesses requiring a tax audit under Section 44AB.
- November 30, 2026 – Due date for companies and taxpayers required to file Transfer Pricing Reports.
Key Points to Note
- Default Regime: The new tax regime will be the default option, but taxpayers can opt for the old regime if they prefer it.
- No Major Deductions: The new tax regime does not allow exemptions like HRA, 80C (LIC, PPF, ELSS), 80D (medical insurance), and others, except the standard deduction.
- Choosing Between Old & New Regime: You can choose the tax regime every financial year while filing your return (except for businesses with income under PGBP, who must opt in or out once).
- Late Filing Penalty: Filing after July 31, 2026, may attract a late fee under Section 234F (₹1,000 to ₹5,000).
So, for the new tax regime announced in Budget 2025, the tax slabs will be applicable from April 1, 2025, to March 31, 2026.
Conclusion
Choosing between the old and new tax regimes for FY 2025-26 depends on your income, deductions, and financial goals. The old regime benefits those claiming multiple exemptions, while the new regime offers lower rates with a simplified process. Assess your tax liability under both to make an informed decision and maximize savings.