The government, providing relief to the middle class, announced significant changes in the Budget 2025 presented on Saturday. Finance Minister Nirmala Sitharaman announced in her budget speech that annual incomes up to 12 lakh rupees will be tax-free. Additionally, a standard deduction benefit of 75,000 rupees will also be available. It seems the government has nailed the last nail on the coffin of the old tax regime. Even with various exemptions, the new tax regime is proving to be more beneficial than the old tax regime.
Without taking deduction benefits, the new tax regime is better in every way. However, if your income is 15 lakh rupees or more, the new tax regime will prove beneficial. If your income is 20 lakh, 25 lakh, or even 30 lakh rupees, the new tax regime will be better for you. Let's understand the complete calculation of its benefits...
How to benefit under the Old Tax Regime
Old Tax Regime (Slabs)
- Income up to 2.5 lakh rupees: 0% - Income from 2.5 lakh to 5 lakh rupees: 5% - Income from 5 lakh to 10 lakh rupees: 20% - Income above 10 lakh rupees: 30% For calculation, assume Rakesh's annual earning is 15 lakh rupees, and he chooses the old tax regime. Under this, a standard deduction of up to 50,000 rupees is available. Subtracting this first from his income (15,00,000 - 50,000 = 14,50,000 rupees), 14.50 lakh rupees come under the tax ambit.
Rakesh can further save 1.5 lakh rupees under section 80C by investing in EPF, PPF, ELSS, NSC. You can also benefit from up to 1.5 lakh rupees in tax exemption on tuition fees for two children. His taxable income further reduces to 13 lakh rupees. Further, he can save tax on 50,000 rupees by investing in the National Pension Scheme (NPS) under section 80CCD (1B). Thus, his taxable income becomes 12.50 lakh rupees.
Source: aajtak
More exemptions can be claimed, and suppose Rakesh has taken a home loan, he can save up to an additional 2 lakh rupees under section 24B. Adding this to his annual income reduces the taxable income to just 10.50 lakh rupees. In addition, under section 80D of income tax, by taking a medical policy for himself, Rakesh can get an additional deduction of 50,000 rupees by purchasing health insurance for his parents. After availing all these deductions, his total taxable income comes to 9.75 lakh rupees, on which the old tax regime levy results in a tax liability of 1,11,800 rupees.
Calculation under the New Tax Regime (2025)
Consider the changes made to the income tax slab under the new tax regime introduced on Saturday; an income of 15 lakh rupees falls under a 15% tax bracket. If Rakesh opts for the new tax regime, he receives 75,000 rupees as a standard deduction, more than what the old tax regime offers. Thus, a taxable income of 14.25 lakh rupees remains. Afterward, calculate the tax in accordance with the proposed New Tax Slab-2025.
Source: aajtak
After Subtracting Standard Deduction....
1500000- 75000 = 14,25000 rupees
0–4 0% = 0 4–8 5% = 20,000 rupees 8–12 10% = 40,000 rupees 12–16 15% = 33,750 rupees
In the slab of 12 to 16 lakh, 15 lakh income leaves a taxable income of 2.25 lakh rupees, attracting a 15% tax rate. Consequently, the total income tax on 15 lakh rupees becomes 93,750 rupees, plus an additional 4% cess, amounting to 3,750 rupees. Thus, the overall tax totals 97,500 rupees.
Direct Benefit of 14,300 Rupees
Calculation reveals that after changes in the tax slab within Budget 2025, the new tax regime offers substantial benefits to Rakesh. By comparing savings, he stands to save directly 14,300 rupees on an income of 15 lakh rupees, which makes it clear that the New Tax Regime is now better compared to the Old Tax Regime.
