Old tax Regime Vs New Tax Regime (AY 2025-26)
Category: Indian Taxation, Posted on: 05/12/2024 , Posted By: KK
Introduction
The Union Budget 2024 introduced several notable updates to India’s income tax system, focusing on simplifying tax compliance and incentivizing taxpayers to opt for the New Tax Regime. However, the choice between the Old Tax Regime and the New Tax Regime remains critical for taxpayers as they evaluate which option provides the most favorable outcomes. Here’s a detailed comparison for Assessment Year (AY) 2025-26 to help you make an informed decision.
Key Features of Old vs. New Tax Regime
Old Tax Regime
- Allows various exemptions and deductions like:
- HRA & LTA: Fully available under eligible conditions.
- Standard Deduction: ₹50,000.
- Employee Contribution to NPS: Deductible under Section 80CCD(1).
- Employer Contribution to NPS: Deductible up to 10% of basic salary under Section 80CCD(2).
- Professional Tax: Fully deductible.
- Food Coupons: Tax-free up to eligible limits.
New Tax Regime
- Aimed at simplicity with reduced tax rates and minimal deductions.
- Standard Deduction: Increased to ₹75,000 for salaried individuals earning over ₹15.5 lakh annually.
- Deduction for Employer Contribution to NPS increased from 10% to 14%.
- Does not allow other exemptions like HRA, LTA, Professional Tax, or Section 80C deductions.
- Default regime for taxpayers unless the Old Regime is specifically opted foravoid
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Tax Slabs Comparison (AY 2025-26)
| Income Range | Old Tax Regime Rates | New Tax Regime Rates (Post-Budget) |
|---|---|---|
| Up to ₹3,00,000 | 0% | 0% |
| ₹3,00,001 – ₹6,00,000 | 5% | 5% |
| ₹6,00,001 – ₹9,00,000 | 10% | 10% |
| ₹9,00,001 – ₹12,00,000 | 15% | 15% |
| ₹12,00,001 – ₹15,00,000 | 20% | 20% |
| Above ₹15,00,000 | 30% | 30% |
The New Tax Regime for AY 2025-26 includes widened income slabs, with the 5% tax bracket extended to incomes up to ₹7 lakh (from ₹6 lakh previously).
3. Illustration: Salary Breakdown and Tax Liability
Scenario: Salary of ₹8,50,000 (Hrithik’s Case)
| Particulars | New Regime (₹) | Old Regime (₹) | Old Regime (Adjusted) (₹) |
|---|---|---|---|
| Gross Total Income | 8,50,000 | 8,50,000 | 8,50,000 |
| Less: Deductions | – | (-2,50,000) | (-2,37,500 / -2,25,000) |
| Net Taxable Income | 8,50,000 | 6,00,000 | 6,12,500 / 6,25,000 |
| Tax Liability | 35,000 | 32,000 | 35,000 / 37,500 |
- Key Takeaway: In this scenario, Rohan saves ₹3,000 under the Old Regime if full deductions are utilized. However, if deductions are not maximized, the New Regime becomes equally or more beneficial.
4. Major Changes Introduced in Budget 2024
Standard Deduction :
- Old Regime: ₹50,000.
- New Regime: Increased to ₹75,000 for salaried individuals earning over ₹15.5 lakh annually.
- Deduction for Employer Contribution to NPS
- Old Regime: 10% of basic salary.
- New Regime: Increased to 14%.
- Family Pension Deduction
- Old Regime: ₹15,000.
- New Regime: ₹25,000.
- No changes have been made to the Old Regime benefits.
5. Capital Gains Taxation (Revamped)
- Holding Period Simplified:
- For real estate, the Long-Term Capital Gains (LTCG) holding period has been reduced from 36 months to 12/24 months.
- LTCG Exemption:
- Increased from ₹1,00,000 to ₹1,25,000.
- Tax Rates:
- LTCG rate increased from 10% to 12.5%.
- STCG rate increased from 15% to 20%.
6. When Should You Choose the New Regime?
The New Tax Regime is beneficial for:
- Individuals with lower annual income and minimal investments.
- Salaried taxpayers with limited HRA, LTA, or Section 80C deductions.
- Those who prioritize simplicity over maximizing exemptions.
The Old Tax Regime, on the other hand, continues to be advantageous for:
- Individuals with substantial deductions for housing loans, insurance, or NPS.
- Those who receive HRA, LTA, or other significant allowances.
7. How to Choose Between Old and New Regime
- Assess your eligibility for deductions: Calculate your deductions under Section 80C, 80D, 80CCD, and others.
- Understand Changes Introduced in Budget 2024:
Adjust your salary structure (e.g., NPS contributions) to maximize benefits.
Conclusion:
Choosing between the Old and New Tax Regime for AY 2025-26 requires evaluating your financial profile, investment habits, and salary structure. The New Regime is attractive due to its simplicity and revised benefits, while the Old Regime remains suitable for individuals with high deductions and exemptions.
For personalized advice and tax planning assistance, contact Kaizen Taxperts to optimize your tax liability and make the most of your hard-earned income.
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