New Tax Regime vs Old Tax Regime slabs and rates: Which one should salaried taxpayers choose?

Budget 2025 New Tax Regime vs Old Tax Regime: Finance Minister Nirmala Sitharaman has announced significant income tax relief for the middle class in the Union Budget 2025. With no income tax burden for income levels up to Rs 12.75 lakh, a large section of salaried taxpayers stands to benefit.

All changes in income tax slabs and rates for the financial year 2025-26 have been introduced under the new tax regime. This has led many taxpayers to question whether they should switch to the new tax regime or continue with the old one, which offers higher exemptions and deductions.

New vs Old Tax Regime: Key Factors for Salaried Taxpayers

Tax experts suggest that salaried individuals should calculate their total exemptions and deductions under the old tax regime before making a decision.

According to tax experts, for individuals with a gross income above Rs 24.75 lakh, the new tax regime is beneficial only if their total deductions and exemptions—excluding the standard deduction—are less than Rs 8 lakh. This break-even level of Rs 8 lakh applies specifically to the 30% tax bracket, which covers income above Rs 24 lakh. For those earning below this threshold, the break-even level will vary.

The Budget 2025 proposals aim to simplify personal taxes with a focus on middle-class taxpayers. While the new tax regime offers lower tax rates, it does not allow certain exemptions and deductions available under the old regime, such as Section 80C benefits for specified savings, Section 80D for medical insurance, interest on education loans, donations, HRA exemption, and home loan interest under Section 24.

Salaried individuals must carefully assess their eligible deductions under the old regime and compare them with the tax savings available in the new regime to determine which option works best for them.