India’s income tax framework has experienced significant transformations over the years, evolving from the old regime to the new regime introduced in 2020, and further refined in 2025. Each regime presents distinct structures, exemptions, and rates, catering to diverse taxpayer preferences and financial strategies. Let’s discuss the difference between old tax regime, new tax regime and the newly proposed tax slabs.**
Old Tax Regime**
Before the changes introduced in 2020, the Indian tax system operated under what is now referred to as the old tax regime. This structure is characterised by multiple tax slabs accompanied with multiple exemptions and deductions. Taxpayers can avail claim deductions under sections, such as 80C, 80D, and 10(10D) including investments like the Public Provident Fund (PPF), National Savings Certificates (NSC), life insurance premiums, health insurance premiums, and more. This regime incentivises savings and investments, allowing taxpayers to reduce their taxable income through strategic financial planning.
The tax slabs under the old regime are:
Income Range (₹)
| Tax Rate
|
Up to 2,50,000
| Nil
|
2,50,001 to 5,00,000
| 5%
|
5,00,001 to 10,00,000
| 20%
|
Above 10,00,000
| 30%
|
Additionally, senior citizens (aged 60 years and above) and super senior citizens (aged 80 years and above) can benefit from higher exemption limits to accommodate their financial needs.
New Tax Regime (2020)**
The new tax regime was first unveiled in the Union Budget of 2020, simplifying the tax structure and providing taxpayers with an alternative to the existing system. The new tax regime features reduced tax rates across various income slabs but also limits the exemptions and deductions available under the old regime. Taxpayers are given the option to choose between the old regime, with its higher rates and numerous deductions, and the new regime, with lower rates but minimal exemptions.
The initial tax slabs under the new regime were as follows:
Income Range (₹)
| Tax Rate
|
Up to 3,00,000
| Nil
|
3,00,001 to 7,00,000
| 5%
|
7,00,001 to 10,00,000
| 10%
|
10,00,001 to 12,00,000
| 15%
|
12,00,001 to 15,00,000
| 20%
|
Above 15,00,000
| 30%
|
This structure aimed to provide relief to taxpayers who did not fully utilise the deductions and exemptions under the old regime, thereby simplifying the tax filing process.
Revisions in the New Tax Regime in 2025**
The Union Budget of 2025 introduced significant revisions to the new tax regime, further enhancing it to provide relief to taxpayers. The key changes are as follows:
Increased Basic Exemption Limit:
The basic exemption limit has been raised from ₹3 lakh to ₹4 lakh, providing immediate tax relief to individuals with lower incomes.
Revised Tax Slabs:
The income tax slabs have been restructured to apply lower tax rates to more income levels. The newly proposed tax slabs are:
Income Range (₹)
| Tax Rate
|
Up to 4,00,000
| Nil
|
4,00,001 to 8,00,000
| 5%
|
8,00,001 to 12,00,000
| 10%
|
12,00,001 to 16,00,000
| 15%
|
16,00,001 to 20,00,000
| 20%
|
20,00,001 to 24,00,000
| 25%
|
Above 24,00,000
| 30%
|
Enhanced Standard Deduction:
The standard deduction has been increased from ₹50,000 to ₹75,000, reducing taxable income for salaried individuals and pensioners.
Tax Rebate under Section 87A:
The rebate under Section 87A has been enhanced, making income up to ₹12 lakh effectively tax-free. This move significantly benefits middle-class taxpayers, increasing their disposable income.
Default Tax Regime:
The new tax regime has been made the default tax regime. However, taxpayers can opt for the old tax regime if they find it more beneficial.
Which Regime Should You Choose?**
The choice between the old and new tax regimes depends on individual financial goals, income structure, and investment preferences. Here are some key considerations:
- If you actively invest in PPF, EPF, insurance, home loans, or other tax-saving instruments, the old regime might still offer better tax benefits.
- If you do not claim many deductions or exemptions, the new tax regime could be more beneficial due to its lower tax rates and simplified structure.
- With the 2025 revisions, the new tax regime offers a more competitive structure for those earning above ₹12 lakh, especially with the higher standard deductions.
- The new tax regime eliminates the need to track multiple deductions and exemptions, making tax filing easier and more transparent for those who prefer a simpler method.
Tip: You can use online tools like an income tax calculator to compute your tax liability and plan your finances.
The evolution of India’s tax structure from the old regime to the revised new tax regime in 2025 reflects a shift towards greater simplicity and flexibility. While the old tax regime is still the preferred choice for those who maximise deductions, the enhanced new tax regime is designed to reduce the tax burden and increase disposable income for a broader section of taxpayers. Ultimately, selecting the right tax regime depends on a careful evaluation of income, investments, and financial goals.**
** Tax exemptions are as per applicable tax laws from time to time.
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