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New vs old income tax regime after Budget 2025: Post income tax slab changes, which tax regime is better for salaried middle class taxpayers?

New vs old income tax regime after Budget 2025: Post income tax slab changes, which tax regime is better for salaried middle class taxpayers?

Smriti Jain / TIMESOFINDIA.COM / Updated: Feb 03, 2025, 17:29 IST

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Income Tax Slabs FY 2025-25 New versus Old Income Tax Regime: Finance Minister Nirmala Sitharaman announced significant income tax relief for the middle class in the Union Budget 2025, eliminating tax for incomes up to Rs 12.75 lakh. Taxpayers must compare deductions under the old regime versus the new lower rates to determine the most beneficial option.

New vs old income tax regime after Budget 2025: Post income tax slab changes, which tax regime is better for salaried middle class taxpayers?

New vs old tax regime: Is it time to switch to the new income tax regime or does the old income tax regime with higher tax exemptions and deductions still make sense?

Income Tax Slabs FY 2025-26 New versus Old Income Tax Regime: Finance Minister Nirmala Sitharaman has given the middle class, common man and salaried taxpayers a big income tax relief bonanza in the Union Budget 2025. With no income tax burden for income levels up to Rs 12.75 lakh, a big section of the middle class has found reason to cheer.
All the changes in the income tax slabs and income tax rates for financial year 2025-26 have been brought in the new income tax regime. Hence, the most important question that is there in the minds of salaried income taxpayers is - after Budget 2025 which income tax regime is better for me? Is it time to switch to the new income tax regime or does the old income tax regime with higher tax exemptions and deductions still make sense? TOI answers this important question for you:

New Vs Old Income Tax Regime: Which one should salaried taxpayers opt for post Budget 2025?

According to EY, the simple thumb rule that every salaried taxpayer needs to follow is: calculate the total exemptions and deductions that you want to claim in a year under the old income tax regime.
Also Read | Union Budget: No income tax up to Rs 12 lakh - a simple guide to what it actually means for taxpayers
If the gross income is more than Rs 24.75 lakh, then a salaried individual is better off taking the new income regime only if the deductions and exemptions (Deductions and exemptions which are not allowed under the new tax regime) are less than Rs 8 lakh (excluding standard deduction).

Particulars	Old regime	Proposed new regime	Old regime	Proposed new regime	Old regime	Proposed new regime
Particulars	Old regime	Proposed new regime	Old regime	Proposed new regime	Old regime	Proposed new regime
Total deductions and exemptions excluding standard deduction	Below 8 lakh		Equal to 8 lakh		Above 8 lakh
Gross Salary (A)	3,500,000	3,500,000	3,500,000	3,500,000	3,500,000	3,500,000
House Rent Allowance ("HRA") exemption	(325,000)	-	(325,000)	-	(425,000)	-
LTA exemption	(50,000)	-	(75,000)	-	(75,000)	-
80C	(150,000)	-	(150,000)	-	(150,000)	-
80CCD(1B) - additional NPS deduction	-	-	-	-	(50,000)	-
80D (including parents)	(50,000)	-	(50,000)	-	(50,000)	-
Interest on housing loan (self-occupied)	-	-	(200,000)	-	(200,000)	-
Total deductions and exemptions (B)	(575,000)	-	(800,000)	-	(950,000)	-
Standard deduction (C)	(50,000)	(75,000)	(50,000)	(75,000)	(50,000)	(75,000)
Total Taxable Income (A)-(B)-(C)	2,875,000	3,425,000	2,650,000	3,425,000	2,500,000	3,425,000

Tax	675,000	607,500	607,500	607,500	562,500	607,500
Cess	27,000	24,300	24,300	24,300	22,500	24,300
Total Tax	702,000	631,800	631,800	631,800	585,000	631,800
Benefit / (loss) under old tax regime		(70,200)		-		46,800

It is important to note that this threshold or break-even level of Rs 8 lakh is specific to the 30% tax bracket, that is for income above Rs 24 lakh or Rs 24.75 lakh (including standard deduction).

This break-even level will vary for income levels below Rs 24 lakh, as is evident from the table below where specific examples have been given for gross salary levels of Rs 14 lakh, Rs 18 lakh and Rs 22 lakh.

	Old regime	Proposed new regime	Old regime	Proposed new regime	Old regime	Proposed new regime
	Old regime	Proposed new regime	Old regime	Proposed new regime	Old regime	Proposed new regime
Gross Salary	1,400,000	1,400,000	1,800,000	1,800,000	2,200,000	2,200,000
House Rent Allowance ("HRA") exemption	(230,000)	-	(260,000)	-	(290,000)	-
LTA exemption	(25,000)	-	(50,000)	-	(50,000)	-
80C	(150,000)	-	(150,000)	-	(150,000)	-
80D (including parents)	(50,000)	-	(50,000)	-	(50,000)	-
Standard deduction	(50,000)	(75,000)	(50,000)	(75,000)	(50,000)	(75,000)
Total Taxable Income	895,000	1,325,000	1,240,000	1,725,000	1,610,000	2,125,000

Tax	91,500	78,750	184,500	145,000	295,500	231,250
Cess	3,660	3,150	7,380	5,800	11,820	9,250
Total Tax	95,160	81,900	191,880	150,800	307,320	240,500
Benefit / (loss) under old tax regime		(13,260)		(41,080)		(66,820)

Source: EY India
Also Check | Income Tax Slabs 2025-26 Budget 2025 Live Updates
“The finance minister has proposed reforms to personal taxes with special focus on middle-class tax payers. While there are limited exemptions available under the new tax regime, taxpayers with a gross income exceeding Rs 24.75 lakhs will find the new tax regime beneficial if their total deductions and exemptions, such as those under Section 80C for specified savings, Section 80D for medical insurance, interest on education loan, donations, HRA exemption, and home loan interest under Section 24, which are not available in the new regime, are less than Rs 8,00,000,” explains Surabhi Marwah, Tax Partner at EY India.
“Therefore, when choosing between the old and new tax regimes, it is crucial for taxpayers to carefully compare their deductions and exemptions eligible under the old tax regime with the potential tax savings offered by the lower rates being proposed in the new tax regime,” she says.

Latest Income Tax Slabs FY 2025-26 Under New Income Tax Regime

Income Tax Slab	Income Tax Rate
0-4 lakh	Nil
4-8 lakh	5%
8-12 lakhs	10%
12-16 lakhs	15%
16-20 lakhs	20%
20-24lakhs	25%
Above 24 lakh	30%

Latest Income Tax Slabs FY 2025-26 Under Old Income Tax Regime

Income Tax Slab	Income Tax Rate
Upto Rs. 2,50,000	Nil
From Rs. 2,50,001 to Rs. 5,00,000	5%
From Rs. 5,00,001 to Rs. 10,00,000	20%
Above Rs. 10,00,000	30%

The above income tax slabs under the old tax regime are valid for resident individuals up to 60 years of age

What FM Nirmala Sitharaman said on Income Tax Slabs

“Democracy, Demography and Demand are the key support pillars in our journey towards Viksit Bharat. The middle class provides strength for India’s growth. This Government under the leadership of Prime Minister Modi has always believed in the admirable energy and ability of the middle class in nation building,” Sitharaman said.
There will be no income tax payable upto income of Rs 12 lakh (i.e. average income of Rs 1 lakh per month other than special rate income such as capital gains) under the new regime. This limit will be Rs 12.75 lakh for salaried tax payers, due to standard deduction of Rs 75,000.

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About the Author

Smriti Jain

Smriti Jain is a business and economy journalist with over 15 years of reporting and editing experience. She writes extensively on the Indian economy, infrastructure stock markets, personal finance and Indian Railways. She has also hosted weekly video shows on TOI - TOI Business Bytes and TOI Wallet Talks. A graduate in Economics (H) from Delhi University, she has worked in Economic Times Digital and Financial Express Digital in her previous stints.

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