Do you feel anxious due to never-ending changes in tax policies? Well, you aren’t alone! Every year the Indian taxpayer is twiddling their thumbs, wondering which one is better – old tax regime or new tax regime or should they jump ships and with the new updates for the 2025-2026 budget, making the right pick is more important than ever!
And here's the good news. You don't need to be a tax genius to crack this code. Instead, we have got you coverage that is comprehensive, easy, and informative. By the end of the article, we guarantee you will easily choose your tax regime. So, let's get started!
Types of taxes in India are direct and indirect tax and income tax:
Before getting into this, let’s look at the fundamentals; types of taxes in India, India offers two primary tax regimes types:
The introduction of the Budget 2025 has brought massive changes, leaving taxpayers with a difficult question. Is it better to remain with the old tax regime, and is it wiser to change to the new modified structure? The 2025-26 budget introduces changes that will help simplify the calculation of taxes owed to the government, especially for those who have opted for the new tax regime vs the old tax regime. The additional reforms are outlined below:
New Tax Regime Slabs for FY 2025-26 u/s 115BAC
| Income Tax Slab | Income Tax Rate | Surcharge |
|---|---|---|
| Up to ₹ 3,00,000 | Nil | Nil |
| ₹ 3,00,001 - ₹ 7,00,000** | 5% of income exceeding ₹ 3,00,000 | Nil |
| ₹ 7,00,001 - ₹ 10,00,000 | ₹ 20,000 + 10% of income above ₹ 7,00,000 | Nil |
| ₹ 10,00,001 - ₹ 12,00,000 | ₹ 50,000 + 15% of income above ₹ 10,00,000 | Nil |
| ₹ 12,00,001 - ₹ 15,00,000 | ₹ 80,000 + 20% of income above ₹ 12,00,000 | Nil |
| ₹ 15,00,001 - ₹ 50,00,000 | ₹ 1,40,000 + 30% of income above ₹ 15,00,000 | Nil |
| ₹ 50,00,001 - ₹ 100,00,000 | ₹ 1,40,000 + 30% of income above ₹ 15,00,000 | 10% |
| ₹ 100,00,001 - ₹ 200,00,000 | ₹ 1,40,000 + 30% of income above ₹ 15,00,000 | 15% |
| Above ₹ 200,00,001 | ₹ 1,40,000 + 30% of income above ₹ 15,00,000 | 25% |
Let’s understand the tax impact using an example.
Example Calculation
Assumptions:
Annual Income: ₹12,00,000
| Particulars | Old Tax Regime (₹) | New Tax Regime (₹) |
|---|---|---|
| Gross Income | 12,00,000 | 12,00,000 |
| Standard Deduction | 50,000 | 75,000 |
| Other Deductions (80C, 80D) | 1,50,000 | - |
| Taxable Income | 10,00,000 | 11,25,000 |
| Tax Payable Before Rebate | 1,12,500 | 67,500 |
| Section 87A Rebate | NIL | 60,000 |
| Total Tax Payable | 1,12,500 | 7,500 |
Deductions under Old Regime: ₹2,00,000 (including Section 80C, 80D, etc.)
Result: If you earn ₹12 lakh, the new tax regime lets you pay almost NO TAX!
Do you want to estimate your tax savings this time? You can determine your savings with the PNB MetLife's Old Vs New Tax Regime Calculator Online.
Significantly, one strategy that stands out in Budget 2025 is the increase in the Section 87A rebate.
Old Rebate: ₹25,000
New Rebate: ₹60,000
Applicable for Income Up to: ₹12,00,000
Who Benefits? Salaried individuals and taxpayers under the new tax regime vs old.
Why is this important? It means if your taxable income is ₹12 lakh or lower, you don’t have to pay any tax under the new regime!
Nonetheless, this rebate is not available for certain special incomes, which are taxable at special rates, such as capital gains, concerning Section 112A.
The new regime was first introduced with Budget 2020, with revised tax slabs and lower tax rates. A taxpayer opting for this regime had to give up on many exemptions and deductions such as HRA, LTA, Section 80C, 80D, etc. Consequently, several people continued the old tax regime for additional tax savings.
To make the new regime more favourable, the government made five adjustments in the Budget 2023, which are still valid for FY 2024-2025 because there were no changes in the Interim Budget 2024. These changes comprise:
| Tax Slab for FY 2024-25 | Tax Rate |
|---|---|
| Upto Rs. 3,00,000 | Nil |
| Rs. 3,00,001 - Rs. 7,00,000 | 5% |
| Rs. 7,00,001 - Rs. 10,00,000 | 10% |
| Rs. 10,00,001 - Rs. 12,00,000 | 15% |
| Rs. 12,00,001 - Rs. 15,00,000 | 20% |
| More than 15,00,000 | 30% |
Budget 2024 made the new tax regime more appealing to taxpayers by modifying specific details. In addition to these updates, considerable changes were made to the standard deduction which has now been increased to ₹75,000 and added to this is increased family pension deduction from ₹15,000 to ₹25,000. With these updates, taxpayers enjoy additional ₹17,500 tax savings under the new regime.
| Income Slabs (₹) | Old Tax Regime (Age < 60 & NRIs) | Old Tax Regime (60-80 Years) | Old Tax Regime (Above 80 Years) | New Tax Regime (FY 2024-25) |
|---|---|---|---|---|
| Up to 2,50,000 | NIL | NIL | NIL | NIL |
| 2,50,001 - 3,00,000 | 5% | NIL | NIL | NIL |
| 3,00,001 - 5,00,000 | 5% | 5% | NIL | 5% |
| 5,00,001 - 6,00,000 | 20% | 20% | 20% | 5% |
| 6,00,001 - 7,00,000 | 20% | 20% | 20% | 5% |
| 7,00,001 - 7,50,000 | 20% | 20% | 20% | 10% |
| 7,50,001 - 9,00,000 | 20% | 20% | 20% | 10% |
| 9,00,001 - 10,00,000 | 20% | 20% | 20% | 10% |
| 10,00,001 - 12,00,000 | 30% | 30% | 30% | 15% |
| 12,00,001 - 12,50,000 | 30% | 30% | 30% | 20% |
| 12,50,001 - 15,00,000 | 30% | 30% | 30% | 20% |
| 15,00,001 & Above | 30% | 30% | 30% | 30% |
The decision of opting old vs new tax regime differs from person to person based on their income profile and deduction claims eligibility.
Income from Salary: The Standard Deduction of ₹50,000 was previously only applicable to the old tax regime. The new updates will apply to the new tax regime as well. Furthermore, for FY 2024-25, this deduction will also receive an increase to ₹75,000 under the new tax regime and help taxpayers save more on taxes.
Family Pension Deduction: Family pensioners were previously entitled to a deduction of ₹15,000 or one-third of their pension. This deduction will now increase to ₹25,000 with the new Family Pension Deduction, effective from FY 2024-25, which will greatly reduce their tax liability.
Reduction of Surcharge for High Net Worth Individuals: For incomes above ₹5 crores, the surcharge from 37% will now be lowered to 25%. This change reduces the effective tax rate for high earners from 42.74% to 39% and offers great tax benefits for this group.
Leave Encashment Exemption for Non-Government Employees: The encashment exemption limit for non-government employees has increased remarkably from ₹3 lakhs to ₹25 lakhs, which is an 8-fold increase. This increase will help employees save significantly in taxes when they encash the leave balance left over after resignation or retirement.
New Tax Regime as Default: For FY 2023-24 new tax regime will be the default. Anyone wanting to stay with the older tax regime must file Form 10-IEA and their income tax return before the deadline. In addition, all taxpayers will have the option to exit both systems every year, thus allowing them to choose the scheme that maximizes savings depending on their income.
The previous regime of taxes was the traditional method of taxing that existed before the new taxation methods came into practice. It allows the taxpayer to claim over 70 exemptions and deductions, such as the famous House Rent Allowance (HRA) and Leave Travel Allowance (LTA). These allowances further reduce the taxable income, thus, reducing the taxes a person is liable to pay.
Tax savings beyond 80C are perhaps one of the most important information, as individuals can save up to 1.5 lakh rupees by investing in PPF, EPF, premium towards life insurance, tax saving fixed deposits, and other such funds.
Indian citizens have the right to choose whether they want to pay taxes under the old or new schemes, enabling them to choose the scheme that best suits their financial circumstances.
Shifting from one taxation scheme to another can be baffling, especially when balancing the old vs. new tax regime. The new approach may seem more beneficial given the changed conditions, the promise of lowered tax rates, and the ease of procedures for tax return submissions. On the contrary, the old scheme still offers a myriad of deductions, which may be more beneficial with proper investment.
To facilitate your decision, we have different income levels and breakeven estimates, which will assist you in deciding the most suitable tax regime for your income and other deductions.
The new vs old tax regime decision would depend on the deductions and exemptions you are entitled to under the old tax regime.
| Gross Total Income (Before Deductions) | Chapter VI-A Deductions | Best Tax Regime |
|---|---|---|
| ₹7,00,000 or less | ₹1,75,000 | Either (No tax in both) |
| More than ₹7,00,000 | ₹1,75,000 or less | New Tax Regime |
| Any income | More than ₹4.5 lakhs | Old Tax Regime |
| Any income | ₹1.75 lakhs to ₹4.5 lakhs | Depends on Income Level |
To simplify this, let's consider few examples:
Example 1: If Your Income is ₹7,00,000 (Before Deductions)
Assuming your gross total income is ₹700,000 and having VI-A Chapter deduction of ₹175,000 under the old tax regime, you can save under both strategies.
Your tax liability will be zero as you have rebates and deductions under all regimes.
Conclusion: Either regime could suit you because your tax would be zero.
Example 2: If Your Income is ₹10,00,000 (Before Deductions)
Once you claim the 1.75 lakh deductions your taxable income under the old tax regime is 825,000.
Under the new tax regime, the taxable income stays at 1,000,000 since there are no deductions for this level of income.
The new tax regime comes out on top as the tax liability is lower.
Example 3: If Your Income is ₹15,00,000 (Before Deductions)
Supposing your deductions add up to ₹5,00,000, you will be left with a taxable income of ₹10,00,000 under the old tax regime.
Your taxable income does not change under the new tax regime. That means it remains ₹15,00,000 because there are no available deductions.
Your tax liability will be lower under the old tax regime, which is easier as you get more substantial deductions.
The new tax regime is better if you have total deductions of ₹1.75 lakh or lower.
If your total deductions exceed ₹4.5 lakh the old tax regime will save you more tax.
If your deductions fall between ₹1.75 lakh and ₹4.5 lakh the choice depends on your income level.
| Particulars | Old Tax Regime | New Tax Regime (Until Mar 31, 2023) | New Tax Regime (FY 2023-24) | New Tax Regime (FY 2024-25) |
|---|---|---|---|---|
| Standard Deduction | ₹50,000 | ✗ | ₹50,000 | ₹75,000 |
| Income Limit for Rebate Eligibility | ₹5,00,000 | ₹5,00,000 | ₹7,00,000 | ₹7,00,000 |
| Effective Tax-Free Salary Income | ₹5,50,000 | ₹5,00,000 | ₹7,50,000 | ₹7,75,000 |
| Rebate u/s 87A | ₹12,500 | ₹12,500 | ₹25,000 | ₹25,000 |
| House Rent Allowance Exemption | ✔ | ✗ | ✗ | ✗ |
| Leave Travel Allowance (LTA) | ✔ | ✗ | ✗ | ✗ |
| Food Allowance (₹50/meal, max 2 meals/day) | ✔ | ✗ | ✗ | ✗ |
| Entertainment Allowance & Professional Tax | ✔ | ✗ | ✗ | ✗ |
| Interest on Home Loan (Self-Occupied Property) - Sec 24b | ✔ | ✗ | ✗ | ✗ |
| Interest on Home Loan (Let-Out Property) - Sec 24b | ✔ | ✔ | ✔ | ✔ |
| Perquisites for Official Purposes | ✔ | ✔ | ✔ | ✔ |
| Employee Own Contribution to NPS - Sec 80CCD(1) | ✔ | ✗ | ✗ | ✗ |
| Employer Contribution to NPS - Sec 80CCD(2) | ✔ | ✔ | ✔ | ✔ |
| Investments under Section 80C (EPF, LIC, ELSS, PPF, FD, Tuition Fees etc.) |
✔ | ✗ | ✗ | ✗ |
| Medical Insurance Premium - Sec 80D | ✔ | ✗ | ✗ | ✗ |
| Deduction for Disabled Individuals - Sec 80U | ✔ | ✗ | ✗ | ✗ |
| Interest on Education Loan - Sec 80E | ✔ | ✗ | ✗ | ✗ |
| Interest on Electric Vehicle Loan - Sec 80EEB | ✔ | ✗ | ✗ | ✗ |
| Donations to Political Parties / Trusts - Sec 80G | ✔ | ✗ | ✗ | ✗ |
| Savings Bank Interest Deduction - Sec 80TTA & 80TTB | ✔ | ✗ | ✗ | ✗ |
| Other Chapter VI-A Deductions | ✔ | ✗ | ✗ | ✗ |
| Contributions to Agniveer Corpus Fund - Sec 80CCH | ✔ | Not Applicable | ✔ | ✔ |
| Deduction on Family Pension Income | ✔ | ✗ | ✔ | ✔ |
| Gifts up to ₹50,000 | ✔ | ✔ | ✔ | ✔ |
| Voluntary Retirement Exemption - Sec 10(10C) | ✔ | ✔ | ✔ | ✔ |
| Gratuity Exemption - Sec 10(10) | ✔ | ✔ | ✔ | ✔ |
| Leave Encashment Exemption - Sec 10(10AA) | ✔ | ✔ | ✔ | ✔ |
| Daily Allowance | ✔ | ✔ | ✔ | ✔ |
| Conveyance Allowance | ✔ | ✔ | ✔ | ✔ |
| Transport Allowance for Specially-Abled Persons | ✔ | ✔ | ✔ | ✔ |
After choosing the two tax regimes, you need to consider the exemptions and deductions available under the old regime. Figure out your net taxable income after all eligible deductions and see the tax liability for both regimes.
A regime with a lower tax liability is undoubtedly the better option. Tell your employer which option you chose so that the right Tax Deducted at Source (TDS) applies to your salary.
Before making any decisions, it's advisable to consider house property, capital gains, or business income losses. If there is a balance of set-off from previous years, it will be lost in the new system, which can be detrimental to your future tax position.
Being in the new or old tax regime depends on how you manage your finances and spending. If you engage in proactive tax-saving activities, then the old tax regime could suit you best; on the other hand, if you are looking for lower rates and simplicity, then the new tax regime would be more beneficial.
Not sure what to do? You can always visit PNB MetLife‘s site and use the income tax calculator to make easy decisions.
Let's discuss your take in the comments – saving on deductions or paying less without hassle.
You will have to decide based on your eligible deductions, but normally it depends on choosing how many you have. The new regime is more convenient for taxpayers who do not require personalized service as they get lower tax rates. The old regimes might suit you better if you claim multiple exemptions like HRA, 80C Investments and home loan interest.
The fundamental framework hasn’t changed, but the budget might have modified tax bands, raised the allowances, or widened the scope for deductions. As always, verify the latest information before completing your tax returns.
Yes, employees can change each year depending on what is more favourable. Other self-employed individuals and practitioners must make an irrevocable decision or opt-out completely.
Piyush Kataria, SEO Manager at PNB MetLife, is a seasoned digital marketing strategist with over a decade of experience in optimizing websites for search engines. His expertise extends to keyword research, content strategy, technical SEO, and link building, all of which have been instrumental in driving organic traffic growth at PNB MetLife. With a strong foundation in life insurance, Piyush leverages his industry knowledge to create targeted and effective SEO campaigns.
Sakshi Malhotra is a seasoned marketing professional associated with the Life Insurance industry since 2007. At PNB MetLife, she heads Digital Marketing and Direct to Customer line of business. She is responsible for driving effective customer engagement through the company’s website and social media channels. In addition, she drives customer online buying journeys to help them buy the right product.
Disclaimer:
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.
PNB MetLife India Insurance Company Limited
Registered office address: Unit No. 701, 702 & 703, 7th Floor, West Wing, Raheja Towers, 26/27 M G Road, Bangalore -560001, Karnataka
IRDAI Registration number 117 | CIN U66010KA2001PLC028883
For more details on risk factors, please read the sales brochure and the terms and conditions of the policy, carefully before concluding the sale.
Tax benefits are as per the Income Tax Act, 1961, & are subject to amendments made thereto from time to time. Please consult your tax consultant for more details.
Goods and Services Tax (GST) shall be levied as per prevailing tax laws which are subject to change from time to time.
The marks "PNB" and "MetLife" are registered trademarks of Punjab National Bank and Metropolitan Life Insurance Company, respectively. PNB MetLife India Insurance Company Limited is a licensed user of these marks.
Call us Toll-free at 1-800-425-6969, Website: www.pnbmetlife.com, Email: indiaservice@pnbmetlife.co.in or Write to us: 1st Floor, Techniplex -1, Techniplex Complex, Off Veer Savarkar Flyover, Goregaon (West), Mumbai – 400062, Maharashtra.
| Beware of Spurious Phone Calls and Fictitious / Fraudulent Offers! IRDAI or its officials is not involved in activities like selling insurance policies, announcing bonus or investments of premium. Public receiving such phone calls are requested to lodge a police complaint. |
Let our specialist craft the most suited
financial solution for you!
Get Trusted Advice
Ask khUshi
Hi! I’m khUshi. How can I help you?
