On 1 February 2025, the Finance Ministry unveiled sweeping changes in the Union Budget that have redefined personal income taxation. The new tax regime is designed to ease the tax burden on the middle class by lowering tax rates and increasing the exemption threshold. At its core, the reform aims to boost disposable incomes and, consequently, consumer spending while simplifying compliance. In this blog, we delve into the key features of the New Tax Regime 2025, compare it with the old tax system, and illustrate the potential savings for taxpayers with different salary levels.

Key Features of the New Tax Regime 2025

The revised tax structure introduced in Budget 2025 has several notable features:

• Higher Exemption Threshold:
  Individuals with an annual income up to ₹12 lakh will pay no tax. For salaried taxpayers, because of the increased standard deduction, the effective tax-free threshold is raised to ₹12.75 lakh.
• Revised Tax Slabs:
  The new regime introduces more concessional rates with the following slabs:
  • ₹0 – ₹4 lakh: Nil
  • ₹4 – ₹8 lakh: 5%
  • ₹8 – ₹12 lakh: 10%
  • ₹12 – ₹16 lakh: 15%
  • ₹16 – ₹20 lakh: 20%
  • ₹20 – ₹24 lakh: 25%
  • Above ₹24 lakh: 30%
    These slabs are designed to lower tax outgo for most middle-income earners.
• Increase in Standard Deduction:
  The standard deduction for salaried individuals has been increased from ₹50,000 to ₹75,000.
• Elimination of Most Exemptions and Deductions:
  While the old regime allowed taxpayers to claim deductions such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), and various Section 80C investments, the new regime has done away with most of these in favor of lower tax rates. The rationale is to simplify tax filing, although taxpayers who make substantial investments may still prefer the old regime.
• Enhanced Rebate Benefits:
  The tax rebate available under Section 87A has been increased (from ₹25,000 in earlier years to as high as ₹60,000 in some discussions) so that for incomes within the threshold, the tax liability can be fully offset.

New Tax Regime vs. Old Tax Regime: A Comparative Overview

Taxpayers now have the choice between the new regime and the traditional (old) system. The table below highlights the key differences:

Note: The actual benefit depends on individual financial circumstances and the value of deductions/exemptions claimed under the old regime.

Detailed Tax Slab Tables

New Tax Regime 2025 Slabs

Old Tax Regime Slabs

Examples of Tax Savings

Below are sample calculations comparing tax liabilities under both regimes for various annual incomes (assuming no additional deductions under the old regime):

Example 1: Annual Income of ₹12.75 Lakh (Salaried Individual)

Savings: Approximately ₹1,80,000 saved under the new regime, assuming basic deductions.

Example 2: Annual Income of ₹15.75 Lakh

Savings: Approximately ₹1,65,000 saved under the new regime.

Example 3: Annual Income of ₹25.75 Lakh

Savings: Approximately ₹2,40,000 saved under the new regime.

Note: The above examples assume that the taxpayer does not claim any exemptions or deductions under the old regime other than the standard deduction. Actual savings will vary based on individual circumstances.

Allowances and Deductions: What’s Changed?

Under the new tax regime, the government has removed many of the exemptions and deductions that were available under the old system. Some of the key changes include:

• House Rent Allowance (HRA):
  Previously, taxpayers could claim HRA exemptions if they lived in rented accommodation. Under the new regime, this benefit is not available.
• Leave Travel Allowance (LTA):
  The exemption for LTA is also removed.
• Section 80C Deductions:
  Investments in instruments such as Public Provident Fund (PPF), life insurance premiums, and other 80C-eligible investments cannot be claimed under the new regime.
• Other Deductions:
  Various other exemptions (like those for education loans, home loan interest under Section 24, etc.) are also not permitted, except for the limited deductions that the new regime specifically allows (e.g., the standard deduction of ₹75,000).
• Rebate Benefit:
  The new regime enhances the rebate benefit (Section 87A) so that individuals with taxable incomes up to ₹12 lakh (after the standard deduction) have zero tax liability. This is a major relief for those who do not benefit from the numerous deductions available under the old regime.

In summary, while the new regime offers lower tax rates and simplified filing, it does so at the cost of popular exemptions and deductions. Taxpayers who already invest in schemes under Section 80C or claim significant HRA benefits might still find the old regime more advantageous.

Below is a detailed comparison—using tables—that explains how various types of income apart from your salary are treated under the New Tax Regime 2025 versus the Old Tax Regime. This includes capital gains, interest income, income from house property (rent), and other miscellaneous incomes. You can add these tables to your write-up for a side-by-side comparison.

Capital Gains (LTCG & STCG)

Key Points:

• Long-Term Capital Gains (LTCG) & Short-Term Capital Gains (STCG):
  The treatment for both LTCG and STCG remains unchanged under the new regime. They are taxed as per the relevant provisions of the Income Tax Act regardless of whether you opt for the new or old tax system.
• Examples:
  • Equity Shares/Equity Mutual Funds: Gains above the exemption threshold (e.g., ₹1 lakh for equity) are taxed at 10% without indexation (if conditions are met) under both regimes.
  • Debt Funds/Other Assets: LTCG and STCG on non-equity assets continue to be taxed at the rates prescribed by law.

Table 1. Capital Gains Comparison

Interest Income

Key Points:

• Bank Deposits & Savings Account Interest:
  Interest earned from bank deposits, savings accounts, fixed deposits, and recurring deposits is fully taxable as “Income from Other Sources” under both regimes.
• Other Interest Income:
  Interest on non-savings investments (e.g., bonds, debentures) is similarly taxable at the applicable slab rates.
• No Special Concessions:
  There are no additional concessions for interest income under the new regime compared to the old regime.

Table 2. Interest Income Comparison

Income from House Property (Rent Collection)

Key Points:

• Computation Remains Unchanged:
  Under both regimes, income from house property is computed as follows:
  1. Gross Annual Value (GAV): Determined by the higher of actual rent received or the reasonable expected rent.
  2. Less Municipal Taxes Paid: Deduct municipal taxes if paid.
  3. Standard Deduction: A flat 30% deduction is allowed for repairs and maintenance.
• Self-Occupied vs. Let-Out Property:
  • For a self-occupied property, no income is assumed (subject to specific conditions) under both regimes.
  • For let-out property, the method of computation remains the same.

Table 3. Income from House Property Comparison

Other Types of Income

A. Other Sources (e.g., Winnings, Dividend Income, Royalty)

• Winnings (e.g., from Lottery, Game Shows):
  Taxed at special rates under the Income Tax Act (e.g., 30% plus surcharge and cess).
• Dividend Income:
  Dividend income from domestic companies is taxable in the hands of the shareholder (if applicable); earlier dividend distribution tax has been abolished, but dividends are taxed at applicable slab rates.
• Professional and Freelance Income:
  Income earned as professional fees is added to total income and taxed as per the respective slabs under both regimes.

Table 4. Other Income Comparison

Summary of Key Differences for Additional Incomes

FAQ

Conclusion

Disclaimer: The tax calculations provided are approximate and are for illustration purposes only. Individual tax liabilities may vary based on additional factors such as other income, specific exemptions, and deductions claimed under the old regime. It is advisable to consult with a tax professional before making any decisions.