With Union Budget 2025 bringing in crucial changes to India’s tax system, the debate over whether to opt for the Old Tax Regime or the New Tax Regime has become more relevant than ever. The new, simplified tax structure has emerged as the winner for most taxpayers, but a closer look reveals that high-income earners might still find value in the old regime—depending on their deductions.
New Tax Regime: A Winner for Most Tax Slabs
The new tax regime, which has undergone significant changes, now seems more attractive for a large number of taxpayers. Some key changes in the Union Budget 2025 include:
- Rebate limit raised from Rs 7 lakh to Rs 12 lakh.
- Basic exemption limit increased from Rs 3 lakh to Rs 4 lakh.
- Income tax slabs liberalized, making it easier for individuals to save on taxes.
For those earning up to Rs 12 lakh per annum, the new regime offers a zero tax liability. This means that individuals earning Rs 12.75 lakh (including standard deduction) as salaried employees won’t need to pay any taxes at all. However, they will still need to file returns to avail of the tax rebate of up to Rs 60,000.
The Old Tax Regime: Still Relevant for High Earners?
While the new tax regime clearly benefits those in the lower and middle-income brackets, the old tax regime still holds its ground for higher income groups—but only if certain conditions are met.
According to Deloitte India’s calculations, individuals earning over Rs 24 lakh will only benefit from the old regime if they can claim deductions worth more than Rs 8 lakh. Popular deductions like:
- Section 80C: Up to Rs 1.5 lakh for tax-saving investments.
- Section 80D: Up to Rs 1 lakh for health insurance premiums.
- Section 24b: Up to Rs 2 lakh for home loan interest.
Even with these, you will need more substantial deductions to make the old regime a viable choice. Salaried employees living in high-end rented apartments might still find the old regime advantageous if their total deductions exceed the threshold.
Break-Even Points: How to Make the Right Choice
For those in higher tax brackets, it’s important to compare the deductions available under the old regime with the benefits of the new regime. The equalizer or break-even deduction level is the point where the tax payable under both regimes is the same. If your deductions exceed this level, the old regime will likely be more beneficial.
For example, here’s a quick comparison:
| Gross Salary | Equalizer (Old Regime) |
|---|---|
| Rs 3,00,000 | NA |
| Rs 5,00,000 | Rs 8,00,000 |
| Rs 7,00,000 | Rs 1,50,000 |
| Rs 10,00,000 | Rs 8,00,000 |
| Rs 20,00,000 | Rs 14,00,000 |
- Key Point: If your deductions exceed the equalizer, the old tax regime will reduce your tax liability.
Which Tax Regime is Right for You?
Ultimately, the choice between the old and new tax regime depends on your individual income, deductions, and eligibility for various exemptions. While the new tax regime is a clear winner for many, higher earners with significant deductions may still find the old structure more beneficial.
- For Low and Middle Income: The new regime offers simplicity and reduced tax liability.
- For High Earners with Deductions: The old regime may be better—especially if your total deductions exceed the break-even point.
Highlight:
- New Tax Regime offers a zero tax liability for income up to Rs 12 lakh.
- Old Tax Regime still beneficial for high-income earners with high deductions.
- Always calculate your break-even deduction level to make an informed decision.
- The budget 2025 brings changes that make the new tax regime more attractive for most.
