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The Union Budget 2025 introduced significant changes to India's income tax system, ushering in a new regime designed to simplify taxation and provide relief to a broad spectrum of taxpayers. The core of the reform lies in the substantial reduction of income tax rates and the rationalization of tax slabs. This has resulted in a noticeable decrease in the overall tax burden for many, particularly those in the middle-income bracket. The basic exemption limit has been raised to Rs 4 lakh, meaning individuals earning up to this amount are entirely exempt from paying income tax. Further, the increased tax rebate under Section 87A ensures that even those earning up to Rs 12 lakh effectively pay no tax under the new regime. This is further enhanced by the standard deduction of Rs 75,000, pushing the effective tax-free income threshold even higher to Rs 12.75 lakh for salaried individuals.
The impact of this reform extends beyond the lower-income groups. High-income earners, specifically those in the Rs 24 lakh to Rs 50 lakh annual income bracket, are also poised to benefit considerably. The article cites examples illustrating the substantial tax savings achievable under the new regime, showcasing how individuals in this bracket can save approximately Rs 1.1 lakh annually. This significant reduction is largely attributed to the revised tax slabs and the elimination of the need for extensive tax planning to optimize deductions and exemptions, which were a defining characteristic of the previous regime. This simplification is a key selling point of the new system, aiming to reduce the administrative burden and complexities associated with claiming various deductions and exemptions.
The shift to the new regime presents a clear advantage for many taxpayers who previously relied heavily on deductions and exemptions to lower their tax liability. The old regime required meticulous financial planning, utilizing deductions under various sections like 80C (investments), 80D (health insurance), and HRA (house rent allowance) to minimize the overall tax payable. The new regime, however, eliminates much of this complexity. The broadened tax slabs, combined with the higher basic exemption limit, result in lower tax outgo for many even without actively seeking out and claiming these deductions. This is highlighted through specific examples of individuals whose tax burden is significantly reduced under the new regime without the need for extensive financial planning to optimize deductions.
However, the new regime isn't universally beneficial. Taxpayers with substantial deductions, like those with high home loan interest payments or large corporate NPS contributions, may still find the old regime more advantageous. This underscores the importance of individual financial circumstances in determining the most favorable tax regime. A key example presented is that of a high-income earner whose deductions significantly reduce their tax liability under the old system, making the switch to the new regime less beneficial despite the lowered rates and simplified structure. This highlights the need for a careful analysis of individual financial situations before opting for the new tax regime.
The decision to switch to the new regime is a personal one, requiring a detailed evaluation of individual circumstances. Tax experts emphasize that those with minimal deductions are likely to gain the most from the new regime, while individuals with significant deductions and high annual incomes may be better served by remaining under the old regime. The new tax system represents a significant reform in India's tax landscape, aiming to create a more simplified and equitable system. However, the benefits are not uniform across all income levels, and a careful personal assessment is vital before committing to the change. The success of this reform will depend not only on its structural design but also on the capacity of taxpayers to effectively navigate the new system and determine which regime suits their specific financial profiles best. Governmental awareness campaigns and readily available tools for tax calculation under both regimes would prove invaluable in supporting taxpayers through this transition.
Source: New income tax regime: Check revised tax rates, slabs, and will you benefit?