Understanding the Shift in Tax Regimes

The introduction of the new tax regime in Budget 2025, offering a substantial tax rebate of Rs 60,000 on income up to Rs 12 lakh (and Rs 12.75 lakh for salaried individuals), has significantly overshadowed the old tax regime. This change is designed to encourage taxpayers to make independent and informed choices to maximize their benefits, moving away from the linkage between savings schemes and tax liabilities.

Comparing Tax Liabilities

For incomes up to Rs 12 lakh, the new tax regime proves to be more beneficial, even when considering maximum possible deductions and house rent allowance (HRA). However, the scenario changes for higher income brackets, where the old tax regime might offer lower tax liabilities, provided significant investments in tax-saving schemes are made.

Strategic Tax Planning

At higher income levels, especially above Rs 15.75 lakh, taxpayers need to carefully evaluate their options. The new regime becomes advantageous for incomes of Rs 20 lakh and above, offering lower tax liabilities without the need for deductions. This strategic shift in tax planning highlights the importance of understanding both regimes to make informed financial decisions.