New Tax Regime

OR
Old Tax Regime
Brief introduction to the concept of income
tax and the purpose of comparing the two
regimes.
Content

 Introduction
 Pros and Cons of Tax Regimes
 Tax Rates under New and Old Tax Regimes
 Marginal Relief
 Exemptions and Deductions not available under New
Regime – Illustrative List
 Comprehensive Illustration for Various Income Class
 Consequences of further continuing with New Tax
Regime
 Old Tax Regime Vs New Tax Regime - Which is Better?
Introduction
 Finance Act 2020 inserted a new section 115BAC (applicable from Financial Year 2020 -21):

“Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, the
income-tax payable in respect of the total income of a person, being an Individual or a Hindu undivided
family, for any previous year relevant to the assessment year beginning on or after the 1st day of April,
2021, shall, at the option of such person, be computed at the rate of tax given under new regime.

 Under the Budget 2025, with the revised tax structure, individuals earning up to Rs.12,00,000 will have
no tax liability due to the increased rebate of Rs.60,000, under New Tax Regime. For salaried individuals,
the tax liability will be zero for incomes up to Rs.12,75,000, due to the Rs.75,000 standard deduction.
 Certain Pros / Cons of the New vs. Old Tax Regime
NEW TAX REGIME OLD TAX REGIME

 Pros  Pros
 Reduced Tax rates and reduced compliances  Enforcing Investment culture / funds for major expenses
 Investors may not prefer to lock-in funds in prescribed  Domestic savings contribute to overall National savings rate
instruments for the specified period
 Cons
 Increased liquidity in the hands of the taxpayer
 Significant lock-in periods
 Revival of consumption cycle / demand
 Not suitable for senior citizens, millennials
 Cons  Limited investment avenues
 Non-availability of certain specified deductions  Need to maintain documentation in case of any
 Not suitable for Long term planning tax proceedings
Tax Rates under New Regime and Old Regime
Marginal Relief

 Marginal relief is a benefit offered to taxpayers whose

income slightly exceeds the threshold at which they would
otherwise have zero tax liability i.e. exceeds Rs. 12,00,000
for FY 2025-26.

 It ensures that the tax payable does not excessively surpass

the incremental income earned.
Example: Marginal relief Calculation at the income level Rs. 12,50,000
Income Details Amount
Income threshold for zero tax (A) Rs. 12,00,000

Total Income (B) Rs.12,50,000

Taxable Income Rs. 12,50,000
Excess Income (C = B-A) Rs. 50,000

Tax Liability on ₹12,50,000 at slab rate (D) Rs. 67,500

Marginal Relief (D-C) Rs. 17,500

Tax Payable due to Marginal Relief (Lower of C Rs. 50,000
and D)
Specified Exemptions & Deductions not available under New Regime –
Illustrative list

 10(13A) – House Rent Allowance

 10(5) – Leave travel Concession
 10(14) – Covers special allowance detailed in Rule 2BB (such as children education allowance,
hostel allowance, transport allowance, per diem allowance, uniform allowance, etc)
 Section 16 – Standard Deduction of Rs. 50000
 24(b) – Interest on borrowed loan for a Self Occupied property (rented property not covered)
 Any provision of chapter VI – A – section 80C, 80CCD(1B), 80D etc
 Section 80CCD(2) is not covered (where an employer makes a contribution to NPS)
 Comprehensive Illustration for Various Income Class
Assuming Salary Rs.20 Lakhs Assuming Salary Rs.15 Lakhs Assuming Salary Rs.13 Lakhs Assuming Salary Rs.12.50 Lakhs Assuming Salary Rs.10 Lakhs
Particulars Old Regime New Regime Old Regime New Regime Old Regime New Regime Old Regime New Regime Old Regime New Regime
Amount Amount Amount Amount Amount Amount Amount Amount Amount Amount
Basic 7,00,000 7,00,000 5,25,000 5,25,000 4,55,000 4,55,000 4,25,000 4,25,000 3,50,000 3,50,000
HRA 3,50,000 3,50,000 2,62,500 2,62,500 2,30,000 2,30,000 2,25,000 2,25,000 1,75,000 1,75,000
Others 9,50,000 9,50,000 7,12,500 7,12,500 6,15,000 6,15,000 6,00,000 6,00,000 4,75,000 4,75,000
Gross Salary 20,00,000 20,00,000 15,00,000 15,00,000 13,00,000 13,00,000 12,50,000 12,50,000 10,00,000 10,00,000

Professional Tax 2,500 - 2,500 - 2,500 - 2,500 - 2,500 -

Standard Deduction 50,000 75,000 50,000 75,000 50,000 75,000 50,000 75,000 50,000 75,000
Net Salary 19,47,500 19,25,000 14,47,500 14,25,000 12,47,500 12,25,000 11,97,500 11,75,000 9,47,500 9,25,000
*Tax for Income 80C 1,50,000 - 1,50,000 - 1,50,000 - 1,50,000 - 1,50,000 -
of Rs.13 80D 50,000 - 50,000 - 50,000 - 50,000 - 50,000 -
Lakhs has 80CCD(1B) - NPS 50,000 - 50,000 - 50,000 - 50,000 - 50,000 -
been computed Section 24 (interest) 2,00,000 - 2,00,000 - 2,00,000 - 2,00,000 - 2,00,000 -
after giving an Net Taxable Salary 14,97,500 19,25,000 9,97,500 14,25,000 7,97,500 12,25,000 7,47,500 11,75,000 4,97,500 9,25,000
impact of Basic tax 2,61,750 1,85,000 1,12,000 93,750 72,000 25,000* 62,000 - - -
Marginal Relief
Education Cess 10,470 7,400 4,480 3,750 2,880 1,000 2,480 - - -

Total Tax liability 2,72,220 1,92,400 1,16,480 97,500 74,880 26,000 64,480 - - -
Excess Tax 79,820 18,980 48,880 64,480 -
Consequences of further continuing with New Tax Regime

 Post Budget 2025, the New Tax Regime looks more attractive, but it removes deductions on
investments like PPF, SSY, and NPS.

 Before stopping contributions, consider these points:

Penalties for Missing Minimum Contributions

- PPF : ₹50 penalty + ₹500 arrears per year if no contribution is made.

- SSY : ₹50 penalty + ₹250 minimum deposit per year for inactive accounts.

- NPS : ₹100 penalty per year + ₹1,000 minimum contribution needed to keep the account active.
 Why keep these Investments active?

1️⃣PPF (Public Provident Fund) 7.1% tax- 2️⃣SSY (Sukanya Samriddhi Yojana) 3️⃣NPS (National Pension System) Market-
free interest under the EEE model. linked returns with low- cost management.
High 8.2% interest—better than
Govt-backed, risk-free savings. 60% of corpus is tax-free at withdrawal.
bank FD’s
Loan & partial withdrawal options available. Helps build a strong retirement fund.
Fully tax-free maturity.
Ideal for securing a girl child’s future
Old Tax Regime Vs New Tax Regime - Which is Better?

 The new tax regime can largely benefit middle-class taxpayers who have a taxable
income of up to Rs.15 lakh. The old regime is a better option for high-income earners.
 Since the Basic Exemption Limit of Rs.5,00,000 is relaxed for super-senior citizens, the
old regime is beneficial for them, even if they are middle-class earners.
 The new income tax regime is beneficial for people who make low investments. As the
new regime offers six lower-income tax slabs, anyone paying taxes without claiming
tax deductions can benefit from paying a lower rate of tax under the new tax regime.
For instance, the assessee having total income before deduction up to Rs.12 lakh will
have higher tax liability under the old system if they have investments less than
Rs.3,12,500. Therefore, if you invest less in tax-saving schemes, go for the new regime.
 That being said, if you already have in place a financial plan for wealth creation by
making investments in tax-saving instruments; medical claims and life insurance;
making payments of children’s tuition fees; payment of EMIs on education loan;
buying a house with a home loan; and so on, the old regime helps you with higher tax
deductions and lower tax outgo.
 In light of the above and considering the new income tax regime, if taxpayers want to
opt for the concessional tax rates, they may evaluate both regimes. Hence, it is
advisable to do a comparative evaluation and analysis under both regimes and then
choose the most beneficial one, as it may vary from person to person.
Thanks