The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman, introduces major tax rebates under the new tax regime, signalling a potential shift away from the old system. Individuals earning up to Rs 12,75,000 will now be exempt from income tax, provided they opt for the new regime.
A social media user on X (formerly Twitter) reacted to the announcement, stating, “Old tax regime died today.”
Sitharaman, in her Budget speech, said, “I am now happy to announce that there will be no income tax up to an income of Rs 12 lakhs,” clarifying that this applies only “under the new regime.” The statement was met with applause and chants of “Modi-Modi” in Parliament.
Since the introduction of the new tax regime in 2020, the government has encouraged taxpayers to transition to it through consistent rebates, while the old regime has remained unchanged. The latest incentives make the new system more appealing, offering simplified compliance and reduced documentation requirements.
The old tax structure allows deductions for investments under Sections 80C, 80CC, and 80D, requiring submission of investment proofs. In contrast, the new regime does not mandate such documentation. Experts believe that, with the absence of new benefits for the old system, its relevance may be diminishing.
Amitabh Tiwari, a former corporate and investment banker, questioned, “Old tax regime now a thing of the past! Is it still lucrative?”
Chartered accountants have traditionally advised high-income individuals with significant deductions to stick with the old regime. However, the revised tax slabs and rebates now make the new system a more attractive option.
The new tax regime provides complete tax exemption for individuals earning up to Rs 12,75,000, including the standard deduction.
According to the Budget memorandum, “to enhance the limit of total income for rebate in clauses (a) and (b) of the first proviso under section 87A, on which the income tax is payable as per the rates of income tax under sub-section (1A) of section 115BAC, from Rs 7,00,000 to Rs 12,00,000 and the limit of rebate in clause (a) of first proviso to section 87A from Rs. 25,000 to Rs. 60,000.”
This effectively means that individuals earning up to Rs 12 lakh, excluding capital gains, will not have any tax liability due to rebates and revised slab rates.
Tax Benefits Under the New Regime
- An individual earning Rs 12 lakh will save Rs 80,000 in tax, eliminating liability.
- A taxpayer earning Rs 18 lakh will benefit from a Rs 70,000 reduction.
- A taxpayer with an income of Rs 25 lakh will save Rs 1,10,000.
Comparison of Tax Slabs
Old Regime:
- 0-Rs 2.5 lakh: Nil
- Rs 2.5-5 lakh: 5%
- Rs 5-10 lakh: 20%
- Above Rs 10 lakh: 30%
Previous New Regime:
- Up to Rs 3 lakh: Nil
- Rs 3-7 lakh: 5%
- Rs 7-10 lakh: 10%
- Rs 10-12 lakh: 15%
- Rs 12-15 lakh: 20%
- Above Rs 15 lakh: 30%
Revised New Regime:
- 0-4 lakh: Nil
- Rs 4-8 lakh: 5%
- Rs 8-12 lakh: 10%
- Rs 12-16 lakh: 15%
- Rs 16-20 lakh: 20%
- Rs 20-24 lakh: 25%
- Above Rs 24 lakh: 30%
Despite the incentives, some taxpayers still favour the old regime due to its deductions and exemptions. It allows deductions of up to Rs 1.5 lakh under Section 80C for investments in schemes such as PPF, NSC, and SSY. Over 70 exemptions, including HRA and LTA, help reduce taxable income.
However, with the new tax regime offering substantial benefits, the old system appears less competitive. If phased out, it could impact small investment schemes linked to tax deductions, altering long-term financial planning.
Although no official confirmation has been given about discontinuing the old regime, Budget 2025-26 strongly suggests that the government is making a final effort to encourage a shift to the new tax structure.
Also Read: Government Answers Middle-Class Discontent With Historic Tax Relief In Budget
