New vs. Old Tax Regime 2025: Latest Income Tax Slabs, Exemptions & Savings Explained

Is It Time to Adopt the New Tax System? Let’s do some analysis! The New Tax Slabs: What Are They?

The budget paper makes it very evident that those choosing to use the new tax regime are subject to the new tax slabs. The tax breaks given to middle-class and salaried taxpayers are among the main features of Finance Minister Nirmala Sitharaman’s seventh consecutive budget. However, many people are unsure about how much relief they will truly receive with the budget speech’s promise of updated tax slabs.

The New Tax Slabs: What Are They?

The following revisions to the tax slabs under the new regime were made in Budget 2025:

• Annual income up to ₹4 lakh – No tax (0%)
• Income between ₹4 lakh to ₹8 lakh – 5% tax
• Income between ₹8 lakh to ₹12 lakh – 10% tax
• Income between ₹12 lakh to ₹16 lakh – 15% tax
• Income between ₹16 lakh to ₹20 lakh – 20% tax
• Income between ₹20 lakh to ₹24 lakh – 25% tax

How Does Tax-Free Income Up to ₹12 Lakh Work?
The government is providing exemptions for incomes up to ₹12 lakh, according the budget statement. Due to a standard deduction of ₹75,000, this exemption for salaried individuals goes to ₹12.75 lakh.
Additionally, a table outlining the exemption benefits is included in the budget document:
• There is a ₹10,000 tax exemption for an income of ₹8 lakh and a ₹80,000 tax exemption for an income of ₹12 lakh.

How Does a ₹16 Lakh Annual Salary Get Calculated for Tax?

 
Consider the following scenario, in which the yearly revenue is ₹16 lakh:
• 5% tax on ₹4 lakh to ₹8 lakh = ₹20,000; 10% tax on ₹8 lakh to ₹12 lakh = ₹40,000; 15% tax on ₹12 lakh to ₹16 lakh = ₹60,000; • No tax on the first ₹4 lakh
The total amount of tax due is ₹1,20,000.
Compared to what you would pay under the current tax system, this is ₹50,000 less.

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How About the Previous Tax System?
Only those choosing the new regime are subject to the new tax slabs, according to the budget statement. By doing away with the intricacy of exclusions and deductions, the government hopes to simplify taxation.
The previous tax structure isn’t mentioned in the budget text, though. Finance Minister Sitharaman later explained in a media interview that the previous government is not being overthrown. According to her, the administration would have made an official announcement if they intended to remove it.
Nearly 75% of taxpayers have already switched to the new tax regime, according to senior government officials. This implies that although the old system will continue to function, it might eventually phase away as more people switch to the new one.

Should You Adopt the New Tax System Instead of the Old One?
Your financial status and the amount of tax exemption you were able to claim under the previous system will determine whether you should choose the new regime.
For instance:

Why Your taxable income drops to ₹12 lakh if your yearly income is ₹16 lakh and you claim ₹4 lakh in exemptions.
•The entire amount of tax due under the previous system would have been ₹1,72,500, which is ₹52,000 more than what would be due under the current one.
Therefore, the new tax structure may be advantageous if you have fewer deductions. However, you might want to consider which approach is most effective for you if you make large deductions.

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