The Union Budget 2025 has introduced significant changes to the income tax regime, offering relief to middle-class taxpayers. Finance Minister Nirmala Sitharaman proposed raising the basic exemption limit to Rs 4 lakh and increased the income threshold for the rebate under Section 87A to Rs 12 lakh. This means individuals earning up to Rs 12 lakh, with a standard deduction of Rs 75,000, can avoid paying taxes altogether. But for those earning more than Rs 12.75 lakh, choosing between the old and new tax regimes becomes more complicated.
 

The new tax regime is ideal for individuals with an income of Rs 12 lakh or below, as they qualify for a full rebate under Section 87A and benefit from a simplified filing process. It's also a better option for taxpayers who don't have deductions under Sections 80C (e.g., PPF, life insurance) or 80D (e.g., medical insurance premiums). The lack of complex documentation and lower tax rates make it an attractive choice for those with minimal deductions.
 

On the other hand, the old tax regime is more beneficial for taxpayers who can claim high deductions, such as contributions to PF, PPF, insurance premiums, and home loan interest. For individuals who have substantial deductions, the old tax regime allows them to reduce their taxable income significantly. A break-even analysis can help determine if the old regime is more advantageous, depending on your total deductions and income.
 

Key Takeaways:

• For income up to Rs 12 lakh, the new tax regime is the preferred choice, thanks to the full rebate under Section 87A and a standard deduction of Rs 75,000.
• Taxpayers with higher deductions (especially above Rs 8.5 lakh) should stick with the old tax regime to maximize their tax savings.
• Individuals with fewer deductions should consider the new tax regime for its simpler filing process and reduced tax liability.
• It's advisable to consult a tax expert or CA to determine which regime is best for your unique financial situation.