This article describes how to use the Arthgyaan goal-based investing tool as a calculator to determine if switching to the New Tax Regime makes sense from 1st April 2025.
This article is a part of our detailed article series on Union Budget 2025. Ensure you have read the other parts here:
This article gives a high-level overview of the most important points which affect your portfolio and taxation in Union Budget 2025 for both residents and NRIs.
This article describes the tax benefits announced in Budget 2025 that can be used by NRIs planning to retire in India to create a tax-free and inflation-indexed passive income stream.
This article describes the tax benefits announced in Budget 2025 for the NPS Vatsalya Scheme to understand if these benefits make NPS Vatsalya a good scheme for children’s future.
This article describes the tax benefits announced in Budget 2025 applicable to retirees and other fixed-income investors.
As per the Union Budget 2025 presented on 1st Feb 2025, the Finance Minister tweaked the New Tax Regime slabs to provide additional benefits vs Budget 2024 and kept the Old Tax Regime intact. We maintain that the new tax regime, which you can check using our easy-to-use calculator, is the better tax regime for most people.
Budget 2020 introduced the New Tax Regime (NTR) with the premise of lower overall taxes on income as long as tax deductions like 80C, 80D, HRA, etc., are foregone by the investor. In contrast, the Old Tax Regime (OTR) allows all of these deductions but with a higher tax on the post-deduction income. As per Union Budget 2025 (as announced on 1-Feb-2025),
Old tax Regime slabs for post-deduction income are:
New tax Regime slabs for post-deduction income are:
Note: The new tax regime slabs are as of Union Budget 2025 announced on 1-Feb-2025. Standard deduction is at ₹75,000 (same as Budget 2024) for income from salary and pension. Please keep in mind that offset of capital gains say under Section 111A, 112 etc (stocks and mutual funds) will not be available in the amounts above and will now be taxable even if there is no income tax for incomes below the threshold.
This means that income up to ₹12.75L (including the standard deduction) will be tax-free but if you have say ₹3 lakhs of equity long-term capital gains, it will still be taxable at 12.5% above 1.25L.
There is also a concept of marginal relief, under Section 87A, up to ₹71,250 so that some one with ₹12,75,001 income is not hit with ₹71,250 tax just because of being over the threshold by ₹1. In Budget 2025, 87A relief has been raised to ₹60,000 for income up to ₹12 lakhs. 87A rebate is not available for NRIs.
Previous to Union Budget 2025, the new regime slab rates were:
In the Union Budget 2025 speech, the new tax regime slabs were tweaked to give an additional ₹114,400 tax reduction. Here is a worked-out example for an income of ₹30 lakhs demonstrating the addtional benefit.
This is as per Budget 2024 for FY 2024-25 for ₹30 lakhs gross income.
Here is the same gross income earned after 1st April 2025:
The difference in the FY2024-25 tax (₹591,136) and the FY2025-26 tax (₹476,736) is ₹114,400
Given how these slabs are structured, there is a break-even point based on the total amount of deductions you usually take so that one of the tax regimes leads to lower taxes. Now that NTR is the default option, it is essential to choose the tax regime correctly, as many companies will open up the choice in April.
Related:
How to plan tax deductions for salaried income?
An individual salaried taxpayer can switch between the old and new tax regimes once a year without restrictions. If you have yet to specify the regime to your employer, then the new tax regime will be used by default. You must also file your ITR on time if you wish to use the old tax regime.
Taxpayers can also declare one tax regime (old or new) to their employer and then switch to the other one when filing.
This article helps you decide, based on your tax planning and the deductions you wish to take, which regime will be beneficial for you for financial year FY2025-26, which starts on 1st April 2025. However, you should remember that if you declare the wrong tax regime and later add/remove deductions, more tax will get deducted. Therefore, you will have to ask for a refund when filing.
There are other financial tasks due in April. Here is a list: How should you plan your investments and taxes in April?.
This article allows you to calculate the best tax regime to choose based on your investments and salary structure.
We have covered this topic in detail here: Which tax regime is better if you want to invest in PPF or ELSS or have a home loan?
Union Budget 2024 had earlier added a new incentive for taxpayers to switch to the New Tax Regime by increasing the deduction available under non-government employer contributions to the NPS. It raised the eligibility amount from 10% to 14% of basic pay plus dearness allowance (DA). Union Budget 2025 has kept this intact.
Please note that NPS Vatsalya contribution is covered under Section 80CCD1 in the old tax regime up to ₹50,000/year.
Read more here: Union Budget 2024: Should you invest more in NPS now in the new tax regime?
From Budget 2023 onwards, the new tax regime is the default unless the taxpayer chooses the old regime.
You can switch between old and new and back anytime during tax-filing by 31st July. If you miss the 31st July deadline, you cannot switch regimes and have to choose the new regime.
These tax filers who must use ITR 4, have to fill Form 10-IEA to choose the old tax regime before 31st July. Otherwise, the new regime will apply.
If you have income from business or profession, you cannot switch regimes every year.
We will use Google sheets to create a simple calculator for this calculation. There is a link to download a pre-filled copy of the Google sheet via the button below.
Important: You must be logged into your Google Account on a laptop/desktop (and not on a phone) to access the sheet.
Check out the tax-regime FY2025-26 tab to use the calculator.
We show a few cases below.
As in all the cases above, the differentiating factor is the quantum of deductions. As long as the amount of deductions from 80C, 80D, home loan, HRA, etc., exceeds around ₹5.75 lakhs, the old tax regime is better. Two key differences between the regimes are now the higher (75,000 instead of 50,000) standard deduction and the difference in how corporate NPS is handled. The calculator handles these cases correctly.
The old tax regime, therefore, makes sense only if you have substantial valid investments via 80C, pay a good amount of medical insurance premium under 80D and have either a home loan or receive HRA.
Related:
How to best use 80C deductions to plan your taxes?
The new tax regime makes sense
If you are still determining your deductions, you can play around with your options in the calculator to see what works best for you.
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More posts...Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.
This post titled Free Calculator: Union Budget 2025: which is the best tax regime to choose from 1st April 2025? first appeared on 01 Feb 2025 at https://arthgyaan.com
