Old vs. New Tax Regime: Finance Bill 2025 Updates & Tax Liability Comparison for AY 2026-27 (FY 2025-26)
Comparing Tax Liabilities: Old vs. New Tax Regime
With the introduction of the new tax regime, taxpayers now have the flexibility to choose between the old and new systems based on quantum of deductions. By the Finance Bill 2025, the Hon'ble Finance Minister has proposed changes to the income tax slabs under the new regime, while the slabs under the old regime remain unchanged. This article provides a comprehensive comparison of the tax liability under both regimes and analyzes the deductions required to equalize the tax burden.
Understanding the Two Tax Regimes
Old Tax Regime
The old tax regime allows taxpayers to claim various deductions and exemptions, such as:
- Section 80C deductions (up to Rs. 1.5 lakh)
- House Rent Allowance (HRA)
- Interest on home loan (Section 24b)
- Other deductions under Chapter VI-A
New Tax Regime
The new tax regime offers lower tax rates but removes almost all deductions and exemptions. This means a simplified tax calculation but without tax-saving investments reducing taxable income.
Comparison of Tax Liability under Both Regimes
The following table illustrates the tax liability under both regimes, highlighting the deductions required under the old regime to match the tax liability of the new regime:
|
Gross Income (after Rs. 75,000 Standard Deduction) |
Tax under New Regime |
Tax under Old Regime (without deductions) |
Amount of Deductions Required to Equalize Tax Liability |
Tax under Old Regime (after deductions) |
|
13,00,000 |
75,000 |
2,02,500 |
4,87,500 |
75,000 |
|
14,00,000 |
90,000 |
2,32,500 |
5,12,500 |
90,000 |
|
15,00,000 |
1,05,000 |
2,62,500 |
5,37,500 |
1,05,000 |
|
16,00,000 |
1,20,000 |
2,92,500 |
5,62,500 |
1,20,000 |
|
17,00,000 |
1,40,000 |
3,22,500 |
6,08,333 |
1,40,000 |
|
18,00,000 |
1,60,000 |
3,52,500 |
6,41,667 |
1,60,000 |
|
19,00,000 |
1,80,000 |
3,82,500 |
6,75,000 |
1,80,000 |
|
20,00,000 |
2,00,000 |
4,12,500 |
7,08,333 |
2,00,000 |
|
21,00,000 |
2,05,000 |
4,42,500 |
7,91,667 |
2,05,000 |
|
22,00,000 |
2,30,000 |
4,72,500 |
8,08,333 |
2,30,000 |
|
23,00,000 |
2,55,000 |
5,02,500 |
8,25,000 |
2,55,000 |
|
24,00,000 |
2,80,000 |
5,32,500 |
8,41,667 |
2,80,000 |
|
25,00,000 and onwards |
3,10,000 |
5,62,500 |
8,41,667 |
3,10,000 |
Key Takeaways
- Lower Tax Rates in the New Regime: The new tax regime offers significantly lower tax rates, making it beneficial for individuals who do not claim substantial deductions or having total of deduction less than above amount of deduction.
- Deductions Matter in the Old Regime: The old tax regime provides tax relief through deductions. If a taxpayer can claim sufficient deductions, their tax liability under the old regime can match or be lower than the new regime.
- Deductions Required to Equalize Tax Burden: As shown in the table, a taxpayer with an income of Rs. 20 lakh would need deductions amounting to Rs. 7,08,333 to bring the tax liability down to Rs. 2,00,000 (same as the new regime).
- Who Should Opt for the New Regime? If a taxpayer has lower deductions as compared to above figures and prefers a simplified tax calculation, the new regime is a better choice.
- Who Should Opt for the Old Regime? If a taxpayer can avail themselves of significant deductions i.e. amount of total deductions greater than above mentioned amount of deductions (such as aggregate of investments in PPF, EPF, home loan interest, HRA etc.), the old regime remains beneficial.
Final Thoughts
Choosing between the old and new tax regimes requires careful consideration of income, deductions, and financial goals. Taxpayers should evaluate their eligible deductions before making a decision. Consulting a tax professional can also help in optimizing tax liabilities effectively.
For personalized tax planning and assistance, feel free to contact us!
Tags: Tax Regime Comparison Old Vs New Tax Regime AY 2026-27 FY 2025-26 Finance Bill 2025 New Tax Regime Income Tax India Tax Planning Save Taxes Income Tax Slabs Financial Planning
