To switch or not to: The old IT regime vs the new Premium

Union Budget 2025 sparks debate between old and new tax regimes, offering exemptions vs. simplified slabs and lower rates.

The Union Budget 2025 has once again brought the debate between the old and new tax regimes into focus. While the government continues to promote the new tax regime with simplified tax slabs and lower rates, the old tax regime remains attractive for many taxpayers due to extensive exemptions and deductions. With no changes made to the old tax regime in this year’s Budget, taxpayers must carefully evaluate their financial situation to decide whether to stick with it or transition to the new system.

The old tax regime is available to all taxpayers, including salaried individuals, self-employed professionals, and business owners, regardless of income bracket. This allows a broad range of taxpayers to benefit from exemptions and deductions [See graphic] under this system, making it a viable option for many taxpayers.

This regime encourages savings and investments by offering deductions for various financial instruments, enabling taxpayers to plan finances as per long-term goals. For those with significant investments in eligible tax-saving schemes, the old regime can lead to higher savings compared to the new despite higher tax rates.

While the old tax regime offers numerous benefits, the new tax regime introduced simplifies taxation with reduced rates but fewer exemptions and deductions. Here are some key factors to consider before making a decision.

Income level and tax-saving Investments: Individuals with substantial investments in tax-saving instruments may find the old tax regime more beneficial. Conversely, those who do not invest heavily in such schemes might benefit from the lower rates of the new tax regime.

Simplicity and compliance: The new tax regime eliminates the need to track multiple deductions and exemptions, simplifying tax calculations and compliance. Those who prefer a straightforward tax approach might find it more appealing.

Tax liability comparison: Comparing tax liabilities under the two regimes can help determine which system results in greater savings, based on an individual’s financial situation.