OLD TAX REGIME IS DEAD

The Old Tax Regime is "almost" dead.

Following the presentation of Budget 2025, the policy measures are unlikely to provide significant benefits for the majority of the population.

Let’s understand why.

Since 2020, India has had two tax regimes - New & Old.

You (have had) the option to pick one. 

How do you decide which one is better for you?

Calculate your total deductions, exemptions and allowances, which include all tax-saving options like investments under 80C, NPS, HRA, home loans, health insurance, etc.

If this amount is more than the ‘break-even limit’ mentioned in the table, it makes sense to go for the Old Regime. Else, go for the New Regime.

Data source: EY and ET.

Let’s understand this with an example.

Say your salary is Rs 25 lakh in a year.

If your total deductions in tax-saving options exceed Rs 8.5 lakh, Old Regime will be beneficial for you. But if it is less than this amount, New Regime will be more attractive.

Similarly, you can check the breakeven limit for different income levels.

If the deductions exceed this breakeven limit mentioned in the table, go for Old Regime.

Otherwise, it is better to opt for the New Regime.

After the changes in Budget 2025, the deductions needed to opt for the Old Regime are considerably high. It won’t be possible for most people.

Only those with a super high HRA will find the Old Tax Regime more attractive. So, maybe very few people paying a huge amount in rent will find the Old Regime suitable.

Of course, if your income is below Rs 12.75 lakh, it is a no-brainer to pick the New Regime after the changes announced in Budget 2025. 

Note: All these changes are applicable from the next financial year, i.e, 2025-2026.

Jishnu Chatterjee,
February, 2025.

Author is a Jack-of-All trades. He believes that specialization is for insects. Author is a public servant, a Linux evangelist, chess enthusiast and a long-term investor.