Budget 2025: Any individual earning ₹12 lakh will pay zero tax in 2025-26, against ₹80,000 she has to pay in the current financial year, if she chooses the new tax regime to file her returns. If that individual, let’s call her Ankita, is a salaried person, she will get the benefit of a standard deduction of ₹75,000.
Her colleague Viraj earns ₹18 lakh annually, and he, too, will see his tax liability drop with the new tax regime. But his savings will be ₹70,000. The manager, Mira, earns ₹25 lakh annually, and she will save ₹1.10 lakh in taxes next year. Ankita, Viraj, and Mira are eligible for a ₹75,000 standard deduction. For simplicity, let us keep the standard deduction out and consider the tax savings due to the changes in the tax slabs and rebates.
So, who has gained the most? The absolute amount of savings is the highest for Mira at ₹1.1 lakh and the least for Viraj at ₹70,000. But is Mira the winner here, or is Ankita?
Let us consider the calculations that the finance minister Nirmala Sitharaman shared. Ankita will get a 100 per cent rebate on the tax she is liable to pay without the changes in the new tax regime while Viraj will see his tax outgo fall by 30 per cent and Mira’s by 25 per cent. Thus, it appears that Ankita is the winner.
The new tax regime ensures individuals have more disposable income to spend and invest in a manner they see fit. The old regime tied down individuals to invest in tax-saving and social security instruments such as provident funds, pension funds and life insurance and buying a house with a bank loan to reduce tax outgo.
The new tax regime is more advantageous for younger taxpayers such as Ankita as they are not required to make forced investments, which her manager Mira had to make to save taxes. She can adopt more advantageous wealth creation plans and even take risks. Mira may see her tax liability fall with the new tax regime, but her disposable income may not increase by a corresponding amount if she is already committed to a pension and insurance scheme, is saving a large amount in provident funds, and is paying off a housing loan.
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