Budget 2025: Income tax gains depend on your investments too. 6 scenarios explained

Acknowledging the contribution of a young demography to the direct tax revenue and coming through on the promise made to the middle class taxpayers to leave more cash in hand, Union Finance Minister Nirmala Sitharaman proposed significant changes in the tax rates and slabs under the new tax regime.

Increasing the tax rebate from existing threshold of Rs7 lakh to Rs12 lakh benefits almost 85 per cent of existing taxpayers comprising self-employed, small business and salaried class. Widening the tax slabs and expanding the limit of maximum tax rate of 30 per cent on income above Rs24 lakh, as against the current limit of Rs15 lakh under new tax regime and Rs10 lakh under old tax regime, is an added boost and ensures more net-in-hand income for this segment.

Rationalisation of TDS rates and enhancing limits for TDS and TCS applicability would ease the compliance burden on small taxpayers. Further, these reforms clearly keep the government’s promise to have a simplified tax regime which is taxpayer friendly. Going further in this direction, one should also await the new Income Tax Bill which is proposed to be tabled next week.

Here’s a comparative scenario on how much tax one will have to fork out in the old tax regime, new tax regime (existing) and the new tax regime (proposed) will impact both non-HNI and HNI (High Networth Individuals):

Non-HNI

Scenario 1: Only Standard Deduction

If you opt for only the standard deduction, the old tax regime results in the highest tax burden, while the existing new tax regime provides some savings at higher income levels. However, the proposed new tax regime offers further tax relief ensuring significant savings for taxpayers across various income brackets.

• The old tax regime results in the highest tax burden.
• The existing new tax regime provides some savings at higher income levels.
• The proposed new tax regime offers further tax relief with significant savings.

Scenario 2: Standard Deduction + 80C

If you claim both the standard deduction and Section 80C benefits, the old tax regime provides some relief through deductions but still leads to a higher tax burden. The existing new tax regime eliminates tax liability at lower income levels but offers no additional benefits beyond ₹15 lakh. In contrast, the proposed new tax regime further reduces tax liability, particularly benefiting individuals in higher income brackets.

• The old tax regime provides deductions but still leads to higher tax payments.
• The existing new tax regime eliminates tax liability at lower incomes but offers no benefit beyond Rs15 lakh.
• The proposed new tax regime further reduces tax, especially at higher income levels.

Scenario 3: Standard Deduction + 80C + Exemption from salaries

If you are an individual with a variety of exemptions and deductions would still find the old tax regime more beneficial, particularly in the Rs 15-30 lakh income bracket, despite the adjustments made in the new tax regimes.

• The old tax regime remains the best option for those with multiple exemptions
• The existing new tax regime results in higher tax liability for Rs15-30 lakh brackets.
• The proposed new tax regime offers some relief but is still less beneficial than the old regime for higher incomes

HNI

Scenario 1: Only standard deduction

• The proposed new tax regime reduces tax liability compared to both the old and existing new regimes, offering savings at all income levels.

Scenario 2: Standard Deduction + 80C

• Including 80C deductions slightly lowers tax under the old regime, but the proposed new regime remains the most tax-efficient option.

Scenario 3: Standard Deduction + 80C + Exemption from Salaries

• With additional exemptions, the old regime tax liability decreases further, but the proposed new regime still results in lower tax payments.

The author is Partner, Global People Solutions Leader, Grant Thornton Bharat. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.