Budget 2025 has made changes to the tax slabs and rates, making the new tax system a better option for many employees. But for some people, the old tax system can also be beneficial.
Budget 2025 has made changes to the tax slabs and rates, making the new tax system a better option for many employees. But for some people, the old tax system can also be beneficial.
Understand the difference between the new and old tax system
If you choose the old tax system, you can avail exemptions on many investments to save tax, such as NPS, PPF, SCSS, ELSS, tax-saver FD, etc. Tax exemptions are also available on health insurance premium, charity donations and children’s tuition fees. There is a deduction of up to ₹ 2 lakh on home loan interest. Exemptions like HRA (House Rent Allowance) and standard deduction are also available.
However, the new tax system is simple but does not offer many tax exemptions. It comes with lower tax rates, which can be beneficial for many employees. If your employer contributes to NPS and EPF, it will be tax free. Apart from this, the new tax system also offers the benefit of standard deduction up to ₹ 75000.
If you want to avail tax exemptions and deductions, then choose the old tax system. However, if you want a simple tax system without exemptions, then you can choose the new tax system.
The new tax system is better for these salaried employees
In the financial year 2025-26, if your taxable salary is up to ₹12 lakh, you will not have to pay any tax. Subtract all exemptions and deductions from your total salary to arrive at taxable salary. The new tax system allows only a standard deduction of ₹75,000, and NPS and EPF contributions made by the employer are tax-free.
If your taxable salary is less than or slightly more than ₹12 lakh, then the new tax system can be a good option. According to the calculations, the new tax system can also be tax free on a salary of ₹15 lakh or more, but some conditions will apply for this. Therefore, choose the right tax system keeping in mind your income and tax deductions.
What to do if taxable salary is more than Rs 12 lakh?
If your taxable salary is more than ₹12 lakh, you will have to calculate and see which tax system is better for you. You can compare your taxes under the old and new tax systems using the income tax calculator and choose the one that is more beneficial.
In most cases, the new tax system for the financial year 2025-26 is considered better than the old one. However, if your income comes not only from salary but also from many other sources, the calculations can be complicated. In such cases, it would be better to consult a tax expert.
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