With every Union Budget, one of the most closely watched announcements by India’s middle class revolves around personal income tax. Over the past few years, the government has consistently pushed reforms aimed at simplifying taxation and easing the burden on individual taxpayers. A key part of this effort has been making the new income tax regime more attractive compared to the traditional or old regime—especially for salaried individuals earning between ₹8 lakh and ₹15 lakh annually.

In Budget 2025, several important changes were introduced that significantly strengthened the appeal of the new tax regime. These reforms have had a visible impact on tax collections as well. According to data from the Central Board of Direct Taxes (CBDT), direct tax collections in FY 2025–26 have risen by 7% year-on-year, while non-corporate tax collections—largely driven by individual taxpayers—have increased by 8%. This highlights the growing contribution of middle-income earners to the tax base.

But the key question remains: Which income tax regime is better for taxable incomes between ₹8 lakh and ₹15 lakh—the old or the new one? Let’s break it down in a simple and practical way.

How the New Income Tax Regime Differs from the Old One

1. Higher Tax-Free Income Limit

One of the biggest advantages of the new regime is the enhanced tax-free threshold. After Budget 2025, the Section 87A rebate under the new regime was increased, effectively making annual taxable income up to ₹12 lakh tax-free. In contrast, under the old regime, the rebate benefit is limited to taxable income of ₹5 lakh.

In simple terms, this means a much larger portion of income is exempt from tax under the new system.

2. Increased Standard Deduction

For salaried and pensioned individuals, the standard deduction under the new tax regime has been raised to ₹75,000. This allows taxpayers to earn up to ₹12.75 lakh annually without paying any income tax, assuming no other income.

Under the old regime, the standard deduction remains capped at ₹50,000, which limits the effective tax-free salary to around ₹5.5 lakh.

3. Simpler Slabs and Lower Tax Rates

The new income tax regime offers simpler tax slabs and comparatively lower tax rates, reducing complexity and paperwork. Unlike the old regime, taxpayers are not required to maintain extensive documentation for exemptions and deductions.

4. New Regime as the Default Option

Another important change is that the new tax regime is now the default choice. If a taxpayer does not explicitly select between the old and new regimes while filing returns, the new regime is automatically applied. This reflects the government’s intent to gradually move taxpayers towards a simpler tax structure.

Which Tax Regime Is More Beneficial?

There is no one-size-fits-all answer. The better option depends entirely on a taxpayer’s financial profile.

• New Tax Regime is suitable if:

  • You claim very few deductions or exemptions.

  • You prefer a straightforward tax filing process.

  • Your investments under Section 80C, health insurance premiums (80D), HRA, or home loan benefits are limited.

• Old Tax Regime is better if:

  • You claim substantial deductions such as:

    • Section 80C investments (PF, ELSS, LIC, etc.)

    • Section 80D (health insurance)

    • HRA exemption

    • Home loan interest and principal repayment

  • These deductions significantly reduce your taxable income.

Tax Calculation Example: ₹10 Lakh and ₹15 Lakh Income

To understand the difference clearly, let’s assume a salaried taxpayer who does not claim any deductions or exemptions other than the standard deduction.

• At ₹10 lakh taxable income:

  • Under the old tax regime, the total tax liability comes to approximately ₹1.17 lakh.

  • Under the new tax regime, the taxpayer saves significantly, resulting in a monthly take-home increase of up to ₹10,000.

• At ₹15 lakh taxable income:

  • Under the new regime, the total tax payable is around ₹1.09 lakh.

  • To match this tax liability under the old regime, a taxpayer would need deductions of nearly ₹5.37 lakh (including standard deduction).

  • If total deductions are less than ₹5.37 lakh, the new regime is clearly more beneficial.

  • If deductions exceed this amount, the old regime may still offer better savings.

Final Takeaway

The new income tax regime has undeniably reduced the tax burden on the middle class, leaving more money in the hands of individuals for consumption, savings, and investments. However, the choice between the old and new regimes should always be based on a careful comparison of your income, deductions, and financial goals.

Before filing your return, it is advisable to calculate tax liability under both regimes. A well-informed choice can help you maximize savings and make the most of the government’s tax reforms.