Introduction
The recent tax reforms introduced by the government have significantly altered the taxation landscape in India. One of the most notable changes is the enhanced rebate on income up to ₹12 lakh under the new tax regime. This has sparked widespread discussions on whether the old tax regime still holds any relevance.
While the new regime offers a simplified tax structure with lower tax rates and fewer deductions, some taxpayers may still benefit from the old regime depending on their specific financial situations. Making an informed choice requires an understanding of these subtleties.

Key Highlights of the New Tax Regime
- Zero tax liability on income up to ₹12 lakh: A significant relief for middle-class taxpayers.
- Revised standard deduction for salaried individuals: Increased to ₹75,000, effectively raising the tax-free income limit.
- Marginal relief for incomes slightly exceeding ₹12 lakh: Ensures fair taxation for individuals just above the threshold.
- Certain deductions still applicable: Employer contributions to NPS and home loan interest for rented properties remain deductible.
- Lower surcharge for high-income earners: The surcharge on income above ₹5 crore has been reduced from 37% to 25%, making the new tax regime more attractive for ultra-high-net-worth individuals.
Tax Implications Under the New Regime
While the zero-tax benefit applies to incomes up to ₹12 lakh, those earning slightly above may still avail of marginal relief. However, individuals with capital gains must note that such earnings are taxed separately and do not qualify for the rebate.
For salaried individuals, the additional ₹75,000 standard deduction means that incomes up to ₹12.75 lakh effectively remain tax-free. However, once taxable income crosses this threshold, the benefits diminish. For instance:
- An individual earning ₹12.8 lakh will have a tax liability of ₹10,000 due to marginal relief.
- For income levels above ₹13.5 lakh, marginal relief does not apply, and normal tax slabs come into effect.
Old vs. New Tax Regime: Which is Better?
For incomes up to ₹12 lakh, the new regime is clearly the better choice. However, for individuals with higher incomes, the choice depends on the deductions they can claim under the old regime. A break-even analysis indicates that taxpayers need substantial deductions to make the old regime more beneficial.
Income Level | Minimum Deduction Required for Old Regime to be Beneficial |
---|---|
₹14 lakh | ₹5.18 lakh |
₹20 lakh | ₹7.08 lakh |
₹24 lakh | ₹7.87 lakh |
₹25 lakh – ₹5 crore | ₹8 lakh |
For most individuals, achieving these deduction levels is difficult unless they have significant contributions to provident funds, home loan interest, NPS, and health insurance premiums.
Who Should Still Opt for the Old Tax Regime?
Despite the advantages of the new tax structure, certain taxpayers may still benefit from the old regime, particularly those who receive substantial House Rent Allowance (HRA). For example, an individual earning ₹48 lakh and paying ₹7.8 lakh annual rent can claim a significant HRA exemption, making the old regime more viable.
Taxpayers with multiple tax-saving investments and deductions—such as EPF, PPF, NPS, and life insurance premiums—may still find the old tax regime beneficial. Additionally, those with home loans on self-occupied properties may prefer the old regime due to the ₹2 lakh interest deduction cap.
FAQs
1. Is it possible for me to swap annually between the old and new tax regimes?
Yes, salaried individuals can choose between the old and new tax regimes each financial year. However, self-employed and business taxpayers must make a one-time selection and can only switch back once.
2. Does the ₹12 lakh tax rebate apply to all taxpayers?
No, the ₹12 lakh tax rebate applies only under the new tax regime and excludes capital gains and other special category incomes.
3. What happens if my income is slightly above ₹12 lakh?
Marginal relief ensures that individuals slightly above the threshold are not unfairly taxed. The effective tax payable remains lower in such cases.
4. Are deductions allowed in the new tax regime?
Most deductions available under the old regime, such as 80C, 80D, and HRA, are not available in the new regime. However, employer contributions to NPS and home loan interest on rented properties remain deductible.
5. Is the new tax regime beneficial for high-income earners?
Yes, particularly for those earning above ₹5 crore, as the surcharge rate has been reduced from 37% to 25%, significantly lowering their tax burden.
6. Which regime should I choose if I have multiple investments?
If your tax-saving deductions exceed the break-even limits for your income bracket, the old regime might be more beneficial. Otherwise, the new regime is simpler and more attractive.
Conclusion
The introduction of the revised tax slabs has made the new regime the preferred choice for most taxpayers. With widened tax brackets, increased rebates, and a simplified structure, it provides substantial savings, especially for those earning up to ₹12 lakh. However, high-income earners with substantial exemptions may still find the old regime beneficial.
Ultimately, the best choice depends on an individual’s income structure, deductions, and financial planning strategies. Taxpayers should carefully evaluate their eligible exemptions before making a decision.
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