Budget 2025: Post income tax slab changes, which tax regime is better for salaried middle class taxpayers?

In a big bonanza for salaried taxpayers, Union Finance Minister Nirmala Sitharaman announced that there will be no income tax to be paid for income levels up to Rs 12 lakh.

The much-anticipated changes in income tax slabs and rates for the financial year 2025-26 have been introduced exclusively under the new tax regime. This has sparked a critical question among salaried professionals - should they switch to the new tax regime, or does the old system with its exemptions and deductions still hold an advantage?

New tax regime

0-4 lac: NIL

4-8 lakh: 5%

8-12 lakh: 10%

12-16 lakh: 15%

16-20 lakh: 20%

Rs 20-24 lakh - 25%

Above 24 lakh: 30%

New Vs Old Income Tax Regime: Which one should salaried taxpayers opt for?

Experts at EY India suggest a simple yet crucial thumb rule for salaried taxpayers to determine their best option. The key is to assess the total exemptions and deductions they plan to claim under the old regime.

For those earning a gross income exceeding Rs 24.75 lakh, the new tax regime is more beneficial only if their deductions and exemptions (which are not permitted under the new system) are less than Rs 8 lakh (excluding the standard deduction). However, this break-even threshold of Rs 8 lakh is specifically applicable to taxpayers in the 30% tax bracket (income above Rs 24 lakh).

For those earning below this level, the calculation changes, as demonstrated in various income scenarios- Rs 14 lakh, Rs 18 lakh, and Rs 22 lakh—where different break-even points apply.

Surabhi Marwah, Tax Partner at EY India, explains, "The finance minister has proposed reforms to personal taxes with special focus on middle-class taxpayers. While there are limited exemptions available under the new tax regime, taxpayers with a gross income exceeding Rs 24.75 lakh will find the new tax regime beneficial if their total deductions and exemptions—such as those under Section 80C for specified savings, Section 80D for medical insurance, education loan interest, donations, HRA exemption, and home loan interest under Section 24—are less than Rs 8,00,000."

She further says, "Therefore, when choosing between the old and new tax regimes, it is crucial for taxpayers to carefully compare their deductions and exemptions eligible under the old tax regime with the potential tax savings offered by the lower rates being proposed in the new tax regime."

What FM Sitharaman said on tax slabs

During her budget speech, Finance Minister Nirmala Sitharaman reaffirmed the government’s commitment to empowering the middle class:

"Democracy, Demography, and Demand are the key support pillars in our journey towards Viksit Bharat. The middle class provides strength for India’s growth. This government, under the leadership of Prime Minister Modi, has always believed in the admirable energy and ability of the middle class in nation-building."

As per the new tax regime, no income tax will be payable for earnings up to Rs 12 lakh (equivalent to a monthly income of Rs 1 lakh, excluding capital gains and other special rate income).

For salaried individuals, this limit extends to Rs 12.75 lakh, thanks to the standard deduction of Rs 75,000.

Also read: Income Tax changes in Budget 2025: Latest Income Tax slabs; new regime vs old regime EXPLAINED