Budget 2025: Make India rich again

Donald Trump may have hinted that he might do away with income tax, but since that’s not happening here, read The Times of India – EY tax guide for some handy hints and tips that, to borrow some Trumpisms, will help you save ‘big, beautiful’ money. Believe me!

Tax regime | newer trumps old & new

Currently, India’s income-tax structure offers two regimes – old with various exemptions and deductions, and new with simplified, lower tax rates but fewer benefits. Understanding these regimes can help you optimise your tax liability. The new income-tax regime, introduced from FY 2020-21 for individual taxpayers, has been made much more attractive through the 2025 Budget proposals.

It has concessional tax slab rates for income up to 24 lakh, along with revised income slabs. However, exemptions like house rent allowance (HRA), leave travel allowance (LTA), deductions for investments under Section 80C or losses from home loans are still not permitted. The old tax regime leverages such exemptions and deductions to reduce the taxable amount.
Tax slab rates as per old and new regimes:

Under the new tax regime, taxpayers with total income up to 12 lakh qualify for a rebate of 60,000 under Section 87A as per 2025 Budget proposals. Meanwhile the old regime continues to provide a rebate of 12,500 for income up to 5 lakh. Additionally, salaried individuals can claim a standard deduction of 50,000 under the old tax regime, whereas the new regime offers an enhanced deduction of 75,000.

Taxpayers must, however, note that the new tax regime is now the default option, while the old tax regime is an alternative and beneficial for those who claim multiple exemptions and deductions.

Let’s look at two examples to see how the two tax regimes work. Rahul has gross salary income of 25 lakh with no exemptions or deductions. He will pay less tax under the new regime:

Ms Shweta with a gross salary of 25 lakh, claims tax exemption on HRA, deductions under Section 80C (for eligible investments), 80CCD (1B) (contribution to NPS), 80D (for health insurance) and 80G (for eligible donations). She can avail more benefits (marginally) under the old tax regime, as illustrated below:

The new slab rates have made the new tax regime quite lucrative without any exemptions, deductions, and losses. However, if you are eligible to claim significant exemptions and deductions (like in the illustration above), then the old tax regime may still be a better option. So, do the maths and choose wisely!

Understand exemption, deduction & rebate

Tax exemption, deduction and rebate are all avenues available to reduce tax liability but they apply at different stages and in different ways :

STAGE 1 Tax exemption means certain incomes are not subject to tax before calculating the gross total income of the taxpayer. For example, a salaried taxpayer can claim an exemption on house rent allowance (HRA) which is received as part of salary, effectively reducing the overall income chargeable under the head salary

STAGE 2 Tax deduction applies to certain investments and expenses (for example towards investments in Provident Fund) or contribution toward medical insurance premium) from the gross total income (which includes sources of income & has factored in the tax exemptions)

STAGE 3 Tax rebate is deducted directly from the amount of tax payable. Hence, it is applied after calculating the total tax liability. For example, Section 87A allows a rebate of up to 60,000 from the ?nal tax liability for total taxable income up to 12 lakh under the new tax regime, through the 2025 Budget proposals