The government has once again sweetened the New Tax Regime (NTR), making it more attractive for taxpayers by raising the rebate limit and tweaking tax slabs. The goal? To encourage more people to switch from the old, deduction-heavy tax system to the simplified NTR.
With zero tax liability for incomes up to ₹12 lakh and significant tax savings across income brackets, the latest changes could mark the final push toward phasing out the Old Tax Regime (OTR). But should you make the switch?
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In the Union Budget 2025-26, Finance Minister Nirmala Sitharaman announced major revisions to the NTR, providing relief to middle-class taxpayers. The most notable change was the increase in the rebate limit from ₹7 lakh to ₹12 lakh. “A rebate means that income up to that limit will not lead to any tax liability,” making salaried individuals earning ₹12 lakh per annum completely tax-free.
For those earning just above ₹12 lakh, however, the tax impact is sharp. If the taxable income rises even slightly—say, to ₹12.1 lakh—the tax jumps to ₹61,500, significantly reducing take-home pay.
Tax parity between individuals earning ₹12 lakh and those earning slightly more is only achieved at an income level of ₹12.71 lakh, where the tax outgo is ₹70,500.
The revisions extend beyond the middle class. For individuals earning ₹15 lakh, tax liability has been reduced from ₹1.4 lakh to ₹1.05 lakh. Higher-income earners benefit too, as tax rates for those earning ₹16-20 lakh have been lowered from 30% to 20%, and for those in the ₹20-24 lakh bracket, from 30% to 25%. A taxpayer with an income of ₹20 lakh will now save ₹90,000 in taxes, while someone earning ₹24 lakh will see their tax liability drop by ₹1.1 lakh.
The big question —should taxpayers still consider the Old Tax Regime? Previously, individuals claiming substantial deductions, such as house rent allowance (HRA), home loan interest, and 80C investments, found OTR more beneficial.
For individuals earning between ₹13.75 lakh and ₹15.75 lakh, the OTR can be a better choice—especially if they are able to claim HRA and invest at least ₹5.25 lakh in tax-saving instruments. Even without HRA, a taxpayer earning ₹13.75 lakh would have a lower tax liability under the OTR (₹57,500) compared to ₹75,000 under the NTR. The same holds true for those earning up to ₹15.75 lakh, provided they make significant tax-saving investments.
Above ₹15.75 lakh, the choice becomes more nuanced. If a taxpayer is claiming HRA of over ₹3 lakh and investing ₹5.25 lakh in tax-saving schemes, the OTR remains beneficial. However, as income levels rise further, the equation shifts. At ₹20 lakh and beyond, the NTR starts offering better savings, with tax liability dropping to ₹2 lakh compared to ₹2.4 lakh under the OTR, even after maximizing deductions. By ₹24 lakh, the savings under NTR increase to ₹60,000, making it the clear winner.
In short, taxpayers with incomes between ₹13.75 lakh and ₹15.75 lakh who can fully utilize deductions should consider staying with the OTR. However, for those earning ₹20 lakh or more, the NTR’s lower tax rates outweigh the benefits of deductions.