The recent budget brought about notable changes in tax regulations, particularly benefiting individuals. While the old tax regime remained unchanged, the new tax regime saw substantial relief. The tax slabs were widened, and tax rates were lowered across various brackets. For instance, under new tax regime, previously, income exceeding Rs 15 Lakhs incurred a 30% tax rate, which has now shifted to income over Rs 24 Lakhs, resulting in considerable tax reductions post-budget.Moreover, the rebate under section 87A was extended to encompass individuals with income falling within the normal tax slabs up to Rs. 12,00,000, effectively eliminating taxes in such cases. This extension has translated into significant tax savings up to Rs. 1,10,000 for all individuals.
Tax Slab Comparison Under New Tax Regime Before and After the Budget
Tax Slab | Tax Liability (Rs.) # | Tax Savings Up to (Rs.) | |
Till 31st March 2025 | From 1st April 2025 | ||
Up to Rs. 7,00,000 | 0* | 0* | 0 |
Rs. 7,00,000 to Rs. 8,00,000 | 30,000 | 0* | 30,000 |
Rs. 8,00,000 to Rs. 10,00,000 | 50,000 | 0* | 50,000 |
Rs 10,00,000 to Rs. 12,00,000 | 80,000 | 0* | 80,000 |
Rs 12,00,000 to Rs. 15,00,000 | 1,40,000 | 1,05,000 | 35,000 |
Rs. 15,00,000 to Rs. 16,00,000 | 1,70,000 | 1,20,000 | 50,000 |
Rs. 16,00,000 to Rs. 20,00,000 | 2,90,000 | 2,00,000 | 90,000 |
Rs. 20,00,000 to Rs. 24,00,000 | 4,10,000 | 3,00,000 | 1,10,000 |
Above Rs 24,00,000 | 1,10,000 | ||
# excludes education cess and surcharge.
* Individuals having income chargeable to normal tax slabs up to Rs 12,00,000 shall have NIL tax liability due to rebate under section 87A. This limit was Rs 7,00,000 till 31st March 2025.
In addition to the above, the attractiveness of old tax regime has diminished substantially. Individuals claiming benefits exceeding Rs. 8,00,000 under the old tax system will likely find it more advantageous. From this year onwards, the new tax regime is expected to be more beneficial for the majority of individuals.For those who were under the old tax regime last year but now switch to the new tax system, the tax benefit could be substantial.
Annual Income | Tax under Old Tax Regime* | Tax under New Tax Regmie | Tax Savings |
Rs. 16,00,000 | Rs. 2,92,500 | Rs. 1,20,000 | Rs. 1,72,500 |
Rs. 20,00,000 | Rs. 4,12,500 | Rs. 2,00,000 | Rs. 2,12,500 |
Rs. 25,00,000 | Rs. 5,62,500 | Rs. 3,30,000 | Rs. 2,32,500 |
* Assuming no deductions claimedUnder the new system, individuals with a taxable annual income of Rs 25 Lakhs or more could save up to Rs. 2,32,500, depending on the deductions previously claimed in the old tax regime. This could mean an additional monthly saving of up to Rs. 19,000.The question arises, how can you make the most of this additional money? Here are some tips to ensure optimal utilization:
1. Building Your Emergency Corpus: It is essential to have a financial cushion of 6 to 12 months of expenses for unforeseen circumstances. Consider using this surplus to either establish or bolster your emergency fund. The invested can be divided in to bank fixed deposits, liquid funds and / or arbitrage fund based on the individual’s risk preference.
2. Repaying Existing High Interest-Bearing Loans: At times, someone may have taken high interest-bearing personal loans or credit card loans. They can clear off these loans sooner than expected by utilising the surplus to make additional monthly payments.
3. Investing for Important Goals: Investment for crucial financial goals like retirement or children’s education is one of the key aspects of financial planning. However, due to current income levels and expenses, there might be a shortfall on monthly amount required to be invested for such goals. This surplus can reduce such shortfall and ensure the important life goals are adequately funded.
4. Fulfilling Desired Goals: We all look forward to that dream vacation. Have you postponed your dream vacation due to other financial priorities? Now is the perfect opportunity to start accumulating this surplus in a liquid or arbitrage fund. Once the amount grows, you can finally embark on that dream holiday without compromising other financial commitments.
5. Indulging on Health and Hobbies: Your emergency corpus is in place; all your goals are adequately funded, and you do not have any outstanding loans. In such scenarios, consider treating yourself to activities that enhance your well-being or fuel your passion. Whether it’s investing in a musical instrument like a grand piano or enrolling in a fitness program, now is the time to enjoy the fruits of your financial prudence.
This is an opportunity to give a boost to your investments and create a long-term wealth to secure your financial future.
(CA Vishal Shah is a founder of Bachhat, a SEBI-registered fixed-fee only financial advisor.)
