Understanding the New Income Tax Regime Post-Budget 2025
The Union Budget 2025 has brought significant changes to the income tax landscape in India. The new tax regime now offers complete tax exemption for individuals earning up to Rs 12 lakh annually. This change aims to simplify tax compliance and reduce the burden on taxpayers. With the introduction of a standard deduction of Rs 75,000, individuals earning up to Rs 12.75 lakh will have no tax liability from the financial year 2025-26 onwards. As a result, many taxpayers are considering switching to the new regime. However, the old tax regime still holds value for those who can strategically structure their salary packages. This article explores the implications of these changes and the options available for taxpayers.
New Tax Regime Benefits
The new income tax regime introduced in Budget 2025 has been designed to provide relief to a large segment of taxpayers. With the exemption limit raised to Rs 12 lakh, individuals can now enjoy a tax-free income up to this threshold. This change is expected to attract more taxpayers to the new regime, with estimates suggesting that an additional one crore individuals may switch in the coming year. Currently, about 6.3 crore out of 8.75 crore individual taxpayers have already adopted the new regime.
The introduction of the standard deduction of Rs 75,000 further enhances the attractiveness of the new tax regime. This means that individuals earning up to Rs 12.75 lakh will not have to pay any income tax. The government aims to simplify tax compliance and encourage more people to file their returns. However, while the new regime appears beneficial, it is essential to consider the advantages of the old tax regime, which still offers various tax-saving opportunities.
Old Tax Regime Advantages
Despite the allure of the new tax regime, the old tax regime remains relevant for many taxpayers. The old regime allows individuals to claim various deductions and exemptions, which can significantly reduce their taxable income. Taxpayers can structure their salary packages to include tax-efficient perks that help minimize their tax obligations. Sudhir Kaushik, CEO and founder of Taxspanner, emphasizes that strategic planning can lead to substantial savings under the old regime.
For instance, taxpayers can benefit from allowances such as house rent, travel reimbursements, and meal coupons. These allowances can add up to significant tax savings. Kaushik lists eight salary perks that can help taxpayers save over Rs 1.35 lakh annually. This includes travel and fuel reimbursements, driver salaries, leave travel allowances (LTA), and more. Each of these perks has specific tax implications, and understanding them can help individuals make informed decisions about their tax strategy.
Key Salary Perks for Tax Savings
Taxpayers can leverage various salary perks to maximize their tax savings under the old tax regime. One of the most effective ways is through travel and fuel reimbursements. Employees can claim up to Rs 72,000 annually for travel expenses, resulting in significant tax savings. Similarly, employing a driver can also yield tax benefits, as the driver’s salary incurs a minimal taxable value.
Leave Travel Allowance (LTA) is another valuable perk. Employees can claim tax-free reimbursement for family holiday travel costs twice within four years. Meal coupons also offer tax exemptions, allowing employees to save on their monthly expenses. Additionally, reimbursements for internet and phone expenses, along with costs for newspapers and periodicals, remain tax-free with proper documentation.
Moreover, companies can purchase moveable assets for employees, which are taxed at a lower rate. This means that employees can enjoy the benefits of gadgets and appliances without incurring a heavy tax burden. Organizations often cover gym memberships and learning courses, which also remain tax-free when documented correctly. These perks not only enhance employee satisfaction but also provide substantial tax relief.
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