The upcoming Budget 2025 has led to discussions about potential changes in tax rates and deductions. Individual taxpayers, who saw limited changes in the July 2024 Budget, are now hopeful for meaningful reforms to reduce financial pressure and increase savings.

The dual tax regime system—Old Tax Regime (OTR) and New Tax Regime (NTR)—has provided flexibility but added confusion.

Taxpayers often switch between regimes, unsure which works best for them.

Deepashree Shetty, Partner at BDO India, highlighted the need for a simpler tax structure, saying, “The government should focus on improving taxpayers’ savings by introducing reforms such as a unified tax regime and enhanced deductions.”

Experts believe the old tax regime may eventually phase out, making way for a single, streamlined tax framework.

“A gradual timeline, targeting FY 2026-27, could ensure a smooth transition for taxpayers and institutions alike,” Shetty said.

Taxpayers expect Budget 2025 to:

• Raise the exemption threshold from ₹3 lakh to ₹5 lakh.
• Boost disposable income for middle-class taxpayers.
• Introduce a 25% slab for income between ₹15 lakh and ₹20 lakh.
• Adjust the 30% slab to start at ₹20 lakh instead of ₹15 lakh.
• Include deductions in the new tax regime
• Allow Section 80C deductions (₹2 lakh) for savings like life insurance and PF.
• Increase Section 80D deductions to ₹1 lakh for health insurance.
• Reinstate HRA deductions under Section 10(13A) for salaried individuals.

In view of these, let’s look at the current tax rates for FY 2024-25 (AY 2025-26):

Introduced to simplify tax filing, the new tax regime eliminates most deductions and exemptions. However, it features lower tax rates:

• Up to ₹3 lakh: NIL
• ₹3 lakh to ₹6 lakh: 5%
• ₹6 lakh to ₹9 lakh: 10%
• ₹9 lakh to ₹12 lakh: 15%
• ₹12 lakh to ₹15 lakh: 20%
• Above ₹15 lakh: 30%

The old tax regime remains popular among taxpayers who claim deductions for investments, housing loans, and health insurance. The tax slabs for individuals below 60 years are:

• Up to ₹2.5 lakh: NIL
• ₹2.5 lakh to ₹5 lakh: 5%
• ₹5 lakh to ₹10 lakh: 20%
• Above ₹10 lakh: 30%

The old tax regime allows deductions such as:

• Section 80C: ₹1.5 lakh for investments in PF, ELSS, LIC premiums, etc.
• Section 80D: ₹25,000 for health insurance premiums (₹50,000 for senior citizens).
• HRA: Claimable for salaried taxpayers paying rent.
• Section 24(b): Up to ₹2 lakh for home loan interest

While the new tax regime provides a simpler structure with reduced rates, it offers no room for deductions, which many individuals rely on to reduce their taxable income.

In contrast, the old tax regime allows various exemptions and deductions but comes with higher tax rates.