New Tax Regime Promises Simplicity, But Can It Help You Build Wealth Over Time?

When the government introduced the New Tax Regime (NTR), the pitch was clear: a cleaner, simpler, no-frills version of income tax. No more juggling multiple documents to claim deductions, no more last-minute ELSS investments or scrambling for insurance proof. It provides taxpayers lower rates and fewer complications. But as the financial year (FY) 2025-26 gets underway, a question continues to hover over many taxpayers’ minds: does the new regime really help them save more in the long run?

The short answer is, it depends. On your income, spending habits, discipline with investments, and most importantly, what you want from your money.

Here’s what the New Tax Regime (NTR) offers and what it doesn’t

The biggest carrot the new tax system dangles is lower tax rates. For instance, if your taxable income is up to Rs 12 lakh (or even Rs 12.75 lakh with the standard deduction), you might pay little to no tax under the new regime, thanks to the Section 87A rebate. This is a clear win for many middle-income earners who may not have hefty deductions to claim under the old regime.

“For someone earning Rs 12 lakh with few or no deductions, the new regime is quite attractive,” says Suresh Surana, a Mumbai based Chartered Accountant. “It takes away the pressure of tax planning and allows flexibility in how you want to spend or invest your money.”

Tax Rates Under NTR For FY 2025-26

Up to Rs 4 lakh: Zero

Rs 4 to 8 lakh: 5 per cent

Rs 8 to 12 lakh: 10 per cent

Rs 12-16 lakh: 15 per cent

Rs 16 to 20 lakh: 20 per cent

Rs 20 to 24 lakh: 25 per cent

Above Rs 24 lakh: 30 per cent

The new slabs under NTR, ranging from 5 per cent to 30 per cent, provide no tax benefits for those who are invested in tax-saving FDs or commit to life insurance just for the sake of deduction.

The simplicity of NTR comes at a price.

Old Tax Regime v/s New Tax Regime: Who Should Choose What?

There’s no universal answer to this question, however, here are a few broad pointers taxpayers should consider when choosing between the two:

Opt for the new regime if:

• Your income is Rs 12 lakh or less and you don’t claim many deductions.

• You prefer flexibility in investments and are not planning for structured savings that extend tax benefits.

• You prioritise simplicity in tax filing.

Old Regime Tax Rates for FY 2025-26:

Up to Rs 2.5 lakh: Nil

From Rs 2.5 - 5 lakh: 5 per cent

From Rs 5 lakh - 10 lakh: 20 per cent

Above Rs 10 lakh: 30 per cent

Stick with the old regime if:

• You claim deductions of Rs 2 to 3 lakh through various exemptions (HRA, 80C, 80D, home loan interest).

• You have a structured salary with components like HRA or LTA.

• You are focused on long-term savings via government-backed or insurance-linked investments.

For freelancers or self-employed individuals with fewer formal deductions, the new regime may offer a smoother experience. But for salaried folks, especially those with home loans or significant deductions, the old structure may continue to win.

The Catch: Take-Home Pay Isn’t the Whole Story

It is tempting to choose a regime based on take-home salary alone. But what about the future?

A rupee saved in PPF or EPF today doesn’t just reduce your tax, it also compounds over the years into meaningful wealth. That kind of financial cushioning is especially critical for retirement.

The new regime doesn’t stop you from investing in PPF or NPS, but without the tax incentive, the motivation may weaken. “While the new regime offers short-term tax relief, it does not inherently encourage long-term financial planning,” Surana explains.

On the question of effective tax planning, CA Surana says, “Salaried individuals should review their compensation structure early, optimising components like HRA, tax-efficient allowances, social security contributions etc. Business owners and professionals must maintain accurate records of expenses and income to ensure proper deduction claims.”

Don’t Guess, Run the Numbers

The best way to decide is to do a side-by-side comparison of your tax liability under both regimes. Many tax calculators today offer this feature with detailed breakdowns. Factor in your exemptions, deductions, salary structure, and future goals, not just this year’s return.

A hybrid approach doesn’t exist yet, you can’t mix and match deductions with new regime slabs.

But you can reassess your choice every year before filing returns, the government allows taxpayers to change regime at the time of filing their income tax returns. This flexibility is worth using, especially as your income and financial goals evolve.

The new tax regime is undoubtedly easier, fewer forms, less paperwork, no forced savings. For many, especially young earners without commitments or deductions, it’s a fresh alternative.

But ease doesn’t always translate into value. The old tax regime, despite its complexity, rewards discipline and nudges you toward a long-term vision, something the new system doesn’t inherently do.

So before you pick, pause. Look beyond the refund and ask, what do I want my money to do, not just this year, but 10, 20 years from now?