Introduction
The Indian government’s new tax regime, introduced to simplify income tax filing with lower slab rates, has gained considerable attention. However, Chartered Accountant Nitin Kaushik warns that this simplicity may come at a steep price — a potential loss of ₹2-3 lakh annually in tax savings for middle-class salaried taxpayers. This blog dives deeper into the hidden costs of the new tax regime and why careful analysis is crucial before switching.

Understanding the New Tax Regime
The new tax regime, governed under Section 115BAC, offers concessional slab rates without most exemptions and deductions available in the old system. It is now the default option for individual taxpayers from FY 2023-24 onwards but allows opting for the old regime if it proves financially beneficial.

Key Features of the New Tax Regime

• Reduced tax slab rates for income up to ₹24 lakh and beyond, with a new tax-free slab up to ₹12 lakh for FY 2025-26.

• Elimination of popular deductions like Section 80C (₹1.5 lakh limit), 80D (health insurance), 80E (education loan interest), HRA exemption, LTA, and more.

• Allowed deductions limited primarily to standard deduction (₹50,000 currently), employer’s NPS contribution, and gratuity exemptions.

• new tax regime 2025

Hidden Costs in Detail
Kaushik’s analysis highlights that while the new tax regime seems straightforward, taxpayers often sacrifice significant tax-saving opportunities included in the old regime:

• Loss of ₹1.5 lakh exemption on investments under Section 80C (PPF, ELSS, LIC, home loan principal repayment).

• No deduction on health insurance premium payments (Section 80D), which can exceed ₹1 lakh for senior citizens.

• Lost benefit of interest paid on education loans (Section 80E) and electric vehicle loans (Section 80EEB).

• No HRA exemption or leave travel allowance (LTA) allowances.

• Other deductions such as professional tax, charitable donations (Section 80G), and savings account interest benefits (Section 80TTA/TTB) are unavailable.

For taxpayers in the 30% bracket and those with active investments or loans, the missed exemptions and deductions can amount to ₹2.4 lakh to ₹3 lakh annually in tax savings, a substantial hidden cost of choosing simplicity over strategic tax planning.

Who Might Benefit from the New Regime?
The new regime can favor:

• Young earners with minimal or no tax-saving investments or home loans.

• High-income individuals without deductions or interest-bearing liabilities.

• Taxpayers who prefer simpler filing without managing multiple claims.

However, most salaried professionals and families engaged in systematic tax planning will find the old regime more advantageous financially.

Comparing Old vs. New Regime Tax Rates and Benefits

How to Choose the Right Regime?

• Calculate your total exemptions and deductions under the old regime.

• Estimate tax liability in both regimes based on your income and investments.

• Consider your financial planning goals and whether you prefer simplicity or optimized tax savings.

• Consult a tax professional or CA for personalized advice.

Key Takeaways from CA Nitin Kaushik
“Don’t switch blindly based on trends. The old regime rewards smart financial planning,” he says. The apparent simplicity of the new tax regime may cost you dearly if you lose out on valuable deductions and exemptions.

Conclusion
While the new tax regime promises ease and lower slabs, it carries hidden costs that can reach up to ₹3 lakh yearly in foregone tax benefits. For salaried professionals and families with active investments, staying with or opting for the old tax regime after careful calculation remains the smarter choice in 2025. Always evaluate your unique situation carefully before making a switch.