Old vs new tax regime: Why PPF still holds ground while ELSS loses appeal

When the new tax regime was first introduced in the Union Budget 2020-21, it did not attract many takers that fiscal year.This new optional tax regime offered taxpayers lower tax rates in exchange for foregoing most tax deductions and exemptions under the then-prevailing old tax regime. Its newness and the fact that the old regime still remained more attractive for most people made the shift infeasible.However, the government brought in changes to make the new regime more attractive, encouraging more people to adopt it.

It became the default tax regime from 1 April 2023.Among the key changes that take effect from 2025-26 are: zero-tax liability for those with business and professional income of up to ₹12 lakh per year ( ₹12.75 lakh for the salaried),thanks to a higher rebate under section 87A of the Income Tax Act, and wider and more relaxed slab rates.The changed slab rates will ensure that even with the same income as before, many taxpayers will face a lower tax rate. For example, in 2024-25, incomes of over ₹10 lakh to up to ₹12 lakh faced a 15% tax.

From 2025-26, these will face a 10% tax. Similarly, from 2025-26, the 30% rate will apply only to incomes exceeding ₹24 lakh a year (up from the earlier ₹15 lakh).Mint spoke with a few people who have already shifted to the new regime or have opted for it in the current fiscal year.The benefit of lower or almost similar tax liability, minus the hassle of submitting documentary proofs for claiming tax deductions, has been the motivating factor for them.

Plus, they have the flexibility to invest in products they find suitable rather than tie themselves to tax-saving investments. And even though the new tax rates do not incentivize them to invest, they continue to save and