The New Tax Regime and Its Impact on the Disposable Income of Individual Assessee: An Evaluation

Abstract

In every budget, common man expects the change in income tax slab or deductions available to them would significantly lower their income tax liability. The New Tax Regime was introduced during the Union Budget 2020 and was effective from the financial year 2020-21. The New Tax Regime lower the slab rate but reduces the deductions and exemptions which were available under the Old Tax Regime. The dual benefit of tax reduction, reduction in expenditure/investment to avail deduction and exemption has significantly increased the disposal income of the individual assessee. This paper attempt to study the impact of New Tax Regime on the Disposable income of individual assesses by comparing Old Tax Regime with New Tax Regime.

Introduction

The text examines the impact of India’s New Tax Regime (NTR) under Section 115BAC on taxpayers’ disposable income. Introduced in 2020 and made the default tax regime from April 1, 2023, the NTR aims to simplify taxation by offering lower tax rates while reducing the number of deductions and exemptions available to taxpayers.

The study focuses on whether the NTR actually increases post-tax disposable income and how it may influence taxpayers’ saving and investment behavior.

Main Objectives

The study aims to:

1. Compare the Old Tax Regime and New Tax Regime.
2. Evaluate the effect of the NTR on disposable income at different income levels.
3. Examine the importance of the Section 87A rebate and standard deduction.
4. Assess the trade-off between higher immediate disposable income and long-term savings.

Key Differences Between the Regimes

The NTR provides:

• A higher standard deduction of ?75,000 for salaried taxpayers.
• A larger Section 87A rebate, allowing eligible taxpayers with taxable income up to ?12 lakh to have zero tax liability under the stated FY 2025–26 provisions.
• Lower and more widely distributed tax rates across income slabs.
• Simpler compliance with fewer deductions and exemptions.

In contrast, the Old Tax Regime allows deductions such as:

• Section 80C investments up to ?1.5 lakh.
• Section 80D medical insurance deductions.
• Section 80CCD(1B) NPS contribution deduction.
• Home-loan interest under Section 24(b).
• HRA and certain other exemptions.
• Donations under Section 80G.

Research Methodology

The study uses a descriptive research design based entirely on secondary data. It compares tax liabilities and disposable income for salaried individuals at different income levels. The analysis considers deductions such as standard deduction, home-loan interest, 80C, 80CCD(1B), and 80D under the Old Regime.

Findings

The calculations suggest that the New Tax Regime can increase immediate disposable income, particularly for lower- and middle-income taxpayers who benefit from the higher Section 87A rebate and standard deduction.

For example, in the ?10 lakh salary illustration, the Old Regime provides substantial deductions, while the NTR can eliminate the tax liability under the stated assumptions. The study therefore suggests that taxpayers may have more cash available for consumption or alternative investments when choosing the NTR.

However, the removal of deductions may also reduce incentives for traditional long-term investments such as insurance, PPF/80C investments, NPS, and housing-related savings. The literature indicates that some taxpayers may consequently shift from traditional low-risk investments toward higher-return but potentially higher-risk alternatives.

Conclusion

Under the new tax regime if the gross salary of the individual assessee is upto 12,75,000 and considering deductions of Rs. 4,25,000 available under old tax regime, the individual assessee disposable income increases if the assessee opts for new tax regime. Under the new tax regime, on the part of assessee and income tax department, there is an ease relating to documentation burden, simplification and increase in disposable income are the key benefits available as comparted to old tax regime. If the disposable income on the part of individual assessee are invested efficiently, it will create long term financial stability and security/protection to them. But alternatively, they are not bound to invest on the instruments which secures their life, protect against health issue which leads to an adverse impact on them. From the economic point of view, it leads to both revenue and capital expenditure and have a positive impact on the economy.

References

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Copyright

Copyright © 2026 Dr. Parishkrit Rambihari Agrawal, Ms. Radha Tiwari, Ms. Pooja Nimbulkar. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.