Impact of New Regime on Middle Class Taxpayers in India: A Comparative Study with The Old

Abstract The implementation of India's new tax regime in 2020 was a significant shift in India's tax landscape, offering taxpayers lower rates of taxation at the expense of exemptions and deductions available under the previous regime. This study has contrasted both regimes to determine the implications of their effect on taxpayers belonging to the middle-income group, in this instance, those earning between ₹7 lakh and ₹15 lakh annually. With a quantitative design, the study computes tax paid at various income levels under the two regimes and with and without deductions to assess financial impacts. Impacts are that although the new regime is favourable to those with few deductions in terms of simplicity of computation and lower rate, those who in the past maximized exemption in the old regime—e.g., by availing PPF, ELSS, and HRA claims—must pay more tax. The study also looks at behavioural change in savings and investment habits, raising questions on the erosion of long-term financial planning incentives in the new regime. The study also examines compliance efficiency, which says that the simplified design of the new regime minimizes administrative costs but can deter disciplined saving. Segmenting taxpayers into groups which benefit more from each regime, the paper offers practical suggestions to taxpayers and policymakers. It ends with recommendations for reforms balancing simplicity with fair tax relief, without compromising the regime being progressive and middle-class focused. The research adds to the debate on India's tax policy and offers evidence-based advice for maximizing tax strategies and guiding future fiscal reform.