OLD or NEW: Which Tax Regime is Better For You?

The introduction of the new tax regime in India through the Union Budget 2020 brought a significant change in the way individual taxpayers can compute and pay their income tax. With the coexistence of the old and new tax regimes, salaried individuals, professionals, and other taxpayers are now faced with a crucial decision every financial year — which tax regime is better for them?

Choosing between the two regimes isn’t just about comparing tax slabs; it involves evaluating your income, investments, deductions, and overall financial planning goals. Let’s understand the key differences and how to decide the best option.

1. Understanding the Old vs New Tax Regimes

🧾 Old Tax Regime:

Offers a wide range of exemptions and deductions under various sections like:
- Section 80C (investments in PPF, ELSS, LIC, etc.)
- Section 80D (health insurance premiums)
- House Rent Allowance (HRA)
- Standard Deduction
- Leave Travel Allowance (LTA)
- Home loan interest (Section 24)
Has higher tax rates, but taxpayers can reduce taxable income by using eligible deductions.

Tax Slabs (Old Regime for FY 2024-25):

Income Slab	Tax Rate
Up to ₹2.5 lakh	Nil
₹2.5 – ₹5 lakh	5%
₹5 – ₹10 lakh	20%
Above ₹10 lakh	30%

💡 New Tax Regime (Default from FY 2023-24 onwards):

Offers lower tax rates but forgoes most deductions and exemptions.
Suitable for those with minimal tax-saving investments or who prefer simplified taxation.

Tax Slabs (New Regime for FY 2024-25):

Income Slab	Tax Rate
Up to ₹3 lakh	Nil
₹3 – ₹6 lakh	5%
₹6 – ₹9 lakh	10%
₹9 – ₹12 lakh	15%
₹12 – ₹15 lakh	20%
Above ₹15 lakh	30%

Note: Rebate under Section 87A is available for income up to ₹7 lakh in the new regime, making it zero tax for many middle-income taxpayers.

2. Key Differences at a Glance

Feature	Old Regime	New Regime
Tax Rates	Higher	Lower
Deductions Allowed	Yes (e.g., 80C, 80D, HRA)	No (except NPS & employer contribution)
Simplicity	Complex due to documentation	Simple and hassle-free
Flexibility for planning	High	Low
Standard Deduction (₹50,000)	Available	Available (from FY 2023-24)

3. Which Regime is Better for You?

✅ Choose Old Regime if:

You claim multiple deductions under Sections 80C, 80D, HRA, LTA, etc.
You invest regularly in tax-saving instruments (e.g., ELSS, PF, LIC).
You have a home loan, especially with high interest outgo.
Your total deductions exceed ₹3 lakh — making old regime more beneficial despite higher rates.

✅ Choose New Regime if:

You do not claim many deductions or prefer not to invest just for tax-saving.
Your income is below ₹7 lakh, as you get full rebate under Section 87A.
You want a simpler, no-paperwork approach to filing taxes.
You’re in the early stage of your career or have fewer responsibilities and investments.

4. Example Comparisons

Scenario: Annual Income ₹10 lakh

Tax Saving Under Old Regime	Tax Payable (Old)	Tax Payable (New)
No Deductions	₹1,12,500	₹60,000
With ₹2.5 lakh deductions	₹62,500	₹60,000
With ₹3.5 lakh deductions	₹42,500	₹60,000

➡ Conclusion: If deductions claimed exceed ₹2.5–3 lakh, old regime is better.

5. Can You Switch Regimes?

Salaried Individuals: Can choose between old and new regime every year when filing ITR.
Business/Professional Income: Can switch only once — if you move from old to new, you can’t go back unless business income ceases.

6. Government Push for New Regime

From FY 2023–24, the new regime is the default option unless the old regime is specifically opted for.
Standard Deduction of ₹50,000 and lower surcharge on high income (₹5 crore+) in the new regime were introduced to make it more attractive.

7. Final Thoughts

There is no one-size-fits-all answer. The better tax regime for you depends on:

Your income level
How much you invest in eligible deductions
Your lifestyle and financial goals

📌 Pro Tip:

Use an online tax comparison calculator or consult a tax advisor to evaluate both regimes before filing your Income Tax Return (ITR).

Summary Table

Criteria	Best Regime
High deductions claimed	Old Regime
Low or no deductions	New Regime
Income < ₹7 lakh	New Regime (₹0 tax)
Simplicity preference	New Regime
Home loan interest	Old Regime