Old and New Tax Regimes: Many people wonder if they should choose the old tax regime or the new one. It’s a common question because both have different benefits. If you’re salaried, you can switch between them each year.
The old tax regime gives you tax savings through exemptions and deductions. If you’ve invested in PPF, ELSS, or life insurance under Section 80C, you can save tax on ₹1.5 lakh income. It’s helpful if you get HRA, claim LTA, or pay interest on a home loan. If you already invest or have such expenses, the old system might help you save more.
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New Tax Regime
According to Budget 2025, under the new tax system, you don’t have to pay tax on income up to ₹12.5 lakh. This is a big jump and helps many middle-income earners. The catch is that the new system doesn’t give you tax deductions like the old one. But because the tax rates are lower, you still end up saving money.
This system works well for young professionals, people who are new to jobs, or those who don’t have any investments in tax-saving plans. If your salary is under ₹12 lakh and you don’t want to go through the effort of making extra investments just to save tax, then the new system might suit you better.
If you’re unsure which regime to pick, use the Income Tax Department’s website tool. Enter your income, and it shows your tax under both systems so you can choose the cheaper one.
Old and New Tax Regimes: Differences
One big difference is how deductions are handled. The old system allows you to claim many types of deductions under Section 80C for investments, 80D for health insurance, 80DD and 80U for disability-related expenses. But the tax rates are higher here.
In the new system, the rates are lower, but you don’t get these deductions. Also, if you are paying rent and receiving House Rent Allowance (HRA), only the old system lets you claim that under Section 10(13A).
If you’ve taken a home loan and want to save tax on the interest part, the old tax regime is better for you. The new system does not allow that benefit for a self-occupied house.
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Tax regime to choose: Six factors to consider
- I. Lower tax slab: The new tax regime (NTR) entitles you to claim lower tax slabs whereas you are unable to claim income tax deduction.
- II. Deductions: In the old tax regime, you are able to claim all the deductions under sections 80C, 80D, 80DD and 80U but the income is taxable at a relatively higher tax rate.
- III. HRA exemption: Old Tax regime allows taxpayers to claim HRA exemption. It is exempted under section 10(13A) for the salaried individuals. This is not given in the new tax regime.
- IV. Interest on borrowed capital: In the new tax regime, Interest on borrowed capital for Self-occupied property is not allowed as a deduction from Income from House property. When the taxpayer wants to claim deduction of interest on borrowed capital for a self occupied house, the taxpayer is supposed to choose the Old Tax Regime, reports Live Mint.
- V. Rebate under 87A: Under the old tax regime, taxpayers are allowed to claim income tax rebate under section 87A for income upto ₹5 lakh whereas in the new tax regime, it has been raised to ₹7 lakh (for FY 2023-24). In Budget 2025, this limit was raised to ₹12 lakh.
- VI. Standard deduction: Old tax regime allows standard deduction of ₹50,000 whereas in the new tax regime, this was raised to ₹75,000 in 2024.
Tax Rebate and Standard Deduction
Another important thing is the tax rebate under Section 87A. In the old regime, people with income up to ₹5 lakh get the rebate. In the new regime, this was raised to ₹7 lakh in FY 2023-24. Then, in Budget 2025, it was increased again to ₹12 lakh. This is a big relief for many salaried people who now don’t have to pay any tax under the new rules.
Even the standard deduction is different. The old system gives ₹50,000 as a flat deduction. But in 2024, the government raised it to ₹75,000 for those who choose the new regime. So if your income is only from salary and you don’t have any big deductions, the new tax system may be the better choice.
