Old vs New Tax Regime: Which One is Better for You?

When it comes to taxes, we all want to save as much as possible. With the government extending dual options, the big question remains: new vs old tax regime, which is better for you? 

Want to know whether to stick with the old regime with all its deductions or switch to the new regime with lower tax rates? Read on to understand the key differences and determine which regime will suit you better.

The old tax regime follows a higher tax rate structure but allows multiple exemptions and deductions. Key benefits include:

• Deductions under Section 80C: Investments in PPF, EPF, life insurance, ELSS, etc.

• Exemptions on House Rent Allowance (HRA) & Leave Travel Allowance (LTA)

• Deductions under Section 80D: Health insurance premium benefits

• Interest Deduction on Home Loans: As per Section 24b

• Section 80TTB: Additional interest deduction for senior citizens

The new tax regime comes with lower tax rates but has limited deductions and exemptions.

The new tax regime has now been enhanced with higher exemptions. According to Budget 2025 announced by Finance Minister Nirmala Sitharaman, the slab and rebate have been decreased. The slab for those whose income would not be taxable will now increase to ₹12 lakh. For those earning above ₹12 lakh, here is how it will be applicable:

Check out the difference between new and old tax regime to choose the right one and maximise your savings:

Example: Choosing the Right Tax Slab

Let’s compare a taxpayer earning ₹12 lakh per year under both regimes.

Old Tax Regime (with ₹1.5 lakh deduction)

• Taxable Income: ₹10.5 lakh

• Tax Calculation:

New Tax Regime (No Deductions)

• Taxable Income: ₹12 lakh

• Tax Calculation:

In this case, the new tax regime provides significant savings of ₹67,500 compared to the old regime.

Here are the benefits of old tax regime vs. new tax regime.

You should go with the old regime if,

• You want to claim higher deductions (₹2 lakh or more) under 80C, 80D, and HRA.

• You are eligible for tax benefits for interest on a home loan.

• You wish to enjoy long-term tax savings through investments.

Opt for the new regime if:

• You have minimal deductions and exemptions

• You prefer a simplified tax structure

• Your income falls under ₹12 lakh, making you eligible for 0 tax

Choosing the right tax regime depends on your financial goals, deductions, and income level. If you claim high deductions, the old regime may be better. If you prefer a simplified structure with lower rates, the new regime is more beneficial. Evaluate both options each financial year to maximise your savings.

Note: This guide has been updated for FY 2025-26, ensuring you have the latest tax slab information at your disposal.

• The old tax regime offers multiple deductions and exemptions, while the new tax regime has lower tax rates but fewer benefits

• The new regime now provides rebates for income up to ₹12 lakh, making it more beneficial for certain taxpayers

• The old regime is better for those claiming high deductions, while the new regime suits individuals with minimal exemptions and simpler tax preferences

Yes, if you are a salaried individual, you can choose between the old and new tax regimes every financial year based on what works best for you. This means you can review your financial situation annually and pick the regime that helps you save the most tax. 

However, if you have income from a business or profession, switching is not as flexible. Once you move to the new tax regime, you can go back to the old one only once in your lifetime. After that, you will have to stick with the new regime permanently.

The new regime is designed to be simpler, so most deductions and exemptions have been removed. However, a few benefits are still available:

• Standard Deduction: Salaried individuals and pensioners can claim a ₹50,000 deduction.

• Employer Contributions to NPS: If your employer contributes to your National Pension System (NPS) account under Section 80CCD(2), you can still avail of this exemption.

• EPF and Gratuity Exemptions: Employer contributions to EPF and tax-free gratuity remain unchanged.

1. Add up all your income sources, such as salary, rental income, interest, or business profits.

2. If you are opting for the old regime, subtract eligible deductions like 80C, 80D, and HRA.

3. Apply the applicable tax rates for your chosen regime.

4. If you qualify for rebates like Section 87A, subtract that amount.

5. Consider TDS deductions or advance tax payments to see if you need to pay more tax or expect a refund.

If you’re unsure, using an online tax calculator can help you compare both regimes quickly.

The right tax regime for you as a senior citizen depends on your income and expenses. If your annual income is under ₹12 lakh, the new tax regime may be the better option since you won’t pay any tax at all. 

Yes, you can still invest in PPF, ELSS, NPS, or other tax-saving instruments, even if you opt for the new tax regime. The only difference is that these investments won’t help you reduce your taxable income under Section 80C anymore.

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