With the introduction of the new tax regime in 2020 and changes thereafter, taxpayers ought to know the differences between the old and new tax regimes. Here is a detailed look at the new tax regime versus the old tax regime, along with their benefits and drawbacks, for taxpayers to understand which will suit them better.
Old Tax Regime
The old tax regime in India is a tax system that allows taxpayers to claim various deductions and exemptions to reduce their taxable income. By providing tax benefits for specific investments and expenditures, such as life insurance premiums, the old regime incentivises individuals to save and invest for long-term financial security and retirement planning.
For individuals with fewer eligible expenses or who do not invest in prescribed tax-saving instruments, the benefits of the old tax regime are limited, potentially leading to higher tax liabilities compared to the new regime.
New Tax Regime
To better compare the old tax regime VS the new tax regime, it is important to have a clear, updated idea of the latter one, as that is the one more prone to changes.
The new tax regime was introduced in the Union Budget 2020 as an alternative to the existing tax regime. It, offers lower tax slab rates without the scope for deductions or investments.
Note: The income tax slab rates were modified in the Union Budget 2025 to make it more appealing to taxpayers.
To better compare the old tax regime VS the new tax regime, it is important to have a clear, updated idea of the latter one, as that is the one more prone to changes.
The new tax regime was introduced vide in the Union Budget 2020 as an alternative to the existing tax regime. It , in order to offers lower tax slab rates without the scope for deductions or investments.
Note: The income tax slab rates were modified in the Union Budget 2025 to make it more appealing to taxpayers.
Deductions Not Allowed Under the New Regime
A simplified structure increases transparency and reduces the chances of errors and disputes during tax filing and assessment. However, the new tax regime eliminates many deductions and exemptions (available in the old regime), such as
House Rent Allowance (HRA)
Leave Travel Allowance (LTA)
Entertainment Allowance and Professional Tax
Interest on Home Loan u/s 24b on: Self-occupied or vacant property.
Tax deductions specified under Chapter VIA of the Income Tax Act (80C,80D, 80E,80CCC, 80CCD, 80D, 80DD, 80DDB,, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc) except for deduction u/s 80CCD(2), 80JJA and 80CCH.
Deductions specified in Section 32(1)/32AD/33AB/33ABA
Deductions available under Section 80TTA/80TTB (on interest from savings account deposits)
Other allowances
Under the new tax regime, the perquisites will be taxed as per the provisions of the Income-tax Act, 1961, read with the prescribed rules under the Income-tax Rules, 1962. However, the employees can claim the deductions of the expenses that are specifically incurred for official purposes.
Switching between the Old and the New Tax Regime
It is important to note that salaried individuals have the option to switch between the old and the new tax regime every year at the start of the financial year or at the time of filing returns. If you do not make a choice, the new regime will be considered as the default selection. If you are a salaried individual and want to opt for the old regime, you can do so by filing Form 10 IEA.
However, once the new tax regime is opted for a year, no tax benefits can be claimed under the old tax regime.
In the case of individuals with income from business and profession, the option to switch to the old tax regime cannot be availed repeatedly. If the individual had opted for the new tax regime in any of the previous financial years and chooses to opt for the old tax regime for the current financial year, then the individual is not allowed to switch back to the new tax regime in any of the subsequent financial years.
In short, one cannot switch back to the new tax regime more than once if they are filing taxes for business income.
Old Tax Regime Vs New Tax Regime
Here is a comparison of the old versus the new tax regime, based on some of the key aspects.
Parameter
| Old Tax Regime
| New Tax Regime
|
| Structure | Complex with multiple deductions and exemptions
| Simplified with lower tax rates as compared to old tax regime.
|
Tax Rates
| Higher tax rates with the potential to reduce taxable income through deductions and exemptions
| Lower tax rates without the benefit of most deductions and exemptions
|
Deductions and Exemptions
| Allows for various deductions and exemptions
| Eliminates many deductions and exemptions
|
| Flexibility | Encourages long-term savings and investments through tax incentives
| Lacks incentives for specific savings and investments
|
| Savings and Investments | Requires investment in specific tax-saving instruments, restricting financial flexibility
| Provides more flexibility as there is no need to invest in specific instruments for tax benefits
|
Tax Planning
| Enables tailored tax planning strategies to maximise deductions and exemptions
| Simplifies tax planning with straightforward calculation
|
| Compliance | Requires extensive documentation and detailed record-keeping
| Reduces compliance burden due to fewer documentation requirements
|
Transparency and Errors
| Higher complexity may lead to errors and disputes
| Increased transparency and reduced chances of errors and disputes
|
Tax Slab Rates
| Beneficial for taxpayers with significant eligible expenses
| Benefits vary solely based on income levels
|
Ideal for
| Taxpayers with higher eligible expenses and investments, who can benefit from deductions and exemptions
| High-income taxpayers looking for a simplified tax structure with lower rates, and those who do not have significant tax-saving investments
|
Income Tax Slab Rates for the New And Old Tax Regime
If you are still pitting the new versus the old tax regime in your mind, and wondering which one is better, looking at their tax slabs can help.
Here are the tax slab rates for the old regime:
Income Range
| Old Tax Regime (Individual > 60 years and HUF)*
| Old Tax Regime (For individuals between 60-80 years of age and HUF)*
| Old Tax Regime (For individuals above 80 years of age and HUF)*
|
Up to ₹2,50,000
| NIL
| NIL
| NIL
|
₹2,50,000 to ₹3,00,000
| 5%
| NIL
| NIL
|
₹3,00,001 to ₹5,00,000
| 5%
| 5%
| NIL
|
₹5,00,001 to ₹6,00,000
| 20%
| 20%
| 20%
|
₹6,00,001 to ₹9,00,000
| 20%
| 20%
| 20%
|
₹9,00,001 to ₹10,00,000
| 20%
| 20%
| 20%
|
Above ₹10,00,000
| 30%
| 30%
| 30%
|
Under the new regime, the income tax slab rates after the Union Budget 2025 are as follows:
Income Range
| Rates under the New Regime (after Union Budget 2025) for all ages
|
Up to ₹4,00,000
| NIL
|
₹4,00,001 to ₹8,00,000
| 5%
|
₹8,00,001 to ₹12,00,000
| 10%
|
₹12,00,001 to ₹16,00,000
| 15%
|
₹16,00,001 to ₹20,00,000
| 20%
|
₹20,00,001 to ₹24,00,000
| 25%
|
Above ₹24,00,000
| 30%
|
Notes:
1. The basic exemption limit for individuals above 60 years but less than 80 years is ₹3 lakhs. For individuals above 80 years, it is ₹ 5 lakhs under the old tax regime. The new tax regime does not have such age-wise divisions; all age groups have the same rates for their respective tax slabs.
2. The new tax regime has a rebate of ₹60,000, which allows individuals with an income of up to ₹12,00,000 to qualify for a full tax rebate, which means they have zero tax liability.
3. Further, an additional 4% Health & education cess will be applicable on the tax amount calculated as above.
4. Moreover, a surcharge may be applicable as per the rates prescribed under the Income Tax Act, 1961, where the total income is more than ₹ 50 lakhs.
The key difference to take note of when comparing the new tax regime vs the old regime is that the latter has higher rates but offers options to reduce taxes. The new regime has marginally lower taxation but offers fewer ways to reduce taxes. Hence, the choice is best made based on your income and investment plans. An online income tax calculator may prove to be a helpful tool when looking to understand the tax liabilities under these regimes.
How To Choose Between The Old And The New Tax Regime
In practical terms, the new tax regime will benefit people with an income of up to ₹12 lakhs who will have zero tax liability to account for. It is also beneficial for those with a taxable income of up to ₹20 lakhs who have no tax-saving investments.
But for the people who earn more than ₹20 lakhs, and who have planned investments for tax deduction, the old regime is better. It is best to do a comparative evaluation of applicable taxes in numbers, before committing to the old tax regime or the new tax regime. Here is a quick way to do the math of the new and the old tax regimes.
Step 1. Calculate all the exemptions that were are available in the old regime - - HRA, LTA, food bills, phone bills, and other similar expenses. They will all be taxable in the new regime.
Step 2. Your savings under Section 80C, home loan interest, and other similar schemes, were exempt from tax, lowering your bracket. Also consider life insurance tax benefits under Section 80C. You will not be able to claim these under the new regime.
Step 3. Now add the above deductions/exemptions under the old tax regime to your income, so that the taxable income is clear. Check the tax bracket and the tax percentage applicable. This will give you an idea of how much you will have to pay in the new regime.
Step 4. Compare the two (taxes applicable according to the old regime vs taxes applicable according to the new regime) and decide before you file the ITR.
FAQs
1) Will the old tax regime be discontinued?
2) Is a standard deduction applicable in the new tax regime?
Yes, the new tax regime continues to offer a standard deduction, and the limit has been revised upward for FY 2025–26 up to ₹75,000 for salaried individuals.
3) Should you opt for the new tax regime u/s 115 BAC?
Section 115BAC was introduced in the Union Budget of 2020 as the new tax regime. Section 115BAC allows taxpayers to be taxed at a lower rate, but they will have to forego many tax exemptions and deductions. The new tax regime has different, new tax slabs, and is generally more beneficial for individuals with income less than ₹20 lakhs who have deductions less than Rs. 1.5 lakhs. Hence, individuals should carefully assess their income, deductions, and tax liabilities to determine which regime is more beneficial for them. Make sure you know how to calculate income tax on your salary under both regimes, and use an income tax calculator, to reach the right decision.
4) Are Section 80C deductions applicable in the new tax regime?
5) Is the 80 TTB deduction applicable in the new tax regime?
6) Is the HRA exemption available in the new tax regime?
7) How to opt for the new tax regime?
8) Who will benefit from the new tax regime?
9) Is the new tax regime optional?
10) Are there separate slab rates for individuals belonging to different categories in the new tax regime?
11) Are certain allowances still exempt under the new regime?
Yes. Specific allowances, such as transport allowance for specially-abled employees, conveyance allowance and daily allowance for work-related travel, and certain employer-provided perquisites for official use, remain exempt under prescribed conditions. Gifts received up to ₹50,000 are also exempt. Furthermore, deduction for family pension under Section 57(iia) up to a maximum of ₹25,000 is also allowed.
12) What deductions are allowed under the new tax regime?
Under the new regime, the following exemptions continue to be allowed:
- Standard deduction (revised limit)
- Employer NPS contribution under Section 80CCD(2)
- Agniveer Corpus Fund deduction under Section 80CCH(2)
- SEZ VRS, gratuity, leave encashment exemptions
- Perquisites for official purposes
- Specific allowances for travel, conveyance, and disability support
- Gifts up to ₹50,000
- Family pension deduction under Section 57(iia).
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