Which regime is better for Income Tax: Old vs New Tax Regime

13 April 2025

Tax season can be confusing, especially when you’re stuck with which tax regime is better, the old or new.

Which income tax is better for your savings? That’s the big question many salaried professionals and taxpayers ask every year.

The government introduced the New Tax Regime in FY 2025-26 to simplify taxation by offering lower slab rates but with no deductions or exemptions.

This blog aims to provide a detailed comparison of Old vs New Tax Regime, so you can understand which tax regime is better for you.

We’ll break down the income tax slab rates, deductions, pros and cons, and help you decide: Which regime is better for income tax based on your situation.

Which Regime is Better for Income Tax?

The New Tax Regime was introduced under Section 115BAC to make the tax system simpler and reduce tax burdens for those who don’t claim many deductions.

But despite the lower slab rates, many still opt for the Old Regime, mainly due to the benefit of deductions like 80C, 80D, and HRA.

As of 2024, reports show that nearly 50-60% of salaried individuals still prefer the old regime. But that might change, especially since the New Regime is now the default from FY 2023-24.

So, which regime is better for income tax? It depends on your income, deductions, and financial habits.

What is the Old Tax Regime?

The old regime provides over 70 exclusions and deductions, like HRA and LTA, that can reduce your taxable income and cut your tax payments.

Section 80C is the most popular and substantial deduction. It allows taxpayers to reduce their taxable income by up to Rs.1.5 lakh. Taxpayers are free to choose between the existing and new tax regimes.

Old Tax Slab Rates (FY 2024-25):

Income Slab (Rs)Old Regime

Up to 3 lacsNil

3 lacs – 7 lacs5%

7 lacs – 10 lacs10%

10 lacs – 12 lacs15%

12 lacs – 15 lacs20%

Above 15 lacs30%

Common Deductions and Exemptions:

• Section 80C (LIC, PPF, ELSS, etc.): You get up to ₹1.5 lakh

• Section 80D (Health Insurance Premiums): It varies based on age and premium amount.

• House Rent Allowance (HRA): As the name says, it is based on home rent and salary.

• Leave Travel Allowance (LTA): LTA is for people who want to travel within India.

• Home Loan Interest: It is up to ₹2 lakh under Section 24(b).

What is the New Tax Regime?

Budget 2020 included a new tax framework that included revised tax slabs and lower rates for taxpayers.

However, the new tax systems restricted exemptions and deductions, rendering them unpopular.

To urge taxpayers to accept the new regime, the government announced five important modifications in Budget 2023 that would stay in effect for Fiscal Year 2024-2025.

These changes are similar to the Interim Budget 2024.

New Tax Slab Rates (FY 2025-26):

Income Slab (Rs)New Regime

Up to 4 lacsNil

4 lacs – 8 lacs5%

8 lacs – 12 lacs10%

12 lacs – 16 lacs15%

16 lacs – 20 lacs20%

20 lacs – 24 lacs25%

Above 24 lacs30%

Limited Deductions Allowed:

• Standard Deduction of ₹75,000 (from FY 2023-24)

• NPS employer contribution under Section 80CCD(2).

• Section 87A rebate of up to ₹7 lakh income is allowed.

Also read: New Income Tax Bill 2025

Old vs New Tax Regime Slab Rates: Key Differences

Income Slab (Rs)Old RegimeIncome Slab (Rs)New Regime

Up to 3 lacsNilUp to 4 lacsNil

3 lacs – 7 lacs5%4 lacs – 8 lacs5%

7 lacs – 10 lacs10%8 lacs – 12 lacs10%

10 lacs – 12 lacs15%12 lacs – 16 lacs15%

12 lacs – 15 lacs20%16 lacs – 20 lacs20%

Above 15 lacs30%20 lacs – 24 lacs25%

Above 24 lacs30%

Deductions and Exemptions: Old vs New Tax Regime

Let us analyze the tax exemptions and income tax deductions of old and new regimes.

Income Tax Deductions – Old Regime:

• It can be claimed under Sections 80C, 80D, 80E, 80G.

• A person who comes under HRA, or LTA can claim for deduction.

• Under Section 80C, you will get reduced taxable income up to Rs.1.5 lakh.

Income Tax Exemptions – New Regime:

• ₹75,000 Standard Deduction (from FY 2023-24)

• The penalty on annual income beyond 5 crores has been reduced from 37% to 25% under the new regime.

• Under section 87a tax rebate you get a hike up to ₹7 lakh.

How to Calculate Your Tax Liability

Before jumping into the formula, let’s understand what tax liability is.

Tax liability is the entire amount of taxes owed to the government, which includes revenue from services, and investments. Other sources like winning the lottery or a horse race are also included.

Formula: Total gross income(GTI) – deductions(ded) = taxable income.

Let us see how to calculate tax liability under both regimes with an example.

Old Regime:

Rs 10,00,000(GTI) – Rs1,50,000(ded)= taxable income (?)

Taxable income: Rs 8,75,000

New Regime:

Rs 10,00,000(GTI) – Rs50,000(ded)= taxable income (?)

Taxable income: Rs 9,50,000

This means income tax regime comparison depends on how much you can claim as deductions.

Who Benefits from the Old Regime?

You may benefit from the old regime if:

• You claim deductions above ₹2–2.5 lakh yearly

• If you have home loan interest or high HRA then this old regime

• You invest regularly in tax-saving instruments

Who Benefits from the New Regime?

You might gain from the new regime if the following occurs:

• You don’t claim many deductions

• If are looking for a simpler, hassle-free filing process

• If your employer doesn’t offer HRA, LTA, etc. Then this new regime can benefit you.

Factors to Consider When Choosing

Now you have made up your mind to choose a regime for your financial planning. Now, understand the factors you must consider before moving forward.

1. Income Level

If you earn a high income, the new regime will benefit you the most.

2. Investment and Deduction Amounts

If you want to claim ₹2–3 lakh in deductions, the old regime is the preferred regime.

3. Financial Goals

It depends on your personal finances and your motive. Are you investing in tax savings? If yes, the new regime might offer you tax benefits.

4. Risk Tolerance

If you’re okay with investing in ELSS or PPF, consider choosing an old Regime as the right option.

Tools and Calculators for Tax Regime Comparison

There are many tax regime calculators on the internet. But, which is trustworthy? That is the question. Below we have mentioned 3 best calculators for regime tax calculation:

• Income Tax India’s official website

• Cleartax

• BankBazaar

These calculators can help you compare tax liabilities for both regimes easily.

FAQs

Q1. Which tax regime is better after the 2025–26 budget? A: The New Regime remains favorable for those without major tax-saving investments. The New Regime offers you a deduction of Rs 75,000.

Q2. What’s the breakeven point where both regimes result in the same tax? A: If your deductions are less than ₹2.5–₹3 lakh, the New Regime is usually better.

Q3. Which income tax regime (old or new) is better for tax savings? A: Individuals with an income of Rs 10 lakhs can profit from the old tax regime if they invest more than Rs 2,62,500 in tax savings. While the new regime benefits individuals with less than Rs 2,62,500.

Q4. Is there a difference in Section 87A rebate in both regimes? A: Yes. Old regime: Rebate for income up to Rs. 5 lakh. However, the new regime: The rebate goes up to Rs. 7 lakh.

Key Takeaways

• The Old Regime suits taxpayers with high deductions.

• The new Regime is better for those who prefer simplicity and fewer investments.

• Use calculators and tools to compare before choosing.

• Remember: You can choose a different regime each year (except for business owners).

Still confused which regime is better for Income Tax? Talk to a financial advisor or tax expert!

Also read: Home Loan Tax Benefits (FY 2024-25)

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