Old vs New Tax Regime (2025): Which Is Better for You?

Introduction

The Union Budget 2025 has introduced notable changes to India’s personal income tax framework, prompting an important question: Should you choose the old tax regime or the new tax regime? For both salaried professionals and self-employed individuals, selecting the right regime can play a crucial role in optimizing overall tax liability.

This comprehensive article examines the differences between the old and new tax regimes, explains the latest income tax slabs, and provides practical insights to help you determine which option best suits your financial situation.

For those seeking expert assistance in navigating these updates, Auriga Accounting pvt. ltd. offers personalized tax planning and seamless ITR filing services tailored to your specific needs.

New Tax Regime vs Old Tax Regime After Budget 2025: Which One Is Better?

Finance Minister Nirmala Sitharaman’s Union Budget 2025 has delivered major relief to salaried taxpayers, most notably by making income up to ₹12.75 lakh effectively tax-free under the new tax regime. This has brought cheer to a large section of the middle class—but also revived a familiar question:

Should you shift to the new tax regime, or does the old regime still offer better savings through deductions and exemptions?

Since all major slab and rate changes for FY 2025–26 have been introduced under the new tax regime, taxpayers must carefully compare both options. As EY and other tax experts suggest, the simplest way to decide is to total your eligible deductions under the old regime and compare the final tax liability with the new regime.

New Tax Regime Slabs (FY 2025–26)

Income Range (₹)	Tax Rate
0 – 4 lakh	0%
4 – 8 lakh	5%
8 – 12 lakh	10%
12 – 16 lakh	15%
16 – 20 lakh	20%
20 – 24 lakh	25%
Above 24 lakh	30%

Effective zero-tax income for salaried taxpayers: ₹12.75 lakh.

Old Tax Regime Slabs (FY 2025–26)

Income Range (₹)	Tax Rate
0 – 2.5 lakh	0%
2.5 – 5 lakh	5%
5 – 10 lakh	20%
Above 10 lakh	30%

Allows multiple deductions and exemptions.

Old vs New Tax Regime: Quick Comparison

Criteria	Old Tax Regime	New Tax Regime (Budget 2025)
Basic Exemption	₹2.5 lakh	₹12 lakh (₹12.75 lakh salaried)
Tax Slabs	5%, 20%, 30%	0%–30% across 7 slabs
Deductions	HRA, LTA, 80C, 80D, home loan, etc.	Only ₹75,000 standard deduction
Compliance	High (proofs required)	Low (simpler filing)
Best Suited For	High-deduction taxpayers	Low-deduction, simplicity seekers

Old Tax Regime Slabs: Structure and Key Benefits

Income Tax Slabs (Unchanged)

The old tax regime continues with its traditional slab structure:

Up to ₹2.5 lakh: Nil
₹2.5 lakh – ₹5 lakh: 5%
₹5 lakh – ₹10 lakh: 20%
Above ₹10 lakh: 30%

Wide Range of Deductions and Exemptions

One of the biggest advantages of the old tax regime is the ability to significantly reduce taxable income through multiple deductions, including:

Section 80C: Up to ₹1.5 lakh for investments such as PPF, ELSS, life insurance premiums, etc.
Section 80D: Deduction for health insurance premiums paid for self and family.
HRA (House Rent Allowance): Exemption for salaried individuals living in rented accommodation.
LTA (Leave Travel Allowance): Tax exemption on eligible travel expenses.
Home Loan Interest: Deduction of up to ₹2 lakh for interest paid on a self-occupied house property.
Other Deductions: Contributions to NPS under Section 80CCD, donations under Section 80G, and more.

Who Benefits Most from the Old Tax Regime?

Taxpayers with High Deductions

If you can claim substantial deductions—typically ₹5–8 lakh or more—through a combination of HRA, Section 80C, Section 80D, and home loan interest, the old regime can meaningfully lower your taxable income, often offsetting its higher slab rates.

Mid-Range Income Earners (₹12–₹24 Lakh)

For taxpayers in this bracket, the old regime may still be advantageous if exemptions and deductions are significant. Incomes between ₹12 lakh and ₹20 lakh often face a break-even scenario where the benefit depends largely on how effectively tax-saving investments and allowances are utilised.

Who Should Consider the Old Tax Regime?

Mid to high-income earners who can fully utilise multiple deductions (often totaling ₹5 lakh or more).
Salaried individuals with substantial HRA, especially those living in metro cities.
Taxpayers with large home-loan interest payments who benefit from housing-related deductions.

In short, the old tax regime remains attractive for those who actively use deductions and exemptions to bring down their taxable income.

New Tax Regime – Budget 2025: Key Features and Benefits

Higher Zero-Tax Threshold

0% tax on income up to ₹12 lakh for all individuals.
Salaried taxpayers receive a standard deduction of ₹75,000, effectively making income up to ₹12.75 lakh completely tax-free.

Revised Income Tax Slabs (New Regime)

Up to ₹4 lakh: 0%
₹4 – ₹8 lakh: 5%
₹8 – ₹12 lakh: 10%
₹12 – ₹16 lakh: 15%
₹16 – ₹20 lakh: 20%
₹20 – ₹24 lakh: 25%
Above ₹24 lakh: 30%

These wider slabs and lower rates are designed to reduce the tax burden without relying on exemptions.

Limited Deductions and Exemptions

Apart from the ₹75,000 standard deduction for salaried individuals, most traditional tax benefits are not allowed.
Common exemptions such as HRA, LTA, and deductions under Section 80C and 80D are largely unavailable.

Who Should Consider the New Tax Regime?

Salaried Individuals Up to ₹12.75 Lakh

Zero tax liability with no need for tax-saving investments.
Ideal for those who do not have significant exemptions or deductions under the old regime.

Taxpayers with Low or Moderate Deductions

Suitable for individuals who cannot or prefer not to invest in PPF, ELSS, insurance, or other tax-saving instruments solely to reduce tax.
High-income earners whose total deductions (excluding the standard deduction) are relatively modest—typically below ₹8 lakh—often benefit more under the new regime.

Who Benefits Most from the New Tax Regime?

High-Income Earners with Limited Exemptions

Even for incomes above ₹24 lakh, the new regime can be advantageous if you do not claim large HRA, housing loan interest, or major 80C investments.

Those Who Prefer Simplicity

Minimal paperwork and documentation
No requirement to submit investment proofs or rent receipts
Clear tax slabs and predictable tax outgo

In essence, the new tax regime under Budget 2025 is best suited for taxpayers seeking lower rates, fewer conditions, and a hassle-free filing experience, especially when deductions under the old regime are limited.

Income Tax Old Regime vs New Regime (2025): Example Scenarios

Choosing between the old and new tax regimes becomes clearer when viewed through real-world income scenarios. Below are illustrative cases showing how tax liability changes across income levels and deduction profiles.

Income: ₹13 Lakh (Salaried)

New Tax Regime:
After the ₹75,000 standard deduction, taxable income effectively falls within the ₹12.75 lakh zero-tax limit, resulting in nil or negligible tax liability.
Old Tax Regime:
Can match or outperform the new regime only if total deductions are substantial, typically ₹2–3 lakh or more, through HRA, Section 80C, Section 80D, etc.

Verdict: New regime is generally more beneficial unless deductions are significant.

Income: ₹20 Lakh

New Tax Regime:
Income between ₹16–20 lakh is taxed at 20%, with only the ₹75,000 standard deduction available.
Old Tax Regime:
Taxable income can be pushed into lower slabs if you claim HRA, 80C, 80D, and home-loan interest, potentially reducing the overall tax burden.

Verdict: Old regime may be advantageous if deductions are high; otherwise, the new regime offers simplicity and competitive tax rates.

Broad Income-Wise Comparison

Incomes Up to ₹12–13 Lakh

New Regime: Effectively zero tax up to ₹12 lakh (₹12.75 lakh for salaried taxpayers).
Old Regime: Requires sizable exemptions and deductions to achieve zero tax, which is often difficult.

Conclusion: New regime is simpler and usually more tax-efficient.

Incomes Around ₹15–20 Lakh

Old Regime: Can compete or outperform if deductions such as maxed-out 80C (₹1.5 lakh), HRA, 80D, and home-loan interest are fully utilised.
New Regime: Generally cheaper and easier if total deductions are below ₹5 lakh.

Conclusion: The benefit depends on how aggressively you use deductions.

Incomes Above ₹24–25 Lakh

New Regime: Often results in lower tax if total deductions (excluding standard deduction) are below ₹8 lakh.
Old Regime: Becomes advantageous only when deductions exceed ₹8 lakh, which usually requires high rent, large home-loan interest, and sustained tax-saving investments.

Conclusion: High-income earners with limited deductions tend to benefit more from the new regime.

Illustrative Case: Income Above ₹24 Lakh

Gross Salary: ₹35 lakh

Standard Deduction:

Old Regime: ₹50,000
New Regime: ₹75,000

Deductions & Exemptions:
HRA, LTA, Section 80C, Section 80D, home-loan interest (varied scenarios)

Key Observations:

When total deductions are below ₹8 lakh, the new regime usually results in a lower tax outgo.
When deductions rise to ₹8 lakh or more, the old regime may offer better savings due to lower taxable income.

Illustrative Scenarios: Income Below ₹24 Lakh

Examples using gross salaries of:

₹14 lakh
₹18 lakh
₹22 lakh

Findings:

Under the old regime, deductions such as HRA, LTA, 80C, and 80D significantly reduce taxable income.
Under the new regime, only the standard deduction applies, but slab rates are lower.

Example:
At ₹14 lakh income, a taxpayer claiming ₹4.55 lakh in deductions under the old regime reduces taxable income to ₹8.95 lakh.
Under the new regime, taxable income remains ₹13.25 lakh, but lower rates partly offset this.

The final benefit varies case by case, depending on the size and mix of deductions.

Key Takeaway: Old vs New Tax Regime (2025)

For salaried taxpayers earning above ₹24.75 lakh, the new regime is generally better if deductions (not allowed in the new regime) are below ₹8 lakh.
If deductions exceed ₹8 lakh, the old regime may still result in lower tax.
This ₹8 lakh break-even point mainly applies to taxpayers in the 30% slab. For lower income levels, the threshold will be lower.
The exact advantage depends on your personal deduction profile, making a side-by-side calculation essential.

Deciding Factors: Old Tax Regime vs New Tax Regime

Choosing between the old and new tax regimes depends largely on how your income, deductions, and financial priorities align. Below are the key factors to consider before making a decision.

1. Size of Deductions and Exemptions

The biggest difference between the two regimes lies in the treatment of deductions.

Old Regime: The more exemptions and deductions you can claim (HRA, 80C, 80D, home-loan interest, etc.), the stronger the case for staying with the old regime.
New Regime: Offers limited deductions but compensates with lower tax rates and higher exemption thresholds.

2. Record-Keeping and Compliance

Old Regime: Requires detailed documentation, including investment proofs, rent receipts, and insurance records.
New Regime: Minimal paperwork, making tax filing simpler and less time-consuming.

3. Financial Goals and Liquidity

Old Regime: Many deductions—such as those under Section 80C—require locking funds into long-term instruments like PPF or ELSS.
New Regime: Better suited for taxpayers who prefer higher liquidity and do not want mandatory, tax-driven investments.

4. Annual Flexibility

Most salaried taxpayers can choose between regimes each financial year (with some restrictions for business income). Since both tax laws and personal finances evolve, a yearly comparison is essential.

Which Tax Regime Is Better for You?

Available Deductions and Exemptions

Old Regime: Allows deductions such as HRA, LTA, Section 80C investments, Section 80D health insurance, and more.
New Regime: Removes most exemptions but simplifies taxation through revised slabs.

Income Level and Slab Structure

The new regime has more slabs with lower rates, which can benefit taxpayers with limited deductions.
The old regime may still win if deductions substantially lower your taxable income.

Nature of Income

If your income is largely salary-based and dependent on allowances like HRA, the old regime may reduce your tax burden.
If you have few exemptions or prefer not to invest purely for tax savings, the new regime may be more efficient.

Standard Deduction Advantage

Old Regime: Standard deduction of ₹50,000 for salaried individuals.
New Regime: Higher standard deduction of ₹75,000, which alone can tilt the balance in its favour if other deductions are limited.

Long-Term Financial Planning

Taxpayers already committed to 80C investments (PF, ELSS, insurance) may continue to benefit under the old regime.
Those seeking flexibility and simplicity without long-term lock-ins may prefer the new regime.

Always Calculate Both Options

The most reliable way to decide is to calculate your tax liability under both regimes using your actual income and eligible deductions. The regime with the lower final tax outgo is generally the better choice.

About the Author

Dakesh

Dakesh simplifies complex legal regulations into clear, practical guidance, enabling entrepreneurs to stay compliant while building sustainable and scalable businesses.

January 8, 2026