Old vs New Tax Regime: What’s Best for You?

Introduction

The Union Budget 2025 introduced major changes to India’s personal income tax structure, prompting a crucial question: Should you choose the old or new tax regime? Whether you’re a salaried employee or self-employed, the right choice can significantly impact your tax liability. This article breaks down the old vs new tax regimes, outlines the latest income tax slabs, and provides essential insights to help you make an informed decision aligned with your financial goals.

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

The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, introduced substantial tax relief—most notably, zero tax liability on income up to ₹12.75 lakh under the new regime. This has come as welcome news for a large section of the middle class. But it also raises an important question: Should you switch to the new regime, or do the deductions and exemptions under the old regime still offer greater savings?

What’s Changed?

The Budget 2025 made all the major tweaks to income tax slabs and rates within the new tax regime, leaving the old regime untouched. This puts salaried individuals and professionals in a dilemma: does the simplified structure of the new regime actually result in lower taxes for you?

According to EY, the best way to decide is simple: Calculate all the exemptions and deductions you’re eligible for under the old regime—then compare it with your liability under the new regime

Key Highlights from Budget 2025

Zero Tax Up to ₹12.75 Lakh (Salaried, New Regime)

The basic exemption limit under the new regime has been increased to ₹12 lakh for all individuals.
Salaried taxpayers also benefit from a standard deduction of ₹75,000—making income up to ₹12.75 lakh effectively tax-free.

Revised Income Tax Slabs Under New Regime

The new regime features seven tax slabs, with lower rates spread across broader income ranges:
- 0% on income up to ₹4 lakh
- Up to 30% for income above ₹24 lakh

Old Regime Slabs Remain Unchanged

The traditional tax structure continues as follows:
- 0% for income up to ₹2.5 lakh
- 5% on ₹2.5–5 lakh
- 20% on ₹5–10 lakh
- 30% on income above ₹10 lakh

Limited Deductions in the New Regime

Most exemptions and deductions are not applicable in the new regime, including:
- House Rent Allowance (HRA)
- Leave Travel Allowance (LTA)
- Section 80C (investments)
- Section 80D (health insurance)
The only major benefit retained: a ₹75,000 standard deduction for salaried individuals

New Tax Regime – Income Tax Slabs (FY 2024–25)

The revised tax structure under the new regime features lower rates spread across wider income ranges, making it simpler and potentially more beneficial for many taxpayers.

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%

Note: Salaried individuals also receive a ₹75,000 standard deduction, effectively increasing their zero-tax threshold to ₹12.75 lakh under the new regime

Old Tax Regime – Income Tax Slabs (FY 2024–25)

The old tax regime continues with its traditional slab structure:

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

Note:
The old regime allows taxpayers to claim a wide range of deductions and exemptions, including:

Section 80C (investments like ELSS, PPF, LIC)
Section 80D (health insurance)
House Rent Allowance (HRA)
Leave Travel Allowance (LTA) and more

While the new regime offers simplified rates and higher exemption thresholds, it limits most traditional tax-saving options

Old vs New Tax Regime: A Quick Comparison

To help you decide between the old and new tax regimes, here’s a side-by-side look at the key differences:

Criteria	Old Tax Regime	New Tax Regime (Budget 2025)
Basic Exemption Limit	₹2.5 lakh	₹12 lakh (₹12.75 lakh for salaried with standard deduction)
Tax Slabs	5%, 20%, 30%	0%, 5%, 10%, 15%, 20%, 25%, 30%
Deductions & Exemptions	Multiple allowed: HRA, LTA, 80C, 80D, home loan interest, etc.	Mostly removed; only ₹75,000 standard deduction for salaried
Compliance Requirement	Higher (requires proofs like rent receipts, investment docs)	Lower (simplified filing with minimal documentation)
Best Suited For	Individuals with significant deductions (₹5–8 lakh or more)	Those with minimal deductions who prefer a simpler tax setup

Old Tax Regime: Structure & Benefits

Income Tax Slabs (FY 2024–25 – Unchanged)

Up to ₹2.5 lakh – 0%
₹2.5 lakh – ₹5 lakh – 5%
₹5 lakh – ₹10 lakh – 20%
Above ₹10 lakh – 30%

Wide Range of Deductions & Exemptions

The old regime allows taxpayers to lower their taxable income significantly through various deductions:

Section 80C: Up to ₹1.5 lakh (for PPF, ELSS, LIC premiums, etc.)
Section 80D: Premiums paid for health insurance (self, spouse, parents)
House Rent Allowance (HRA): Exemption if living in rented accommodation
Leave Travel Allowance (LTA): For domestic travel (as per rules)
Home Loan Interest: Up to ₹2 lakh deduction for self-occupied properties
Other Deductions:
- 80CCD(1B): Additional ₹50,000 for NPS contributions
- 80G: Donations to eligible charities and institutions

Who Benefits Most from the Old Regime?

Taxpayers with High Deductions

If you can claim deductions of ₹5 lakh or more—via HRA, 80C, 80D, home loan interest, etc.—the old regime may still yield lower tax liability despite higher rates.

Mid to Upper-Middle Income Earners (₹12–24 lakh)

For individuals in this range, the old regime can still be advantageous—especially if they:

Live in high-rent metro cities (and claim significant HRA)
Pay EMIs on home loans
Max out deductions under 80C, 80D, and others

Who Should Consider Staying in the Old Regime?

Salaried individuals with high rent or large home loan interest payments
Taxpayers who consistently invest in tax-saving instruments
Families with significant insurance, medical, or education-related expenses

New Tax Regime – Highlights from Budget 2025

Raised Zero-Tax Threshold

0% tax on income up to ₹12 lakh
Salaried individuals enjoy an additional ₹75,000 standard deduction, making income up to ₹12.75 lakh completely tax-free

Revised Income Tax Slabs (FY 2024–25)

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%

Minimal Deductions Allowed

Only ₹75,000 standard deduction for salaried taxpayers
No claims for traditional exemptions and deductions such as:
- House Rent Allowance (HRA)
- Leave Travel Allowance (LTA)
- Section 80C (investments)
- Section 80D (health insurance)

Who Should Opt for the New Regime?

Salaried individuals earning up to ₹12.75 lakh who want zero tax liability without relying on deductions
Taxpayers with limited or no deductions, or those who prefer not to invest just for tax-saving purposes
High-income earners whose total deductions (excluding standard deduction) are under ₹8 lakh
Those who value simplicity—no need to maintain proof of investments or rent receipts

Best Fit For:

Salaried Individuals (Up to ₹12.75 Lakh)

Enjoy complete tax exemption with no complex paperwork

High-Income Earners Without Major Deductions

Beneficial even for those earning above ₹24 lakh, provided they aren’t claiming substantial exemptions under the old regime

Simplified Filing Preference

Fewer documents, less compliance, and straightforward tax calculations

Income Tax Old Regime vs New Regime: Example Scenarios

Income = ₹13 Lakh (Salaried)

New Regime: Likely zero or minimal tax after applying the ₹75,000 standard deduction, since income up to ₹12.75 lakh is tax-free.
Old Regime: Could be competitive only if you claim substantial deductions (₹2–3 lakh or more under 80C, HRA, etc.).

Income = ₹20 Lakh

New Regime: Income between ₹16–20 lakh taxed at 20%, with only ₹75,000 standard deduction.
Old Regime: If you have significant deductions (HRA, 80C, 80D, home loan interest), your taxable income might reduce enough to fall into a lower tax bracket, potentially lowering your overall tax.

Incomes Up to ₹12–13 Lakh

Under the new regime, incomes up to ₹12.75 lakh (including standard deduction) are effectively tax-free.
Under the old regime, you’d need large exemptions (HRA, 80C, 80D) to bring taxable income down to zero—often difficult to achieve.
Bottom line: For most earners in this bracket, the new regime offers simplicity and minimal or zero tax liability.

Incomes Around ₹15–20 Lakh

With heavy investments (maxing out 80C, HRA exemptions, home loan interest), the old regime can sometimes outperform the new.
If total deductions are modest (below ₹5 lakh), the new regime usually offers simpler compliance and lower taxes.

Incomes Above ₹24–25 Lakh

Experts suggest the new regime may be better if your total deductions (excluding the ₹75,000 standard deduction) are less than ₹8 lakh.
If you can claim deductions exceeding ₹8 lakh—through HRA, investments, home loan interest, etc.—the old regime might still save you more tax, but it demands substantial financial commitments and documentation

Illustrative Example: Income Above ₹24 Lakh — Old vs New Tax Regime

Gross Salary (A): ₹35,00,000 (₹3.5 million)
Deductions & Exemptions (B): Varies — includes HRA, LTA, Section 80C, 80D, home loan interest, etc.
Standard Deduction (C):

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

How Tax Liability Changes With Deductions

When total deductions and exemptions range from ₹5.75 lakh to ₹9.5 lakh, your final tax amount will vary significantly.

Old Regime:
- Allows multiple deductions (HRA, LTA, 80C, home loan interest), reducing your taxable income substantially.
- If deductions exceed around ₹8 lakh, the old regime can result in lower tax liability.
New Regime:
- Offers a higher standard deduction (₹75,000) but restricts most other exemptions and deductions.
- When total deductions are below ₹8 lakh, the new regime usually results in lower tax.

Summary of the Example:

Deductions below ₹8 lakh: New tax regime generally leads to lower taxes.
Deductions ₹8 lakh or more: Old regime may provide better tax savings

Illustrative Examples: Income Below ₹24 Lakh — New vs Old Tax Regime

This example covers gross salaries of:

₹14 lakh
₹18 lakh
₹22 lakh

Key Insights:

Under the old regime, various deductions such as HRA, LTA, 80C, and 80D help reduce taxable income significantly.
The new regime permits only the standard deduction, resulting in a higher taxable income but lower tax rates.

Breakdown by Income:

₹14 Lakh Salary

With substantial exemptions (e.g., HRA of ₹2.3 lakh, LTA of ₹25,000), the old regime’s tax can be slightly higher or lower depending on total deductions.
Example: Claiming around ₹4.55 lakh in deductions reduces taxable income to ₹8.95 lakh under the old regime, while the new regime taxes ₹13.25 lakh at lower rates.

₹18 Lakh & ₹22 Lakh Salaries

As total deductions grow, the old regime can lower taxable income enough to balance out the higher tax slabs.
However, if deductions are modest, the new regime often remains simpler and potentially cheaper

Key Takeaway: Old Regime vs New Regime for Income Tax

For salaried individuals earning above ₹24.75 lakh, the new tax regime tends to be more advantageous only if total deductions and exemptions not allowed under the new regime are less than ₹8 lakh (excluding the standard deduction).

If your eligible deductions exceed ₹8 lakh, the old regime may still offer a lower overall tax liability.

This ₹8 lakh break-even applies mainly to those in the highest 30% tax bracket (incomes above ₹24 lakh or ₹24.75 lakh with standard deduction). For lower income levels, the break-even threshold will vary.

Ultimately, the best way to decide is to calculate your taxable income and tax payable under both regimes by carefully listing all your deductions and exemptions. Choose the regime that maximizes your net savings

Deciding Factors: Choosing Between Old and New Tax Regimes

Extent of Deductions: The main difference lies in exemptions and deductions. The more deductions you can claim, the more beneficial the old regime becomes.
Compliance & Documentation: The old regime demands thorough record-keeping and proof for various claims, whereas the new regime requires minimal paperwork, making filing simpler.
Financial Goals & Liquidity: Many deductions under the old regime (like 80C) involve locking funds into long-term investments such as PPF or ELSS. If you prefer greater liquidity or simpler finances, the new regime may be a better fit.
Annual Review: You have the flexibility to choose either regime each financial year (with some restrictions for business income). It’s important to reassess annually, as your financial situation and tax rules may evolve

How to Choose Between the New and Old Tax Regimes?

Deciding between the old and new tax regimes depends largely on your unique financial situation, deductions, and investment habits. Consider these key points:

1. Available Deductions and Exemptions

Old Regime: Allows claims for exemptions and deductions like HRA, LTA, Section 80C (investments), 80D (health insurance), and more.
New Regime: Removes most deductions and exemptions but offers lower tax rates and more income slabs.

2. Income Level and Tax Slabs

Review slab rates in both regimes carefully. The new regime has more slabs but often lower rates.
Calculate your potential tax liability under each regime to identify the better option.

3. Type of Income

If your income is mostly salary with substantial exemptions (like HRA), the old regime might reduce your tax burden more effectively.
If you have fewer deductions or prefer not to invest in tax-saving schemes, the new regime offers simplicity and potentially lower taxes.

4. Standard Deduction

Budget 2025 sets the standard deduction at ₹50,000 under the old regime and ₹75,000 under the new regime for salaried individuals.
This higher standard deduction in the new regime can make it more attractive if other exemptions are limited.

5. Long-Term Financial Planning

If you already invest in 80C options (PPF, ELSS, etc.), the old regime rewards those investments with deductions.
If you prefer flexibility without mandatory tax-saving investments, the new regime may suit you better.

6. Run Both Scenarios

The most reliable way is to calculate your estimated tax under both regimes using your actual income and deductions.
Choose the regime that results in the lowest overall tax liability.

Tip:
Revisit this calculation annually—ideally at the start of each financial year or before filing your return—to ensure you pick the regime that best fits your current financial profile

About the Author

Rohan

Rohan is a skilled writer known for simplifying complex legal concepts into clear, practical guidance. Her articles equip entrepreneurs with the essential knowledge to confidently navigate business laws, helping them successfully launch and manage their ventures.

June 25, 2025