The discussion about India's tax framework often revolves around the previous versus the new tax regime, focusing on tax slab rates and available deductions. The previous regime permits various exemptions and deductions, such as House Rent Allowance (HRA), standard deduction, and benefits under Section 80C and 80D. This makes it a suitable choice for individuals with substantial investments. Conversely, the new regime offers lower tax rates but eliminates most deductions. Deciding which option is more advantageous depends on your income, salary structure, and eligible tax-saving investments.

Comparison of Old and New Tax Regimes: Income Tax Slabs

New Regime Income Tax Slabs for FY 2025-26 (AY 2026-27)

The Budget 2025 introduced updated income tax slab rates under the new tax regime. This revision increased the basic exemption limit to Rs. 4 lakh, while income exceeding Rs. 24 lakh is now taxed at 30%. The income tax slab rates applicable for the new tax regime for FY 2025-2026 are as follows:

New Regime Income Tax Slabs for FY 2024-25 (AY 2025-26)

The income tax slab rates under the new tax regime for FY 2024-2025 are presented below:

The Budget 2024 increased the standard deduction under the new tax regime to Rs. 75,000. Additionally, the deduction for family pensions was raised from Rs. 15,000 to Rs. 25,000. These revised tax provisions are expected to result in a tax saving of Rs. 17,500 for taxpayers.

Income Tax Slabs Under the Old Regime

The slab rates under the old regime have remained consistent for recent financial years. The following rates apply to individuals below 60 years of age and non-residents:

For resident senior citizens aged between 60 and 80 years, the old regime's income tax slabs are as follows:

For resident super senior citizens, those above 80 years, the basic exemption limit is extended to ₹5,00,000.

It is important to note that the new tax regime does not offer separate slab benefits for senior citizens.

Old vs. New Tax Regime: Deductions and Exemptions

The previous tax regime offers numerous deductions that are generally not available under the new regime. Understanding these differences in deductions and exemptions is crucial for making an informed choice.

Rebate

Standard Deduction

House Rent

Home Loan Interest

Chapter VI-A Deductions

Retirement Benefits

Other Deductions

Old vs. New Tax Regime: Additional Differences

Beyond the significant differences already discussed, other distinctions exist between the old and new tax regimes.

Form 10 IEA Requirements

Other Differences

New vs. Old Tax Regime FY 2025-26: Determining the Better Option

The choice between the previous and new tax regimes depends heavily on your income level, available deductions, and exemptions. For salaried individuals who have minimal deductions, the new regime is generally more advantageous due to its relaxed tax slabs and a potential rebate of up to ₹7 lakh or ₹12 lakh (depending on updated Section 87A provisions). However, if you claim substantial deductions under Sections 80C, 80D, HRA, or home loan interest, the old regime might offer greater tax savings. Let's analyze this using examples:

Example-1

Mr. A, with a salary income of Rs. 10 lakhs, has investment deductions under Section 80C totaling Rs. 1 lakh and has paid a medical insurance premium of Rs. 30,000 for himself and his family. The calculation of taxable income and total tax payable under both regimes is shown below:

In this scenario, the new regime proved beneficial, primarily due to the increased rebate.

Example-2

Mr. A, earning a salary of Rs. 20 lakhs, has the following investment deductions:

• Investment deductions under Section 80C - Rs. 1 lakh
• Medical insurance premium paid for self and family - Rs. 30,000
• Interest on home loan (self-occupied property) - Rs. 2,00,000
• Donation to a political party - Rs. 2,75,000

The computation of taxable income and total tax payable under both regimes is presented below:

In this example, despite significant tax-saving deductions, the new tax regime turned out to be more beneficial because of its relaxed slab rates. The key takeaway is that only a high volume of tax-saving deductions would make the old regime more advantageous.

Note:

1. For the old regime to be most beneficial, the deduction amount must exceed the specified amount in column 2. If the deduction amount is lower, the new regime offers greater benefits.
2. The income level mentioned here refers to the income after accounting for the standard deduction.

New Tax Regime vs. Old Tax Regime FY 2025-26: Determining the Optimal Choice

The table below summarizes the level of deductions necessary for the old regime to be more beneficial.

Note:

1. The deduction amount needs to be higher than the figure specified in column 2 for the old regime to be more beneficial. If the deduction is less, the new regime is more advantageous.
2. The income level referenced here is the income after deducting the standard deduction.

New Tax Regime vs. Old Tax Regime: Key Insights

To choose between the old and new tax regimes, it's essential to calculate your net taxable income after claiming all eligible exemptions and deductions under the old regime (such as HRA, 80C, 80D, etc.). Then, compare the tax liability under both regimes. The option resulting in a lower tax payable is the more favorable choice. Salaried individuals should inform their employer of their preferred regime to ensure accurate Tax Deducted at Source (TDS). If you have losses from house property, capital gains, or business income, note that under the new regime, such losses generally cannot be offset or carried forward. This could impact future tax liabilities, so this factor should be considered in your decision. The new tax regime generally benefits taxpayers with income up to ₹24 lakh who claim few or no deductions, as it offers lower tax rates without requiring extensive exemptions. Conversely, the old tax regime is better suited for high-income earners who can claim substantial deductions under Section 80C, home loan interest, or insurance premiums, which can significantly reduce their taxable income.

Conclusion

The new tax regime is advantageous for individuals who have minimal deductions or who prefer a more straightforward tax filing process. It suits taxpayers with personal or vehicle loan repayments, medical expenses for dependents, or those not eligible for exemptions like HRA, standard deduction, or employer pension contributions. In contrast, the old tax regime is ideal for those who can claim significant deductions and exemptions. Senior citizens, in particular, may find the old regime more beneficial due to Section 80TTB, which allows a ₹50,000 deduction on interest income.