Confused about which tax regime suits you best? We've got you covered!
When it comes to filing income tax returns (ITR), taxpayers frequently encounter a common dilemma: should they opt for the old tax regime or the new one? This decision is crucial for both first-time filers and seasoned individuals.
The old regime allows for various deductions and exemptions, such as those related to investments, housing loans, and medical expenses. These deductions can significantly lower taxable income, thereby reducing the overall tax burden.
However, the new regime offers a simpler approach by eliminating most deductions and exemptions in favor of lower tax rates across different income slabs.
Don’t worry and stay relaxed!! We have made it easier for you. You just need to enter your income details and all computations as recommended by the tool, and a detailed comparison of tax payments under both regimes will be shared on your screen.
Let our tool unlock your maximum savings and guide you to the perfect tax regime—stress-free and in seconds. Try it now and make your taxes work for you!
No Income Tax on Annual Income Up to ₹12.75 Lakh!
Union Budget 2025-26 proposes new direct tax slabs and rates under the new income tax regime, ensuring that no income tax is needed to be paid for total income up to ₹12 Lakh per annum (i.e., average income of ₹1 Lakh per month), other than special rate income such as Capital Gains.
With the Section 87A rebate limit increased from ₹7 lakh to ₹12 lakh, the middle class will experience major tax relief. Additionally, salaried individuals can claim a ₹75,000 standard deduction, keeping more of their income tax-free.
New Slab Structure under new tax regime:
| ₹0 – ₹4 lakh | No Tax |
| ₹4 lakh – ₹8 lakh | 5% |
| ₹8 lakh – ₹12 lakh | 10% |
| ₹12 lakh – ₹16 lakh | 15% |
| ₹16 lakh – ₹20 lakh | 20% |
| ₹20 lakh – ₹24 lakh | 25% |
| ₹24 lakh & above | 30% |
Taxpayers now get 4 years (instead of 2) to update their Income Tax Returns.
The Old Tax Regime is the traditional income tax system in India, which allows taxpayers to claim various deductions and exemptions to reduce their taxable income. These include popular benefits such as:
Key Features of the Old Tax Regime
| Income | Tax Rate |
|---|---|
| ₹0 - ₹2.5 lakh | Nil |
| ₹2.5 - ₹5 lakh | 5% |
| ₹5 - ₹10 lakh | 20% |
| Above ₹10 lakh | 30% |
Benefits of the Old Tax Regime
A new tax slab was introduced in Budget 2020 that became effective from 1 April 2020. This new income tax slab offered lower tax rates, but deductions and exemptions will not be available under the new regime except deductions u/s 80CCD(2). It allows you to lower your tax liability subject to certain conditions and is optional.
Budget 2023 announced several amendments to make the new tax regime more lucrative; the following key changes were introduced:-
Default Regime:- The new tax regime is set as a default regime, meaning if you haven’t informed your employer about which regime to choose from, the TDS calculation will be based only on the new tax regime.
Tax Rate:- The basic exemption limit was raised to Rs 3 lakh from Rs 2.5 lakh to make the new tax regime more attractive. Also, the highest tax rate of 30% will be levied above Rs 15 lakh income.
Tax Slabs:- The revised tax structure as per the new tax regime is:-
New Regime (FY 2024-25)
| Range of Income (Rs.) | Tax Rate |
|---|---|
| Up to 3,00,000 | NIL |
| 3,00,000-7,00,000 | 5% |
| 7,00,000-10,00,000 | 10% |
| 10,00,000-12,00,000 | 15% |
| 12,00,000-15,00,000 | 20% |
| Above 15,00,000 | 30% |
Rebate Limit:- The rebate under section 87A has been hiked to Rs 7 lakh from Rs 5 lakh under the new tax regime. The rebate benefit will be up to Rs 25000, provided income does not exceed the limit of 7 lakhs.
Standard Deduction:- Individuals having salary income can claim a standard deduction of Rs. 75,000 from their gross salary income. Family pensioners opting for the new tax regime can claim a standard deduction of Rs 25,000 from their pension income.
Slashed the surcharge limit:- Reduction in the surcharge on annual income above 5 crores from 37% to 25% under the new regime. The highest tax rate is 42.74%, which would slash the maximum tax rate to 39% after this reduction.
Leave encashment exemption:- The limit of Rs. 3 lakh for tax exemption on leave encashment on non-government salaried employees has been raised to Rs. 25 lakh.
Insurance plans:- As per the announcement in the Budget 2023-24, income from traditional insurance policies where the premium is more than Rs 5 lakh will not be tax-free.
With the introduction of the new regime, 70 out of 100 deductions were disallowed under the new regime. The following exemptions and deductions are some of the most important ones which would not be available if the new tax slab is chosen for tax calculation –
For more details please check here. https://tax2win.in/guide/income-tax-slab-rates-updated
The following deductions and exemptions are still available under the new tax regime –
Standard deduction of INR 75,000 from salary income under Section 16. (Earlier, this deduction was only Rs. 50,000; however, after budget 2024, this limit was increased to Rs. 75,000).
| Old Tax Regime (FY 2022-23, FY 2023-24 and FY 2024-25) | New Tax Regime | |||||
|---|---|---|---|---|---|---|
| Income Slabs | Age < 60 years & NRIs | Age of 60 Years to 80 years | Age above 80 Years | FY 2022-23 | FY 2023-24 | FY 2024-25 |
| Up to ₹2,50,000 | NIL | NIL | NIL | NIL | NIL | NIL |
| ₹2,50,001 - ₹3,00,000 | 5% | NIL | NIL | 5% | NIL | NIL |
| ₹3,00,001 - ₹5,00,000 | 5% | 5% | NIL | 5% | 5% | 5% |
| ₹5,00,001 - ₹6,00,000 | 20% | 20% | 20% | 10% | 5% | 5% |
| ₹6,00,001 - ₹7,00,000 | 20% | 20% | 20% | 10% | 10% | 5% |
| ₹7,00,001 - ₹7,50,000 | 20% | 20% | 20% | 10% | 10% | 10% |
| ₹7,50,001 - ₹9,00,000 | 20% | 20% | 20% | 15% | 10% | 10% |
| ₹9,00,001 - ₹10,00,000 | 20% | 20% | 20% | 15% | 15% | 10% |
| ₹10,00,001 - ₹12,00,000 | 30% | 30% | 30% | 20% | 15% | 15% |
| ₹12,00,001 - ₹12,50,000 | 30% | 30% | 30% | 20% | 20% | 20% |
| ₹12,50,001 - ₹15,00,000 | 30% | 30% | 30% | 25% | 20% | 20% |
| ₹15,00,000 and above | 30% | 30% | 30% | 30% | 30% | 30% |
Ever since the new tax regime was proposed, many are debating as to which tax regime is better, the old one with deductions or the new one without them? The answer is relative. One tax regime cannot be universally beneficial for all. Your income, its type, available deductions, and exemptions determine which tax regime would give you better tax benefits. You should calculate your tax liability using both regimes, and the regime that gives you the lowest tax liability should be chosen depending on your requirements.
Here are some calculations showing you the tax liability under both tax slabs for different types of incomes –
Salary Income of INR 12 lakhs for a salaried employee| Particulars | FY 2023-24 | FY 2024-25 | ||
|---|---|---|---|---|
| Old Regime | New Regime | Old Regime | New Regime | |
| Gross Salary | 12,00,000 | 12,00,000 | 12,00,000 | 12,00,000 |
| Less: HRA exemption | 2,00,000 | NA | 2,00,000 | NA |
| Less: LTA exemption | 50,000 | NA | 50,000 | NA |
| Less: Standard deduction | 50,000 | 50,000 | 50,000 | 75,000 |
| Less: Section 80C deductions | 1,50,000 | NA | 1,50,000 | NA |
| Less: Section 80D deductions for self | 25,000 | NA | 25,000 | NA |
| Less: Section 80D deduction for senior citizen parents | 50,000 | NA | 50,000 | NA |
| Less: Other deductions | 10,000 | NA | 10,000 | NA |
| Taxable Income | 6,65,000 | 11,50,000 | 6,65,000 | 11,25,000 |
| Tax Payable including cess (considering age is less than 60) | 47,320 | 85,800 | 47,320 | 71,500 |
| Remark | Old regime is beneficial | Old regime is beneficial | ||
Let us understand with another example :
| Particulars | FY 2023-24 | FY 2024-25 | ||
|---|---|---|---|---|
| Old Regime | New Regime | Old Regime | New Regime | |
| Gross Salary | 12,00,000 | 12,00,000 | 12,00,000 | 12,00,000 |
| Less: Standard deduction | 50,000 | NA | 50,000 | 75,000 |
| Less: 80C deductions | 50,000 | 50,000 | 50,000 | NA |
| Taxable Income | 11,00,000 | 11,50,000 | 11,00,000 | 11,25,000 |
| Tax Payable including cess(considering age is less than 60) | 1,48,200 | 85,600 | 1,48,200 | 71,500 |
So, a salaried employee can benefit from the old tax regime by claiming exemptions/ deductions. In case the taxpayer wants to claim more exemptions/ deductions, then he should opt for the old tax regime subject to other conditions. You can read more here.
In the second example, since the exemptions/ deductions available to him were lower as compared to the previous example, it was more beneficial for him in opting for the new tax regime. Further, the decision of a suitable tax regime depends on case to case.
Some more examples showing taxability at different income levels:
Salary Income: Rs.5,00,000 FY 2024-25
| Particulars | Old Regime | New Regime | |
|---|---|---|---|
| Gross Income | 500,000 | 500,000 | |
| Less: | Std. Ded. | 50,000 | 75,000 |
| 80C,80D, etc. | Zero | - | |
| HRA | Zero | - | |
| LTA | Zero | - | |
| Net Taxable Income | 450,000 | 4,25,000 | |
| Tax | - | - | |
Note: There is NO impact on tax payments because of rebate u/s 87A.
Salary Income: Rs.7,00,000 FY 2024-25
| Particulars | Old Regime | New Regime | |
|---|---|---|---|
| Gross Income | 700,000 | 700,000 | |
| Less : | Std. Ded. | 50,000 | 75,000 |
| 80C,80D, etc. | 150,000 | - | |
| HRA | 50,000 | - | |
| LTA | Zero | - | |
| Net Taxable Income | 450,000 | 6,25,000 | |
| Tax | 0 | 0 | |
| Note: There are no tax payments under the old regime due to rebate u/s 87A and also under new regime also due to rebate u/s 87A as Introduced by Budget 2023 which says Income upto 7 lac is not taxable under the new Regime. | |||
Salary Income: Rs.8,00,000 FY 2024-25
| Particulars | Old Regime | New Regime | |
|---|---|---|---|
| Gross Income | 800,000 | 800,000 | |
| Less : | Std. Ded. | 50,000 | 75,000 |
| 80C,80D, etc. | 150,000 | - | |
| HRA | 50,000 | - | |
| LTA | 0 | - | |
| Net Taxable Income | 550,000 | 7,25,000 | |
| Tax | 23,400 | 0 | |
| New Tax Regime saves more tax. | |||
Salary Income: Rs.15,00,000 FY 2024-25
| Particulars | Old Regime | New Regime | |
|---|---|---|---|
| Gross Income | 1,500,000 | 1,500,000 | |
| Less : | Std. Ded. | 50,000 | 75,000 |
| 80C,80D, etc. | 150,000 | - | |
| HRA | 75,000 | - | |
| LTA | 20,000 | - | |
| Net Taxable Income | 1,205,000 | 14,25,000 | |
| Tax | 180,960 | 1,30,000 | |
| New Tax Regime saves more tax. | |||
Salary Income : Rs.20,00,000 FY 2024-25
| Old Regime | New Regime | ||
|---|---|---|---|
| Gross Income | 2,000,000 | 2,000,000 | |
| Less : | Std. Ded. | 50,000 | 75,000 |
| 80C,80D, etc. | 150,000 | - | |
| HRA | 75,000 | - | |
| LTA | 20,000 | - | |
| Net Taxable Income | 1,705,000 | 19,25,000 | |
| Tax | 336,960 | 2,78,200 | |
| New Tax Regime saves more tax. | |||
The various benefits or disadvantages of the old and new tax regimes include:-
| Benefits | Disadvantages |
|---|---|
| OLD TAX REGIME | |
| Option to avail around 70 exemptions and deductions under the Income Tax Act | Investment only in specified options were required to claim the tax benefit. |
| Practice to submit false disclosures for investment proofs is prevalent | |
| NEW TAX REGIME | |
| Tax Rates Reduced | Not attractive to those who were already investing and have binding premiums |
| No major tax saving options given, increasing cash flow in hands of taxpayer | |
Tax2win’s Old vs New Tax Regime Calculator provides you with all the computations and a detailed comparison of how much your taxability will be as per both regimes (old/new) so that you can decide which one is suitable for you. However, filing ITR yourself can be complicated and time-consuming. Moreover, it is common to miss out on some important deductions available to you due to a lack of knowledge. Therefore, the best way to file an ITR is to hire an online CA who can not only help you file your ITR smoothly but also reduce your tax liability. Hire an Online CA Now!
Yes, a salaried individual can make a choice every year as to which tax regime should be chosen. There is no compulsion if one scheme is selected for a year then it should adhere every year. Taxpayers can switch amongst the schemes yearly.
New tax regime is more beneficial, particularly for those who have yet to invest and are not looking forward to investing in tax-saving options eligible under the old scheme. This option is more lucrative for new joiners or senior citizens willing to have more liquidity in their hands compared to investments.
No, you cannot claim certain deductions undernew tax regimes . You need to choose either the old or the new tax regime for a particular financial year.
House Rent Allowance or HRA exemption is not available under the new tax regime pronounced in Budget 2020.
Tax under the new regime can be calculated as per the income tax slabs rates prescribed or with the help of an income tax calculator.
The choice of opting for the new tax regime depends on your willingness to make tax-saving investments. If you are a rental income earner and you are not looking forward to making any tax-deductible contributions, then opt for the new tax regime. Still, it would be suggested that you make a more informed decision by calculating your tax liability under both regimes.
