Old Tax Regime OR New Tax Regime: Which One Is Better as per Experts?

Numerous individuals have questions in their minds about which one is better- the Old Tax Regime or the New Tax Regime. Which of them helps save more tax? Should you choose exemptions or stick with deductions? The best choice of Tax Regime depends on how much you earn, how you save and invest, and what your money goals are. Let’s make it easier to understand:

Old Tax Regime:

In this tax system, people can reduce their taxable income by claiming different deductions and exemptions. These include Section 80C for money invested in things like PPF, ELSS, or LIC; Section 80D for health insurance payments; HRA – House Rent Allowance if you’re paying rent; and LTA – Leave Travel Allowance for travel within India. The tax rates are a bit higher, but these deductions can help lower the amount of income you have to pay tax on.

New Tax Regime:

The new tax system has decreased the tax rates but takes away most deductions and exemptions. It’s easier to file taxes under this system, and it is a good option for people who don’t invest in tax-saving schemes or don’t claim many exemptions.

Union Budget 2025 Tax Rates Key Highlights

The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman, introduced some major changes, including substantial income tax cuts. These changes are:

i) Under the new tax regime, income up to Rs. 12 lakh is tax-free for everyone.

ii) Salaried individuals also get a Rs. 75,000 standard deduction, making total income up to Rs. 12.75 lakh completely tax-free.

iii) New Income Tax Slab Rates

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

iv) Old Income Tax Slabs Unchanged (The old tax regime continues with its standard slabs)

• 0% up to Rs. 2.5 lakh
• 5% from Rs. 2.5 lakh to Rs. 5 lakh
• 20% from Rs. 5 lakh to Rs. 10 lakh
• 30% above Rs. 10 lakh

Who Benefits Most From The Old Tax Regime?

If you have a large amount of deductions like Rs. 5 to 8 lakh or more through things like HRA, Section 80C, 80D, and home loan interest, then the old tax system might work better for you. These deductions can lower your taxable income enough to balance out the higher tax rates.

Who Benefits Most From The New Tax Regime?

• Monthly salary up to Rs. 12.75 lakh is Tax free in New Tax Regime.
• People who cannot (or prefer not to) invest large sums in instruments such as PPF, ELSS, or insurance only to save tax.
• People with high incomes whose total deductions (excluding the standard deduction) are relatively modest, especially if below Rs. 8 lakh.

Under the new tax system, most common tax breaks like House Rent Allowance (HRA), Leave Travel Allowance (LTA), and popular deductions under sections like 80C (for investments) and 80D (for health insurance) are not allowed, except for the standard deduction for salaried people.

Which system is better for you depends on how many tax benefits you usually claim. If you use a lot of tax-saving options, the old system may help you save more. But if you don’t have many deductions, the new system might be a better fit.