Tax season can be confusing, and choosing the right tax regime is crucial to saving money. Earlier, taxpayers had only one way to file taxes, but since 2020, the government has introduced two options: The Old Tax Regime and the New Tax Regime. Each has its pros and cons, and making the wrong choice can cost you extra money.
Let’s break down both systems in simple terms so you can decide which one works best for your income, expenses, and savings goals in 2025.
Understanding the Old and New Tax Regimes
The Old Tax Regime allows taxpayers to claim multiple deductions and exemptions, helping them lower their taxable income. However, it comes with higher tax rates. The New Tax Regime, introduced to simplify tax filing, offers lower tax rates but removes most exemptions and deductions.
Since 2023, the New Tax Regime has been the default option, but taxpayers can still opt for the Old Regime if it benefits them more.
Tax Slabs Comparison for 2025
Old Tax Regime
- Up to Rs.2.5 lakh: No tax
- Rs.2.5 lakh – Rs.5 lakh: 5% (Rebate available under Section 87A up to Rs.5 lakh income)
- Rs.5 lakh – Rs.10 lakh: 20%
- Above Rs.10 lakh: 30%
- Senior citizens (60-80 years): Exemption up to Rs.3 lakh
- Super senior citizens (80+ years): Exemption up to Rs.5 lakh
New Tax Regime
- Up to Rs.3 lakh: No tax
- Rs.3 lakh – Rs.7 lakh: 5% (Rebate under Section 87A up to Rs.7 lakh income)
- Rs.7 lakh – Rs.10 lakh: 10%
- Rs.10 lakh – Rs.12 lakh: 15%
- Rs.12 lakh – Rs.15 lakh: 20%
- Above Rs.15 lakh: 30%
At first glance, the New Tax Regime seems better with lower tax rates. However, deductions and exemptions available in the Old Regime can significantly reduce taxable income, making it a better choice for some taxpayers.
Deductions & Exemptions: The Advantage of the Old Regime
The biggest advantage of the Old Tax Regime is the ability to claim tax-saving deductions, such as:
- Section 80C – Rs.1.5 lakh for PPF, ELSS, life insurance, EPF, home loan principal, etc.
- Section 80D – Rs.25,000 (Rs.50,000 for seniors) for health insurance premium.
- House Rent Allowance (HRA) – A tax-free rent allowance for salaried employees.
- Home Loan Interest Deduction – Rs.2 lakh exemption on self-occupied house loan interest under Section 24.
- Other Exemptions – Standard deduction (Rs.50,000), LTA, education loan interest (80E), and savings account interest (80TTA).
If you actively invest and claim deductions, the Old Regime is likely to be the better choice.
Which Tax Regime Saves More Money?
Let’s compare tax payments for different income levels to see which regime saves more.
Example 1: Rs.10 Lakh Annual Income
Old Regime
- Taxable Income After Deductions: Rs.7 lakh (assuming Rs.1.5 lakh under 80C, Rs.50,000 in 80D, and Rs.1 lakh in HRA)
- Tax Payable: Rs.65,000
New Regime
- Taxable Income: Rs.9.5 lakh (only Rs.50,000 standard deduction available)
- Tax Payable: Rs.54,600
✅ Winner: New Tax Regime (Rs.10,400 savings) if deductions are not maximized.
Example 2: Rs.15 Lakh Annual Income
Old Regime
- Taxable Income After Deductions: Rs.10.5 lakh
- Tax Payable: Rs.1,69,000
New Regime
- Taxable Income: Rs.14.5 lakh
- Tax Payable: Rs.1,63,800
✅ Winner: Old Tax Regime (Rs.5,200 savings) if deductions are maximized.
Which Tax Regime Should You Choose?
Your tax regime choice depends on your income, investments, and expenses.
Old Tax Regime is better if:
- You actively invest in PPF, EPF, or ELSS.
- You have a home loan with high interest payments.
- You live in rented accommodation and claim HRA.
- You are a senior citizen and need medical expense deductions.
- You are disciplined in tax planning and prefer long-term savings.
New Tax Regime is better if:
- You do not invest in tax-saving instruments like 80C options.
- You do not pay house rent and cannot claim HRA.
- You prefer a higher take-home salary instead of investing for deductions.
- You want a simple tax filing process with no need to track expenses.
- You are a freelancer or self-employed with no salary-based deductions.
Tax Regime for Different Age Groups
- Young professionals (20s-30s): If you don’t have major investments or expenses, the New Regime may be better. However, if you invest for the future, the Old Regime is beneficial.
- Middle-aged individuals (40s-50s): If you have home loans, insurance, or tuition fees, the Old Regime usually saves more.
- Senior citizens (60+): The Old Regime is preferable due to higher exemptions and medical insurance benefits.
Final Thoughts
The best tax regime for you depends on how much you invest and save. If you prefer tax benefits and have significant deductions, the Old Regime is better. If you want a simpler system with lower tax rates, the New Regime may be the right choice.
Before filing your ITR, calculate the tax under both regimes and pick the one that helps you save the most. Happy tax planning!
