Old Tax Regime vs New Tax Regime

Last Updated On -02 Sep 2025

Whether it is to file income tax returns in India or not, the issue of whether to choose the New Tax Regime or the Old Tax Regime is one of the most crucial decisions that a taxpayer would have to make. The two regimes have various benefits, structures, and implications based on the income, spending, and investments made by a person. These differences are critical to understand because your decision will have a substantial impact on your savings, compliance load, and financial planning in general.

What is the Old Tax Regime?

The Old Tax Regime is the old taxation system of India before the introduction of the new regime in the Union Budget 2020. In this system, taxpayers were provided with numerous tax deductions and exemptions to decrease their taxable income. Included among popular deductions were:

Section 80C: Investment made in ELSS, PPF, Life Insurance, etc. (up to ₹1.5 lakh).
Section 80D: Premiums on health insurance.
HRA, LTA, Standard Deduction, etc.

The slab rates during the Old Regime were higher than during the New Regime, but taxpayer was able to save a lot of liability by claiming such deductions.

What is the New Tax Regime?

It was replaced by a simpler regime called the New Tax Regime. It provides lower tax rates in a higher number of income brackets, but at the expense of losing most exemptions and deductions. That is, you cannot take such benefits as HRA, 80C, or home loan interest deduction.

The New Regime, however, does permit some limited deductions, including:

Regular allowance of ₹50,000 for wage earners.
Contributions of the employer to NPS and EPF.
Deduction under Section 80CCD(2).

The point here is to make the process of tax filing simpler and lower the tax rates on people who do not make any large tax-saving investments.

Tax Slab Comparison

The decision of the Old vs New Tax regime is quite subjective. The Old Regime can probably offer you a better savings benefit if you are a regular investor and claim a variety of exemptions. Conversely, when you want an easy way without paying high rates and not depending on investments, then the New Regime would suit you.

Here’s a clear comparison of the Old vs New Tax Regime income tax slabs:

Income Range (₹)	Old Tax Regime	New Tax Regime
Up to 2.5 lakh	NIL	NIL (up to 3 lakh for all taxpayers)
2.5 – 5 lakh	5%	5%
5 – 10 lakh	20%	10% (6–9L), 15% (9–12L)
10 – 12 lakh	30%	15%
12 – 15 lakh	30%	20%
Above 15 lakh	30%	30%

Key Differences Between the Old and New Tax Regime

Suppose an individual is on a salary and he earns ₹12 lakh per year.

Their tax liability is lower when they claim ₹50,000 as standard deduction and ₹25,000 under 80D on their health insurance under the Old Regime in case they invest ₹1.5 lakh in 80C instruments.

They will not be in a position to claim such deductions under the New Regime, but since they live in the 15% slab of 9-12 lakh and 20 percent of 12-15 lakh, they can pay lower taxes, provided that they do not have a lot of investments.

This demonstrates how the right regime relies solely on the financial conduct of an individual.

Flexibility: The Old regime provides flexibility so that taxable income can be decreased with the help of various deductions. The simplicity of the new regime has fewer benefits.
Tax Rates: Lower rates are charged on the middle-income groups in the New regime, and higher rates are charged in the Old regime, though the latter can save more for the high-income investors.
Paperwork: The old regime will need to prove investments. The new regime needs little or no documentation.
Best for Whom? The old regime favors those who are on a salary with high deductions. The less invested or less regular income earners will fare better under the new regime.

Did you know?

Under the first introduction of the New Tax Regime in FY 2020-21, the number of individuals who chose the New Tax Regime was less than 10% of the taxpayer population, since most favored the Old Regime because it offered more savings in the form of deductions. But as the New Regime becomes the default tax regime by Budget 2023, increasing numbers of taxpayers are now thinking of switching.

Frequently Asked Questions (FAQs)

Am I able to alternate the Old and New Tax Regime on an annual basis?

Yes, the people who earn a salary have the option of either regime every year when they are filing returns. Nevertheless, there is only one switching possibility for business owners and professionals.

What regime should suit salaried workers?

When your deductions are high (80C, HRA, home loan, etc.,) the Old Regime tends to favour you. The New Regime may reduce the number of taxes you have since you have fewer investments.