Deciding between the old and new tax regimes in India can be confusing. Both have benefits but which one helps you keep more money? This blog explains why you can choose the best option for you. Let’s look at the differences and how to pick the right one.
What Are the Old and New Tax Regimes?
In India you can pay taxes in two ways: the old tax regime or the new tax regime. The old one is the traditional way and the new one started in 2020 to make taxes easier. Each has different rules and ways to save money.
Old Tax Regime: The Classic Way
The old tax regime lets you lower your tax by claiming deductions and exemptions. These are like discounts on your tax bill for things like:
- Saving money in things like Provident Fund (PF), Public Provident Fund (PPF), or life insurance (up to ₹1.5 lakh).
- Paying rent for your house (called House Rent Allowance or HRA).
- Paying interest on a home loan (up to ₹2 lakh).
- Buying health insurance (up to ₹25,000).
- Interest on savings for senior citizens (up to ₹50,000).
But the tax rates in the old regime were higher, and you needed to show proof of your savings or expenses to get these discounts. It’s good for people who save a lot or have big expenses like home loans.
New Tax Regime: The Easy Way
The new tax regime is simple. It has lower tax rates but doesn’t allow most deductions. You can’t claim discounts for things like rented home loan interest or savings (except for some property cases). However it gives a standard deduction of ₹75,000 for people with salaries and a few other small benefits like money put in the National Pension System (NPS) by your employer.
The new regime is now the default choice when you file taxes, but you can pick the old one if it’s better for you. It’s great for people who don’t have many deductions or want less paperwork.
Tax Rates: Old vs. New (For 2025-26)
To know which regime saves more, let’s compare the tax rates for the year 2025-26. These rates depend on how much money you earn.
Old Tax Regime Rates (for people under 60)
- Up to ₹2.5 lakh: No tax
- ₹2.5 lakh to ₹5 lakh: 5% tax
- ₹5 lakh to ₹10 lakh: 20% tax
- Above ₹10 lakh: 30% tax
For people aged 60–80, the no-tax limit is ₹3 lakh. For people over 80, it’s ₹5 lakh.
New Tax Regime Rates (for all ages)
- Up to ₹3 lakh: No tax
- ₹3 lakh to ₹6 lakh: 5% tax
- ₹6 lakh to ₹9 lakh: 10% tax
- ₹9 lakh to ₹12 lakh: 15% tax
- ₹12 lakh to ₹15 lakh: 20% tax
- Above ₹15 lakh: 30% tax
The new regime also has a rebate that makes tax zero for incomes up to ₹12 lakh (or ₹12.75 lakh with the standard deduction). This is great for people earning medium salaries.
How Are They Different?
Here’s a simple look at the differences:
- Tax Rates: The new regime has lower rates and more steps, so it’s often cheaper for people with fewer deductions.
- Deductions: The old regime lets you claim many discounts (like for savings or rent), but the new one only allows a few, like the ₹75,000 standard deduction.
- Ease: The new regime is easier because it needs less paperwork.
- Switching: If you have a job, you can switch between regimes every year. If you run a business switching is harder.
Which One Saves You More?
It depends on your income deductions, and habits. Let’s see with examples:
Example 1: Few Deductions, Medium Income
Imagine you earn ₹10 lakh a year and have only ₹50,000 in deductions. In the new regime, after the ₹75,000 standard deduction your taxable income is ₹9.25 lakh. Your tax is about ₹75,000. In the old regime, with ₹50,000 deductions, your taxable income is ₹9.5 lakh, and your tax is about ₹1.1 lakh. Winner: New regime, saving you ₹35,000.
Example 2: Many Deductions, High Income
Now, say you earn ₹15 lakh and have ₹4.5 lakh in deductions (₹1.5 lakh for savings, ₹2 lakh for home loan interest, ₹50,000 standard deduction). In the old regime, your taxable income is ₹10.5 lakh, with a tax of about ₹1.3 lakh. In the new regime, your taxable income is ₹14.25 lakh (after ₹75,000 deduction), and your tax is about ₹1.8 lakh. Winner: Old regime, saving you ₹50,000.
When Does the Old Regime Win?
If your deductions are more than ₹3.75 lakh to ₹8 lakh (depending on your income), the old regime might save you more. For example, if you earn ₹50 lakh, you need at least ₹7.75 lakh in deductions to make the old regime better.
How to Pick the Right One
Follow these easy steps:
- Add Your Deductions: List all discounts you can claim in the old regime (like savings, rent, or home loan interest).
- Find Taxable Income: Subtract deductions from your income for the old regime. For the new regime, subtract only the ₹75,000 standard deduction.
- Check Your Tax: Use the tax rates to see how much tax you pay in each regime. You can use an online tax calculator from the Income Tax website or other trusted sites.
- Think About Ease: If you don’t have many deductions and want less work, choose the new regime.
- Check Every Year: Your income or deductions might change, so look at it again each year.
Who Should Pick the Old Regime?
- People with big deductions (over ₹3.75 lakh), like home loan interest, rent, or savings in PPF or insurance.
- Senior citizens who get higher no-tax limits (₹3 lakh or ₹5 lakh) and extra deductions.
- People who like saving money through tax-saving plans.
Who Should Pick the New Regime?
- People earning up to ₹12.75 lakh, as they pay no tax.
- People with few or no deductions, like those who don’t save in tax-saving plans or pay rent.
- Anyone who wants an easier way to file taxes.
Tips to Choose Wisely
- Use a Calculator: Try tools like the Income Tax Department’s calculator or other online tools to see your savings.
- Ask an Expert: If you’re confused, talk to a tax advisor for help.
- Tell Your Employer: Let your employer know your choice so they deduct the right tax from your salary.
- Plan Early: Start thinking about taxes at the beginning of the year to save more.
Final Words
The old tax regime is good if you have lots of deductions, like home loans or savings. The new tax regime is better for simple tax filing and people with lower incomes (up to ₹12.75 lakh). For 2025-26, the new regime’s zero-tax limit makes it great for many salaried people. But if you have big deductions the old regime might save you more. Use a tax calculator to compare and pick the one that keeps more money in your pocket.
I am a digital marketing executive as well as content writer in the income tax and credit cards category. My goal is to provide simple, interesting and reliable information to readers through my articles so that they always stay updated with the world of income tax and credit cards.
