With the 2025 tax season approaching, taxpayers across India are once again faced with an important decision – should they stick with the old tax regime or opt for the new one? Since the new tax regime is now the default, those filing their Income Tax Return (ITR) for the financial year 2024-25 will automatically fall under the new system unless they specifically opt for the old one. But which regime works better for you? Let’s explore the key differences, benefits, and factors to consider before making your decision.
Understanding the Old and New Tax Regimes
Old Tax Regime: A System with Deductions and Exemptions
The old tax regime allows taxpayers to claim various deductions and exemptions, reducing their taxable income. This includes benefits under:
- Section 80C (Investments in PPF, EPF, LIC, NSC, ELSS, etc.) – Up to ₹1.5 lakh deduction
- Section 80D (Health insurance premiums)
- HRA (House Rent Allowance) and LTA (Leave Travel Allowance) exemptions
- Standard Deduction of ₹50,000 for salaried individuals
While these deductions help reduce taxable income, they also require tax planning and proper documentation.
New Tax Regime: Simplified with Lower Slabs
The new tax regime, introduced in Budget 2020 and revised in Budget 2023, follows a simplified structure with lower tax rates but does not allow most deductions. Here are the latest tax slabs under the new system:
- Income up to ₹3 lakh – 0% (Tax-Free)
- ₹3 lakh – ₹6 lakh – 5%
- ₹6 lakh – ₹9 lakh – 10%
- ₹9 lakh – ₹12 lakh – 15%
- ₹12 lakh – ₹15 lakh – 20%
- Above ₹15 lakh – 30%
Additionally, the new regime offers a standard deduction of ₹50,000 for salaried employees and pensioners.
Which Tax Regime is Better for You?
- If You Claim High Deductions – Stick with the Old Regime
- Ideal for those investing in PPF, EPF, NPS, and other tax-saving instruments.
- Suitable for individuals paying high home loan interest or availing multiple exemptions.
- If You Prefer Simplicity – New Regime is a Better Option
- No need for tax planning or investment commitments.
- Lower tax rates benefit those who do not claim high deductions.
- Salaried vs. Business/Professional Income Taxpayers
- Salaried individuals can switch between regimes every year.
- Self-employed or business taxpayers must make a one-time switch and cannot change frequently.
Conclusion: Choosing the Right Regime
Your decision depends on your financial profile and tax-saving habits. If you utilize deductions heavily, the old regime may be more beneficial. However, if you prefer a straightforward approach with lower rates, the new regime is an attractive alternative. Analyze your income, expenses, and investment habits before filing your ITR for 2025 to maximize your tax savings.