Old Tax Regime vs New Tax Regime

• Taxation
• ||
• July 16, 2025

Since 2020, taxpayers in India have had the option to choose between two income tax regimes: old and new tax regime. Both offer unique advantages depending on your income structure, financial habits, and investments.

Choosing the right regime is crucial. It directly affects your tax liability, and making an uninformed choice could cost you money. This article will help you clearly understand both regimes, so you can save more of your hard-earned income.

What is the tax regime?

A tax regime refers to the system or framework laid out by the government to define how taxes are calculated, collected, and paid. It outlines:

• Income tax slabs

• Tax rates

• Allowable deductions and exemptions

• Filing procedures

The choice of regime determines how much tax you pay and what deductions or benefits you can claim.

Old and New Tax Regime

Earlier, there was only one regime in which all structures were defined properly; we now call it the “Old Tax Regime.” In Budget 2020, the “New Tax Regime” was introduced with new implications in order to reduce the tax burden of individuals with lower earnings.

The old tax regime promotes saving habits by offering various deductions and exemptions, while under new regime there are fewer deductions and exemptions, but there are lower tax rates beneficial for individuals with lower earnings and fewer investments

Choice of Regime: Salaried taxpayers have the option to choose between the new and old income tax regimes each year. Both regimes have their advantages and disadvantages for individual taxpayers. The Indian government offers a choice between the old tax regime and the new tax regime. Taxpayers should carefully analyze their income, deductions, exemptions, and overall financial situation using the Income and Tax Calculator on the Income Tax Portal or seek advice from professional tax accountants for better understanding.

You should select the regime that allows you to save the most on taxes when filing your ITR. It is recommended to conduct a comparative evaluation and analysis under both regimes thoroughly and select the one that best suits your needs.

Let’s understand what is included in the old and new tax regimes.

Old Tax Regime

The Old Tax Regime is the traditional system of taxation in India, offering a wide range of implications.

The tax rates in this regime are higher than those in the new tax regime; however, taxpayers can reduce their taxable income by claiming various exemptions and deductions provided under this regime.

Slab Rates and Their Applicability

For individuals (resident and non-residents) whose age is less than 60 years in the previous year—

For Individuals (residents or non-residents) who are more than 60 years old but less than 80 years in the previous year—

For Individuals (residents or non-residents) who are above 80 years of age in previous year year—

A tax rebate of up to 100% will be allowed to individuals with an income of not more than ₹ 5,00,000 under Section 87A.

Deductions Under Old Tax Regime

The deductions are one of the significant features of the old tax regime, which makes it more radiant. The deductions allowed are

• Section 80C: Which says that investments like LIC premiums, PF, ELSS, 5-year FDs, NSC, etc., are up to the limit of 150,000.
• Section 80D: Discusses the deduction for payments made towards health insurance premiums. The limit is 25,000 (50,000 for senior citizens).
• Section 80E: Discusses the interest paid on a loan for education, and the deduction is allowed for the entire amount of interest paid.

The list includes approximately 70 such deductions and exemptions, such as Section 24(b), Section 80TTA, Section 80TTB, Section 80G, and Section 80U, under this regime, for which you can avail yourself of the benefit if you are aware of them and understand their applicability.

Exemptions Under Old Tax Regime

Along with the deductions mentioned above, there are certain exemptions that can be claimed by the taxpayer who is opting for the old tax regime.

• Section 10(13A): House Rent Allowance for employees who live in rented houses.
• Section 16(ia): Taxpayers can claim a standard deduction of ₹50,000 from their salary income automatically.
• Section 10(14)(ii): The government allows a children’s education allowance of ₹100 per child for up to two children.
• Section 10(14)(ii): Hostel expenditure allowance for children, which is 300 per child for 2 children.
• Section 10(5): Leave travel allowance for domestic travel.

Above are just a few important exemptions not a complete list. There are a significant number of such exemptions mentioned in the Income Tax Act 1961, which can be helpful for taxpayers. If you want to know more about such an exemption you can freely contact us!

New Tax Regime

There are no major deductions and exemptions available under this regime, like the old tax regime. All deductions, including Section 80C, Section 80D, Section 24(b), HRA, LTA, education, and hostel, have been removed. Under the new tax regime, the tax rate is the same for everyone.

The tax rate applicable to the persons is.

However, you will still receive standard deductions, EPF, and gratuity benefits, as per section 80CCH.

Rebates under Section 87A will be allowed for individuals if their income does not exceed 7,00,000. The rebate is available for up to 100%.

Difference between Old Tax Regime and New Tax Regime

A quick recap—

How to choose between two regimes?

When choosing between two options, taxpayers need to clarify the deductions and exemptions they can claim. After calculating the total income, the taxpayer claims all applicable exemptions and deducts all allowable deductions, resulting in the net taxable income. The taxpayer should then calculate their tax liability under the old regime and the new regime and compare the two. Use a logical approach, which involves selecting the regime that results in a lower tax liability, and make an informed decision.

Conclusion

File your ITR before the deadline hits, and to reduce this stress of tax filing, taxpayer can broadly compare their liability by calculating their income on official portals or can also take guidance from professional tax accountants for better understanding and enjoying the maximum rewards

At Mercurius, we have a dedicated team of professionals with expertise in filing taxes and navigating complex tax regulations. Our experts can easily assist you in choosing the right regime based on your calculations and help you make informed decisions.

Our team can also assist you in filing your accurate ITR by using the appropriate forms and documents. If you need any help with your income tax returns, feel free to contact us!