Which Regime Is Better for Salaried Professionals?
- PRITI SIRDESHMUKH
- Oct 27
- 9 min read
The choice between the old and new tax regime is one of the most important financial decisions for salaried professionals in India. The old regime allows multiple deductions and exemptions, such as HRA, 80C, and 80D, while the new regime offers reduced tax rates with fewer deductions. Deciding which regime is better depends on salary structure, investments, and tax-saving preferences. Both systems serve different types of taxpayers, and a detailed comparison ensures that salaried individuals choose the regime that minimises their tax liability while maximising savings.
Table of Contents
Which Regime Is Better for Salaried Professionals?
The debate between the old and new tax regime continues to be one of the most critical decisions for salaried professionals in India. The old regime relies heavily on deductions and exemptions to reduce taxable income, while the new regime offers simplified slabs with lower tax rates but minimal tax-saving options. Choosing the right regime depends on how much a salaried professional invests in eligible deductions and how they structure their finances. For individuals who invest significantly in instruments like PPF, ELSS, or pay substantial rent, the old regime often works better. On the other hand, for those who prefer a straightforward system with lower compliance, the new regime is often the preferred choice.
Understanding the Old Tax Regime for Salaried Employees
The old tax regime, under the Income Tax Act, 1961, continues to be a preferred option for taxpayers who maximise deductions. It allows a wide range of exemptions and deductions that help lower taxable income. Popular provisions include Section 80C for investments like PF, PPF, ELSS, and insurance premiums, capped at ₹1.5 lakh per year. Other key benefits are the standard deduction of ₹50,000 for salaried individuals, Section 80D for medical insurance premiums, and House Rent Allowance (HRA) exemptions for those living in rented accommodation. Additionally, interest on housing loans under Section 24(b) can be claimed, reducing taxable income further. While the documentation requirement is higher, this regime is suitable for individuals with structured savings and expenses.
Understanding the New Tax Regime for Salaried Employees
The new tax regime, introduced in 2020, is designed to simplify taxation for individuals. It offers lower tax rates across multiple slabs but removes most exemptions and deductions. The only limited benefits allowed include the standard deduction, employer contribution to the National Pension Scheme (NPS), and certain allowances. This regime is suitable for salaried professionals who prefer not to plan their finances around tax-saving instruments or who do not incur large deductible expenses. With fewer compliance requirements, the new regime ensures faster, easier filing and is particularly beneficial for those whose total deductions do not exceed ₹50,000–₹75,000 annually.
Key Differences Between Old and New Tax Regime
The old and new regimes differ primarily in terms of deductions and slab structures.
The old regime has higher tax slabs but allows deductions and exemptions to significantly reduce taxable income.
The new regime has lower tax slabs but restricts most deductions.
The old regime requires careful planning and proof submission for deductions, while the new regime minimises paperwork and compliance.
The choice depends on the extent of deductions available to the salaried professional.
For example, if an employee can claim deductions above ₹2 lakh, the old regime usually results in lower tax. If deductions are minimal, the new regime’s lower slabs are more beneficial.
Is House Rent Allowance (HRA) Allowed in New Tax Regime?
No, HRA exemptions are not available in the new tax regime. Salaried employees living in rented houses cannot reduce their taxable income through HRA claims if they opt for the new regime.
How HRA Works in the Old Tax Regime
Under the old regime, HRA provides substantial relief by exempting rent paid from taxable income, subject to conditions such as actual rent paid, basic salary, and city of residence. This makes the old regime advantageous for employees living in rented accommodation.
Is Section 80C Deduction Allowed in New Tax Regime?
Section 80C is not available in the new tax regime. This deduction, which allows up to ₹1.5 lakh for investments in PF, PPF, ELSS, life insurance premiums, and tuition fees, is excluded.
How Section 80C Works in the Old Tax Regime In the old regime, Section 80C is the most widely used deduction. By investing strategically in eligible instruments, salaried employees can significantly reduce taxable income, making the old regime appealing for those committed to disciplined tax-saving investments.
Is Home Loan Interest Deduction Allowed in the New Tax Regime?
The deduction on home loan interest under Section 24(b) is not allowed in the new regime for self-occupied properties. This limits the benefits for individuals with large home loans.
How Section 24(b) Works in the Old Tax Regime In the old regime, salaried professionals could claim up to ₹2 lakh as a deduction on home loan interest for self-occupied properties. This deduction substantially reduces taxable income and benefits homeowners managing long-term EMIs.
Which Regime Saves More for Salaried Professionals?
The regime that saves more depends on income levels and deductions:
If total deductions exceed ₹2 lakh (80C, 80D, HRA, 24(b)), the old regime is usually more tax-efficient.
If deductions are limited (below ₹50,000–₹75,000), the new regime generally results in lower taxes due to reduced slab rates.
Mid-income salaried professionals often find the old regime better if they use common exemptions, while higher-income individuals with minimal deductions may prefer the new system.
Practical Tips for Choosing Between Old vs New Tax Regime
Practical tips can help salaried professionals make an informed decision when choosing between the old and new tax regimes. The first step is to evaluate the salary structure in detail. Components such as basic salary, allowances, perquisites, and benefits play a significant role in determining whether exemptions like HRA or deductions under sections such as 80C and 80D can be fully utilized.
Once the salary structure is clear, the next step is to calculate all eligible deductions. These typically include investments under Section 80C, medical insurance premiums under Section 80D, House Rent Allowance exemptions for those paying rent, and interest on housing loans under Section 24(b). Adding up these deductions provides a clear picture of the total amount that can be claimed to reduce taxable income.
After arriving at the total deductions, it is important to compute the tax liability under both regimes. Many salaried professionals find that if their deductions are substantial—usually more than ₹2 lakh—the old regime becomes more tax-efficient. On the other hand, if deductions are minimal, the new regime often provides savings through its lower slab rates.
Using tax calculators or reliable tax filing platforms such as TaxBuddy can simplify this process. These platforms simulate the liability under both regimes, offering a side-by-side comparison that helps in making an accurate choice. In addition, TaxBuddy provides AI-driven assistance and expert review options, which reduce the chances of errors during filing.
Finally, it is important to think beyond immediate tax savings and factor in long-term financial goals. Individuals who consistently invest in tax-saving instruments such as ELSS, PPF, or life insurance may benefit more from the old regime, as it aligns with their savings strategy. Those who prefer flexibility and simplicity may find the new regime better suited to their lifestyle. Aligning the regime choice with overall financial planning ensures both short-term relief and long-term benefits.
Role of Technology in Tax Filing for Salaried Professionals
Modern tax platforms make it easier to decide between regimes. With AI-driven tools, regime comparison is automatic, and taxpayers can see clear savings scenarios. TaxBuddy, for instance, allows users to calculate liability under both regimes, guiding them toward the most beneficial option. Alongside AI-driven insights, TaxBuddy also provides self-filing and expert-assisted plans, ensuring accuracy and simplicity in filing.
Conclusion
For salaried professionals, the choice between old and new tax regimes depends on personal finances. The old regime benefits those with significant deductions, while the new regime is better for individuals seeking simplicity. For seamless filing and clarity in regime selection, download theTaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy provides both self-filing and expert-assisted options. Those comfortable filing returns on their own can use the self-filing plan with AI-driven guidance, while individuals seeking additional support can opt for expert-assisted plans where professionals review, prepare, and file returns. This flexibility ensures taxpayers can choose the level of support that best suits their needs.
Q2. Which is the best site to file ITR?
The Income Tax Department’s official portal is the primary site for filing ITRs. However, third-party platforms like TaxBuddy are widely considered the best choice for many salaried individuals because they simplify the process with pre-filled forms, error checks, and expert support. These features help reduce mistakes and ensure a smoother filing experience compared to using the government portal directly.
Q3. Where to file an income tax return?
Income tax returns can be filed online through the official government portal (incometax.gov.in) or via authorised platforms such as TaxBuddy. Filing online is the most common method, as it allows easy access to forms, quicker processing, and faster refunds. TaxBuddy integrates with the official system, making it convenient to file accurately without manually navigating multiple sections of the government website.
Q4. Can salaried professionals switch between old and new tax regimes every year?
Yes, salaried professionals can switch between regimes each financial year at the time of filing their ITR. However, once a regime is selected for that year, it cannot be changed mid-year. This flexibility allows employees to calculate tax liability under both regimes annually and pick the one that results in lower taxes.
Q5. Are deductions like HRA and 80C available under the new tax regime?
No, most common deductions such as HRA, 80C, and 80D are not available under the new tax regime. The intent of the new system is to offer reduced slab rates without the need for claiming exemptions. However, certain limited deductions, such as employer contributions to the National Pension Scheme (NPS), are still permitted.
Q6. How does the new tax regime benefit salaried employees with no major investments?
For employees who do not make large investments or claim deductions, the new regime can be beneficial because it offers lower tax rates and a simplified filing process. Without relying on exemptions like HRA or Section 80C, these employees can still save on taxes through reduced slab rates and avoid the burden of managing proofs or complex documentation.
Q7. What ITR form should be used by salaried professionals under each regime?
Most salaried individuals with simple income structures can use ITR-1, also known as Sahaj, under both regimes. If they have additional income such as capital gains, multiple properties, or foreign income, they may need to file ITR-2 instead. The choice of regime does not affect the type of ITR form; it depends more on the nature of income.
Q8. Is home loan interest deductible under the new regime?
No, the deduction for home loan interest under Section 24(b) is not available for self-occupied properties in the new regime. In contrast, the old regime allows up to ₹2 lakh deduction on such interest. This makes the old regime more advantageous for salaried professionals paying significant home loan EMIs.
Q9. How do standard deductions differ between the old and new tax regimes?
Earlier, the standard deduction of ₹50,000 was available only in the old regime. With updates in Budget 2025, the new regime now also provides a standard deduction for salaried employees. This ensures some level of relief even if other exemptions are not permitted, making the new regime more competitive.
Q10. Does choosing the new regime reduce the chances of tax notices?
Yes, in many cases, the new regime can reduce the likelihood of notices since it eliminates the need to claim multiple exemptions and deductions. Fewer claims mean fewer chances of mismatches or scrutiny by the Income Tax Department. However, accurate reporting of income and timely filing are essential regardless of the regime chosen.
Q11. Can the TaxBuddy app help in comparing both regimes before filing?
Yes, the TaxBuddy app is designed to automatically calculate tax liability under both regimes. It shows a side-by-side comparison so salaried professionals can make informed decisions about which regime results in lower taxes. This feature saves time and ensures taxpayers don’t miss out on potential savings.
Q12. Which regime is better for high-income salaried professionals?
For high-income professionals, the choice depends on deductions. If significant deductions are available—such as investments under 80C, housing loan interest, or medical insurance—the old regime often results in higher savings. If deductions are minimal, the new regime’s lower slab rates and simplified compliance may be more advantageous. Evaluating both annually is the most effective approach.
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