Which Tax Regime Is Best for First-Time Filers?
- Rashmita Choudhary
- Oct 16
- 9 min read
Choosing between the old and new tax regimes is often the first major decision for a new taxpayer in India. The new tax regime, now the default option from FY 2023-24 onwards, offers concessional rates and simplicity but fewer deductions, while the old regime provides multiple exemptions at higher slab rates. For FY 2025-26, the government has revised slabs, raised the basic exemption limit, and enhanced rebates under the new regime, making the choice more significant than ever for first-time filers. Understanding these differences is essential before selecting a regime.
Table of Contents
Overview of India’s Tax Regimes
India currently follows a dual tax regime system, offering taxpayers the flexibility to choose between the old tax regime and the new tax regime. The old regime has been in place for decades and allows taxpayers to claim various exemptions and deductions, such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), and investments under Section 80C, 80D, and others. In contrast, the new tax regime, introduced in 2020 and made the default from FY 2023-24 onwards, offers reduced tax rates and a simpler structure but limits deductions. For first-time filers, this dual approach creates both an opportunity and a challenge—understanding which system fits best with their financial situation.
Key Features of the New Tax Regime FY 2025-26
The government has further refined the new tax regime in the Union Budget 2025. The basic exemption limit has been raised to Rs 4 lakh. Income up to Rs 12.75 lakh is effectively tax-free, thanks to the standard deduction of Rs 75,000 and a rebate of Rs 60,000 under Section 87A. Progressive tax rates now apply between Rs 4 lakh and Rs 24 lakh, with rates ranging from 5% to 30%. The maximum tax rate, after surcharge adjustments, is capped at 39%. While deductions are minimal in this regime, the straightforward structure makes it easier to calculate liabilities and reduces the burden of maintaining documentation.
How the Old Tax Regime Works for First-Time Filers
The old tax regime continues to offer taxpayers the ability to claim numerous exemptions and deductions. For example, investments in ELSS funds, PPF, or life insurance premiums under Section 80C provide tax relief up to Rs 1.5 lakh. Health insurance premiums qualify for deductions under Section 80D, while HRA and LTA claims further reduce taxable income. However, the slab rates under this regime are higher compared to the concessional new regime. For first-time filers, the old regime may be suitable if they are already investing significantly in tax-saving instruments or if their salary structure includes allowances like HRA.
Standard Deduction and Rebate Benefits Explained
Both regimes provide a standard deduction, but with different implications. Under the new tax regime for FY 2025-26, a standard deduction of Rs 75,000 applies to salaried individuals and pensioners, offering immediate tax relief without requiring proof of expenditure. In addition, the rebate under Section 87A ensures that individuals with taxable income up to Rs 12.75 lakh pay no tax. Under the old regime, the standard deduction is also available, but taxpayers rely heavily on other deductions and exemptions to lower taxable income. For first-time filers, understanding these basic benefits is crucial before deciding on a regime.
Is Section 80C Allowed in the New Tax Regime?
Section 80C, which covers popular tax-saving options such as PPF, ELSS, fixed deposits, and life insurance, is not permitted under the new tax regime. This exclusion means that even if a first-time filer invests in these instruments, the contribution will not reduce taxable income under the new structure. For many beginners, this simplifies matters, as they do not have to worry about locking funds into long-term instruments just for tax purposes.
How Section 80C Works in the Old Tax Regime
The old regime continues to recognize Section 80C investments as deductible from total income. Taxpayers can claim deductions up to Rs 1.5 lakh annually through investments in schemes like PPF, NSC, ELSS, or through expenses such as children’s tuition fees and principal repayment of home loans. For first-time filers who already plan to save or invest, the old regime provides a valuable opportunity to lower tax liability while building long-term assets. However, it also requires careful planning and documentation.
Impact of HRA and LTA on Choosing the Right Regime
House Rent Allowance (HRA) and Leave Travel Allowance (LTA) are among the most common exemptions for salaried employees. Under the new regime, these allowances cannot be claimed. In the old regime, HRA can significantly reduce taxable income for those living in rented accommodation, while LTA provides relief for travel-related expenses within India. For first-time filers, especially those renting in metro cities, the old regime might prove more tax-efficient if the HRA component of salary is substantial.
Which Regime is Better for Salaried Individuals under Rs 12 Lakh?
For individuals with annual income up to Rs 12 lakh and limited deductions, the new tax regime often results in zero tax liability due to the enhanced exemption and Section 87A rebate. This makes it highly beneficial for first-time filers who are just starting their careers and may not yet have significant investments. However, if the filer is actively contributing to tax-saving schemes or receives allowances like HRA, the old regime might still result in better savings. The decision should be based on a simple comparison of liability under both regimes.
Factors First-Time Filers Should Consider Before Choosing
Key considerations include annual income level, availability of deductions, investment goals, and employment benefits. First-time filers should assess whether they plan to invest in tax-saving instruments like PPF or ELSS. They should also account for allowances in their salary structure, such as HRA. Simplicity and compliance burden matter too—the new regime requires minimal paperwork, while the old regime demands proof for every claim. Flexibility is another factor, as taxpayers are allowed to switch between regimes at the time of filing returns each year.
Can First-Time Filers Switch Between Tax Regimes?
Yes, first-time filers can switch between the old and new tax regimes while filing their return each year. This flexibility allows them to compare both options annually and choose whichever results in lower tax liability. However, once the return is filed, the choice cannot be altered for that assessment year. For salaried individuals, it is also important to inform employers of the chosen regime at the start of the financial year, as this determines TDS deductions on salary.
Role of TaxBuddy in Simplifying the Choice for New Filers
First-time filers often struggle to evaluate both regimes accurately, especially with frequent updates to tax laws. TaxBuddy provides a seamless solution by helping users compare their liability under both regimes through its AI-driven platform. The app guides users on whether they benefit more from the new regime’s rebates or from the old regime’s deductions. It also simplifies filing through automated error checks and expert-assisted plans, making the decision-making process far less stressful for new taxpayers.
Conclusion
The choice between the old and new tax regimes depends on income levels, salary components, and the extent of tax-saving investments. For those with income up to Rs 12 lakh and minimal deductions, the new tax regime is typically more beneficial. On the other hand, taxpayers who maximize deductions through 80C, 80D, HRA, or LTA may find the old regime more rewarding. For a smoother filing experience and tailored guidance, it is highly recommended to download the TaxBuddy 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 options to suit different types of taxpayers. The self-filing plan allows individuals to upload essential documents such as Form 16, TDS certificates, and bank statements. The platform then auto-fills details, performs error checks, and validates TDS in real time. For those with more complex returns or limited knowledge of tax provisions, expert-assisted plans are available. These provide professional guidance to ensure deductions are maximized, filings are accurate, and any notices from the Income Tax Department are handled smoothly.
Q2. Which is the best site to file ITR? The official Income Tax Department portal is the standard option for all taxpayers in India. However, for those seeking a simplified, user-friendly process, platforms like TaxBuddy offer additional benefits such as AI-driven validation, real-time assistance, and personalized tax planning. For first-time filers in particular, TaxBuddy’s guided support and error-free filing system make it one of the most convenient and reliable platforms to use.
Q3. Where to file an income tax return? Income tax returns can be filed directly on the government’s e-filing portal at incometax.gov.in. Alternatively, taxpayers can file through trusted platforms such as TaxBuddy, which integrates with the official system but adds features like automatic data entry, tax optimization, and expert-assisted filing. Filing through such platforms ensures a smoother experience, reduces errors, and provides ongoing support after filing, which is particularly valuable for first-time filers.
Q4. Can I switch from the new tax regime to the old tax regime after filing my ITR for the first time? Once an ITR is filed, the tax regime choice for that assessment year cannot be altered. However, first-time filers can compare both regimes before filing and choose the one that results in the lowest liability. From the next financial year, they can again evaluate both options and switch if desired. This flexibility is provided by law, so filers are not permanently locked into one regime.
Q5. Which tax regime requires more documents and proofs for deductions? The old tax regime requires more documentation because deductions and exemptions must be supported by valid proofs such as rent receipts, investment proofs, or insurance premium receipts. In contrast, the new tax regime is simpler and requires minimal documentation, as most deductions are not allowed. This makes the new regime especially convenient for first-time filers who may not have a portfolio of tax-saving investments or organized paperwork.
Q6. Are there any tax deductions available under the new tax regime for first-time filers? The new tax regime allows limited deductions compared to the old regime. For FY 2025-26, a standard deduction of Rs 75,000 is available for salaried individuals and pensioners. Additionally, employer contributions to certain retirement funds may also qualify. However, common deductions like Section 80C, HRA, or LTA are not applicable. For first-time filers with fewer investments, the new regime’s simplified structure is often more beneficial.
Q7. How does the standard deduction benefit first-time salaried tax filers? The standard deduction reduces taxable income automatically without requiring any documentation. For FY 2025-26, salaried employees and pensioners can claim Rs 75,000 as a deduction under both regimes. For first-time filers, this deduction provides immediate relief, lowering the taxable base and ensuring they pay less tax even without claiming other exemptions.
Q8. Is the tax rebate under Section 87A applicable in both old and new tax regimes? Yes, the rebate under Section 87A is available in both regimes, but the limits differ. In the new regime for FY 2025-26, individuals with taxable income up to Rs 12.75 lakh (after standard deduction) are eligible for a rebate of Rs 60,000, making their tax liability nil. In the old regime, the rebate is capped at Rs 12,500 and applies to individuals with taxable income up to Rs 5 lakh. This makes the new regime far more beneficial for those with moderate income levels.
Q9. What factors should first-time filers consider when choosing between old and new tax regimes? First-time filers should look at their income level, whether they live in rented accommodation, and their capacity to invest in tax-saving instruments. If they have minimal deductions or an income up to Rs 12 lakh, the new regime usually results in a lower liability. On the other hand, if they are renting and can claim substantial HRA or plan to invest heavily in PPF, ELSS, or insurance, the old regime might yield better savings.
Q10. Can first-time filers switch tax regimes after filing their ITR in India? No, the regime cannot be changed after filing the return for that assessment year. However, taxpayers can freely choose between regimes each year when they file. Salaried individuals also need to inform their employer of their choice early in the year, as it affects TDS calculations, but the final decision is confirmed at the time of filing.
Q11. How do deductions like 80C and HRA affect the choice of tax regime for new filers? Section 80C and HRA are not available in the new regime. For a first-time filer with no significant tax-saving investments or rent expenses, the new regime provides better relief because of its higher exemption limits and rebate. But if the filer is already paying rent and can claim HRA or plans to use 80C investments strategically, the old regime could reduce taxable income significantly and prove more tax-efficient.
Q12. Is the new tax regime always better for salaried individuals earning under Rs 12 lakh? In most cases, yes. With the standard deduction of Rs 75,000 and the Section 87A rebate of Rs 60,000, individuals earning up to Rs 12.75 lakh under the new regime end up paying no tax. This makes it the simpler and more advantageous choice for first-time filers within this income bracket. However, exceptions may exist if the filer can claim unusually high deductions under the old regime, such as a combination of HRA, 80C, and 80D exceeding Rs 4–5 lakh.
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