How to Calculate Taxes Under Both Regimes Easily
- Dipali Waghmode
- 2 days ago
- 9 min read
Calculating taxes under the old and new income tax regimes in India involves understanding slab rates, available deductions, and rebates to see which option reduces liability for FY 2025-26. The old regime allows multiple deductions and exemptions, while the new regime offers simplified slabs with limited reliefs but higher thresholds. For accuracy, both must be compared before making a choice. TaxBuddy simplifies this process through automated comparisons and expert-assisted filing, ensuring error-free tax calculations and compliance.
Table of Contents
Understanding the Basics of Tax Regimes in India
India’s tax system currently offers two regimes: the old regime and the new regime. The old regime allows a wide range of deductions and exemptions, such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), and investments under Section 80C and 80D. This structure benefits individuals who actively invest in tax-saving instruments or have eligible expenses. The new regime, introduced to simplify tax compliance, eliminates most exemptions but offers lower slab rates and higher basic exemptions. From FY 2025-26, the new regime becomes the default option, though taxpayers still have the flexibility to opt for the old regime if it results in a lower tax liability.
How to Calculate Tax Under the Old Tax Regime
To calculate tax under the old regime for FY 2025-26, begin with the gross total income, which includes salary, income from business or profession, capital gains, and other sources. Next, subtract eligible exemptions such as HRA and LTA, along with deductions under sections like 80C (investments in ELSS, PF, LIC), 80D (health insurance), and standard deduction. The resulting amount is the net taxable income. Apply the old slab rates: no tax up to ₹2.5 lakh, 5% on ₹2.5–5 lakh, 20% on ₹5–10 lakh, and 30% above ₹10 lakh. Add 4% health and education cess to the calculated tax. This regime works best for individuals with substantial deductions.
How to Calculate Tax Under the New Tax Regime
The new tax regime for FY 2025-26 focuses on simplicity by offering broader slabs and fewer deductions. Taxable income is calculated by subtracting only the standard deduction of ₹75,000 (for salaried and pensioners) from gross income. After this adjustment, slab rates are applied: no tax up to ₹4 lakh, 5% for ₹4–8 lakh, 10% for ₹8–12 lakh, 15% for ₹12–16 lakh, 20% for ₹16–20 lakh, 25% for ₹20–24 lakh, and 30% for income above ₹24 lakh. An enhanced rebate under Section 87A ensures that individuals with taxable income up to ₹12 lakh have zero tax liability. Finally, a 4% health and education cess is added. The new regime is ideal for those without large deductions or complex financial structures.
Example: Tax Calculation for FY 2025-26
Consider a salaried individual earning ₹30 lakh annually.
Under the old regime, deductions of ₹1.5 lakh (80C), ₹50,000 (standard deduction), and ₹50,000 (80D) reduce taxable income to ₹27.5 lakh. Tax is then calculated using old slabs, resulting in a higher liability compared to the new regime.
Under the new regime, the ₹75,000 standard deduction reduces taxable income to ₹29.25 lakh. Slab-wise tax calculation results in a base tax of ₹4,57,500. Adding 4% cess increases total liability to ₹4,75,800.
This example highlights how the choice of regime depends on available deductions and overall income profile.
Slab Comparison: Old vs New Regime
Slab (FY 2025-26) | Old Regime Rate | New Regime Rate |
Up to ₹2.5 lakh | Nil | Nil |
₹2.5–4 lakh | 5% | Nil |
₹4–5 lakh | 5% | 5% |
₹5–8 lakh | 20% | 5% |
₹8–10 lakh | 20% | 10% |
₹10–12 lakh | 30% | 10% |
₹12–16 lakh | 30% | 15% |
₹16–20 lakh | 30% | 20% |
₹20–24 lakh | 30% | 25% |
Above ₹24 lakh | 30% | 30% |
The table shows how the new regime provides gradual tax progression and more relief in middle-income slabs, while the old regime relies heavily on exemptions.
Choosing the Right Regime for Tax Savings
The decision between old and new regimes depends on income structure and deductions. Taxpayers with significant investments, HRA claims, or medical insurance premiums often save more under the old regime. Salaried professionals without large deductions benefit from the new regime’s expanded slabs and higher rebate. Tools like calculators offered by the Income Tax Department and trusted platforms such as TaxBuddy make the comparison seamless by showing tax liability under both options before filing.
Reliable Tax Calculators and Tools
For precise tax calculation, online calculators are invaluable. The Income Tax Department’s official calculator provides accurate results for both regimes. Private platforms also offer user-friendly tools to help taxpayers understand their liability quickly. TaxBuddy’s platform goes a step further by combining automated comparison with professional support, ensuring accurate filing and guidance on choosing the most suitable regime.
Latest Updates from Budget 2025 Affecting Tax Calculation
Latest updates from Budget 2025 have reshaped how taxpayers approach their annual filings, with a stronger emphasis on simplifying processes and making the new tax regime more attractive. One of the most significant changes is the revision of slab rates. These adjustments are designed to ease the burden on middle-income earners by widening the scope of lower tax brackets and ensuring that income is taxed progressively. This structural refinement allows a larger segment of taxpayers to enjoy reduced liability under the new regime, especially those who do not rely heavily on deductions.
Another major update is the increase in the standard deduction to ₹75,000, which directly benefits salaried individuals and pensioners. This enhancement provides immediate relief by reducing taxable income without the need for additional investments or compliance requirements. When paired with the revised slab rates, the higher standard deduction makes the new regime more favorable for a significant portion of the working population.
Budget 2025 has also introduced an enhanced rebate under Section 87A. Now, taxpayers with taxable income up to ₹12 lakh under the new regime have zero tax liability. This measure directly supports the middle-class segment and encourages more individuals to opt for the simplified system. It is an important step in aligning tax policy with the government’s broader objective of reducing compliance hurdles and providing relief to a wider base of taxpayers.
In addition to these policy changes, the Central Board of Direct Taxes (CBDT) issued notifications to clarify operational aspects of compliance. These include clear timelines for filing returns, updated procedures for Tax Deducted at Source (TDS) reporting, and streamlined rules for e-filing. By addressing potential ambiguities, these notifications ensure that both individuals and businesses have a smoother compliance experience, reducing the chances of delays or penalties.
Collectively, these updates make tax compliance more straightforward and user-friendly. Taxpayers now have greater clarity on which regime works best for their financial situation, and the enhanced digital processes reduce the effort needed to meet annual obligations. Businesses also benefit from clearer reporting structures and compliance guidelines, helping them manage payroll and TDS requirements with greater accuracy.
Conclusion
Calculating taxes under both regimes requires applying the relevant slabs, considering deductions, and factoring in cess. While the old regime benefits those with significant exemptions, the new regime offers simplicity and broader relief to a larger base of taxpayers. For anyone looking for assistance in tax filing, 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 offers both self-filing and expert-assisted options. The self-filing plan is designed for those who prefer to manage their returns independently. By uploading documents such as Form 16, bank statements, and TDS certificates, the platform’s AI-driven system auto-fills the necessary fields, checks for errors, and ensures accuracy. For individuals with more complex tax situations—such as capital gains, business income, or foreign assets—the expert-assisted plan provides professional guidance, review, and submission of returns to maximize accuracy and compliance.
Q2. Which is the best site to file ITR? The official Income Tax Department portal is always available, but for ease of use and additional features, third-party platforms are often preferred. Among them, TaxBuddy stands out because of its AI-powered error detection, real-time TDS matching, and seamless integration of deductions. The platform caters to both simple and complex returns, ensuring that taxpayers can file with confidence. Its combination of automation and expert support makes it a strong choice for individuals seeking convenience and accuracy in tax filing.
Q3. Where to file an income tax return? An income tax return can be filed directly on the Income Tax Department’s official portal (incometax.gov.in), which is free and secure. However, many taxpayers choose platforms like TaxBuddy to simplify the process. TaxBuddy not only allows online filing but also guides users through each step, auto-matching data with AIS/TIS reports and ensuring compliance with the latest rules. This reduces errors and provides peace of mind that the filing is accurate and complete.
Q4. Can deductions like HRA and 80C be claimed in the new regime? No, deductions such as HRA, 80C, 80D, and LTA are not allowed under the new regime. The intent of the new regime is to simplify filing by removing most exemptions and instead offering broader tax slabs and higher basic exemptions. However, a standard deduction of ₹75,000 is available for salaried taxpayers and pensioners in the new regime. Those who rely heavily on deductions for tax savings may still find the old regime more beneficial.
Q5. What is the standard deduction under both regimes? For FY 2025-26, the old regime provides a standard deduction of ₹50,000 to salaried individuals and pensioners. The new regime, as updated in Budget 2025, offers an increased deduction of ₹75,000. This adjustment makes the new regime more appealing to salaried taxpayers, as it slightly narrows the gap caused by the removal of other exemptions and deductions.
Q6. Can salaried taxpayers switch regimes every year? Yes, salaried taxpayers can choose between the old and new regimes each financial year at the time of filing their income tax return. This flexibility allows them to evaluate both options annually and select the one that results in lower tax liability. However, individuals with business or professional income have restrictions—they can switch back to the old regime only once in their lifetime. After that, they must remain under the new regime.
Q7. How does the new rebate for income up to ₹12 lakh work? The new rebate under Section 87A, introduced in Budget 2025, provides complete tax relief for individuals with taxable income up to ₹12 lakh under the new regime. This means that even after applying slab rates and cess, if the taxable income (after standard deduction) is within ₹12 lakh, the tax payable becomes zero. This enhanced rebate is a major benefit for middle-class taxpayers, making the new regime more attractive for a large segment of salaried individuals.
Q8. Is it mandatory to shift to the new regime from FY 2025-26? The new regime becomes the default option from FY 2025-26, meaning that unless taxpayers actively choose the old regime, their taxes will be computed under the new regime. However, it is not mandatory to shift permanently. Taxpayers still have the option to select the old regime at the time of filing if it results in a lower tax liability. This ensures flexibility while encouraging broader adoption of the simplified system.
Q9. Which regime is better for senior citizens? The old regime provides senior citizens (aged 60 and above) with higher basic exemption limits—₹3 lakh for senior citizens and ₹5 lakh for super senior citizens—along with access to deductions under sections like 80D and 80TTB. The new regime does not offer age-based exemptions, but the higher basic exemption of ₹4 lakh and the rebate up to ₹12 lakh significantly reduce tax outgo for many seniors. The choice depends on whether the taxpayer has sufficient deductions to benefit more from the old regime.
Q10. How does TaxBuddy help in choosing the right regime? TaxBuddy simplifies the decision-making process by automatically comparing tax liabilities under both regimes. Once income details and deductions are entered, the platform shows side-by-side results, helping taxpayers see which option leads to lower tax. For complex cases, TaxBuddy’s expert-assisted plan provides personalized advice, ensuring the most beneficial regime is chosen while staying fully compliant with current rules.
Q11. Are capital gains taxed differently under both regimes? Capital gains taxation remains largely the same in both regimes. Long-term and short-term capital gains are taxed as per their specific provisions under the Income Tax Act, 1961, regardless of whether the old or new regime is chosen. The difference lies in the treatment of other income components such as salary or business income. Taxpayers with significant capital gains must focus on how deductions and slab rates affect the rest of their income when comparing regimes.
Q12. What happens if the wrong regime is chosen while filing? If the wrong regime is selected while filing an income tax return, the taxpayer can correct it by filing a revised return before the due date. This ensures that the correct regime is applied and the tax liability is recalculated accordingly. Choosing the wrong regime initially may lead to higher taxes, but timely correction prevents penalties or disputes. TaxBuddy’s filing process minimises such errors by guiding taxpayers through the accurate selection of regimes.
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Understanding the differences between the Old and New Tax Regimes is crucial for taxpayers in FY 2025-26. The New Tax Regime, now the default option, offers simplified slabs, higher rebates, and few
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