Case Studies: Who Benefits from Old vs New Regime
- PRITI SIRDESHMUKH
- 4d
- 8 min read
The debate between the old and new tax regimes has gained more importance in FY 2025-26 with changes in slabs, deductions, and rebates. The old regime continues to allow multiple exemptions and deductions such as HRA, 80C investments, and home loan interest, while the new regime offers lower slab rates, a higher standard deduction of ₹75,000, and a generous rebate of up to ₹60,000 for incomes up to ₹12 lakh. Choosing the right regime depends on income level, deductions claimed, and overall tax planning.
Table of Contents
Who Benefits from the Old vs New Regime?
Who benefits more from the old or new tax regime in FY 2025-26 largely depends on the unique financial profile of each taxpayer. The government has positioned the new regime as the default choice, aiming to create a simpler and more transparent tax structure. By offering reduced slab rates and limiting the number of deductions, it appeals particularly to those who do not engage in extensive tax-saving investments or do not have large financial commitments that would otherwise reduce taxable income. This makes the new system attractive to salaried individuals in the middle-income range who value convenience and lower compliance requirements over claiming multiple exemptions.
The old regime, however, continues to hold strong relevance. It is especially useful for individuals who actively invest in tax-saving instruments, pay significant housing loan interest, or rely on deductions such as those under Section 80C, Section 80D, and House Rent Allowance. These provisions can substantially reduce taxable income and, in many cases, offset the higher slab rates applied under this system. For families with multiple dependents, ongoing medical expenses, or high savings goals, the old regime may provide greater financial relief.
Ultimately, the choice is not uniform across all taxpayers. A salaried professional with limited deductions may pay far less tax under the new regime, while another individual with similar income but significant deductions may find the old regime far more beneficial. This makes it essential for taxpayers to assess their income levels, deduction claims, and long-term financial commitments before finalising their tax regime each year. Careful analysis, supported by tools or expert advice, ensures that the selected option aligns with both immediate tax savings and broader financial planning objectives.
Overview of Old vs New Regimes for FY 2025-26
The old regime continues to follow higher slab rates but provides a wide range of exemptions and deductions. These include Section 80C investments, Section 80D health insurance premiums, House Rent Allowance (HRA), and home loan interest deductions. This regime benefits those who actively save, invest, and claim exemptions that lower their taxable income.
The new regime, on the other hand, eliminates most exemptions but compensates through reduced slab rates and a higher standard deduction of ₹75,000 for salaried individuals. Additionally, the rebate under Section 87A has been enhanced to ₹60,000, ensuring zero tax liability for incomes up to ₹12 lakh. This makes the new regime attractive to middle-income groups and those without significant deductions.
Case Study: Income up to ₹12–13 Lakh (Salaried Individuals)
For salaried individuals in this bracket, the new regime often leads to the lowest tax liability. With the rebate extended up to incomes of ₹12 lakh, many taxpayers will not pay any tax at all, provided they have no extraordinary income from other sources.
In the old regime, deductions like 80C (₹1.5 lakh) and 80D (health insurance premium) do reduce taxable income, but they may not always match the advantage of a full rebate under the new system. For example, a taxpayer earning ₹12 lakh with ₹1.5 lakh of 80C deductions and ₹30,000 in health insurance premiums may still find that the new regime offers zero tax liability compared to a small liability under the old system.
Case Study: Income Between ₹15–20 Lakh
This income range is where the decision becomes more complex. The old regime can be more beneficial for those with substantial deductions. For instance, taxpayers claiming HRA on rented accommodation, full 80C deductions, and home loan interest may see greater savings under the old system.
Take an example of someone earning ₹18 lakh but claiming deductions worth ₹4 lakh. In the old regime, the taxable income falls significantly, and the tax liability may be lower compared to the new regime. However, for individuals with fewer deductions, the lower rates in the new regime often provide better results.
Case Study: Income Above ₹24–25 Lakh
At higher income levels, the new regime generally proves more efficient, especially if deductions are limited. With fewer exemptions allowed, many high earners benefit from the lower slab rates of the new regime.
However, for taxpayers who can claim deductions exceeding ₹8–9 lakh, the old regime still provides an edge. A high-income professional with substantial home loan interest and 80C investments might find the old regime more rewarding. Without these, the new regime remains the natural choice due to reduced rates.
Key Differences Between Old and New Tax Regimes
Feature | Old Regime | New Regime |
Deductions & Exemptions | Multiple allowed (80C, HRA, 80D, etc.) | Limited, mainly standard deduction & NPS |
Standard Deduction | ₹50,000 | ₹75,000 |
Rebate under Section 87A | Up to ₹12,500 | Up to ₹60,000 (income ≤ ₹12 lakh) |
Beneficial For | Taxpayers with large deductions | Middle-income earners with fewer deductions |
Default Regime | No | Yes |
How to Decide Between Old and New Tax Regime in FY 2025-26
The decision should be based on a realistic assessment of deductions and exemptions available. Salaried individuals with minimal tax-saving investments often find the new regime more favourable, particularly with the higher standard deduction and extended rebate.
Conversely, taxpayers who have structured their finances around investments in provident funds, insurance, housing loans, and medical policies continue to save more under the old regime. Using calculators or tax filing tools, such as those available on platforms like TaxBuddy, can help taxpayers compare both regimes and make an informed decision for the year.
Conclusion
The old and new tax regimes both have their place, and the correct choice depends on the unique financial profile of each taxpayer. For those with minimal deductions, the new regime offers simplicity and lower rates, while the old regime remains advantageous for individuals maximising exemptions. 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 plans, catering to different types of taxpayers. Individuals comfortable with handling their own tax return can use the self-filing option, which comes with AI-driven checks for accuracy. Those with complex cases, such as multiple income sources, capital gains, or foreign assets, can opt for expert-assisted filing, where a certified professional prepares and reviews the return. This flexibility ensures that taxpayers of all profiles can choose a plan that best fits their needs.
Q2. Which is the best site to file ITR?
The best site for filing ITR depends on convenience, accuracy, and post-filing support. While the official Income Tax Department portal is the government’s primary platform, many taxpayers prefer third-party platforms like TaxBuddy for their user-friendly interface, AI-powered accuracy checks, and expert guidance. TaxBuddy stands out by combining automation with professional support, ensuring error-free filing and assistance with notices or clarifications, which the government portal does not provide.
Q3. Where to file an income tax return?
Income tax returns can be filed online through the official portal of the Income Tax Department at incometax.gov.in. Alternatively, taxpayers can use trusted third-party platforms such as TaxBuddy. These platforms not only simplify the filing process but also provide additional features such as automatic deduction comparisons, tax regime selection tools, and expert assistance for complex cases. Choosing a secure and reliable platform ensures compliance and reduces the risk of errors in filing.
Q4. Can a salaried employee switch between old and new tax regimes each financial year?
Yes, salaried employees have the flexibility to choose between the old and new regimes every financial year at the time of filing their income tax return. This allows them to assess which regime is more beneficial depending on their income level, exemptions, and deductions for that year. However, for taxpayers with income from a business or profession, the option to switch regimes is restricted and can only be done once. Salaried taxpayers, therefore, enjoy greater flexibility in optimising their tax liability annually.
Q5. Does the new tax regime eliminate deductions completely?
No, the new tax regime does not remove all deductions. While it has done away with many exemptions, such as HRA, LTA, and deductions under 80C in most cases, it still allows a few benefits. These include the standard deduction of ₹75,000 for salaried individuals and pensioners, employer’s contribution to the National Pension System (NPS), and deductions for employer contributions to EPF or superannuation funds. This streamlined structure aims to keep the system simple while still offering limited relief to taxpayers.
Q6. Is HRA exempted under the new tax regime?
No, House Rent Allowance (HRA) exemption is not available under the new tax regime. Salaried employees who rely heavily on HRA to reduce their taxable income may find the old regime more beneficial. However, for those with lower rent expenses or who do not claim HRA, the simplified structure and lower slab rates of the new regime may still provide greater overall savings despite the removal of this exemption.
Q7. What is the maximum rebate available under Section 87A in FY 2025-26?
For FY 2025-26, the rebate under Section 87A has been significantly enhanced in the new regime. Taxpayers with income up to ₹12 lakh are eligible for a rebate of up to ₹60,000, effectively eliminating their tax liability. In contrast, under the old regime, the rebate remains capped at ₹12,500 for incomes up to ₹5 lakh. This expanded rebate makes the new regime particularly attractive for middle-income earners.
Q8. How can I decide the best tax regime for me?
The choice of tax regime depends on an individual’s income profile and deductions. Those with substantial deductions such as housing loan interest, HRA, or large investments under Section 80C may find the old regime more beneficial. Others, particularly salaried individuals with limited deductions, may save more under the new regime due to lower slab rates and higher rebates. Using online calculators or tax filing platforms like TaxBuddy helps taxpayers compare both regimes side by side and choose the most tax-efficient option.
Q9. For taxpayers with home loan interest deductions, which regime is better?
The old regime is generally more beneficial for taxpayers paying home loan interest because it allows deductions under Section 24(b) up to ₹2 lakh on interest paid for self-occupied property. This deduction is not available under the new regime. Therefore, individuals with significant home loan interest payments often save more tax under the old regime, provided their overall deductions are substantial.
Q10. Does the new regime automatically apply if no option is chosen?
Yes, from FY 2025-26 onwards, the new regime has been made the default option. If a taxpayer does not actively opt for the old regime, the return will be filed under the new system. However, individuals who wish to benefit from exemptions and deductions under the old regime must specifically declare their choice while filing their return. This shift encourages simplicity but still allows taxpayers to retain control over their filing choice.
Q11. How does TaxBuddy help in comparing old vs new regimes?
TaxBuddy provides an automated comparison tool that calculates tax liabilities under both regimes based on income, exemptions, and deductions. It highlights which regime results in lower taxes, saving taxpayers time and effort. Additionally, expert support is available for those with complex cases, ensuring the final choice is not just accurate but also optimised for long-term financial planning. This feature simplifies decision-making and avoids the risk of overpaying tax.
Q12. What are the main compliance steps while filing under the new regime?
Filing under the new regime requires taxpayers to:
Report all sources of income correctly.
Declare their choice of regime at the time of filing.
Claim only the permitted deductions, such as the standard deduction or employer contributions to NPS.
Ensure e-verification of the return is completed within the prescribed time. Platforms like TaxBuddy streamline these steps by automating data entry, checking compliance rules, and ensuring the return is both accurate and filed within deadlines.
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