How Professionals Decide Between Old and New Tax Regime Each Year
- Nimisha Panda
- 16 hours ago
- 9 min read
Updated: 48 minutes ago
Professionals in India review the old and new tax regimes every financial year to ensure their tax outgo is optimised under the Income Tax Act, 1961. This decision depends on income level, eligibility for deductions and exemptions, and recent slab changes announced in Budget 2025. While the new tax regime is now the default option with lower slab rates and a higher rebate threshold, the old regime continues to benefit those with substantial deductions. A yearly evaluation helps professionals align their tax choice with changing income patterns, investments, and compliance preferences.
Table of Contents
Understanding Old and New Tax Regimes Under Income Tax Act
The Income Tax Act, 1961, allows individuals to choose between two tax regimes while filing their return. The old tax regime follows the traditional structure where income is taxed at slab rates after allowing a wide range of deductions and exemptions. The new tax regime, introduced to simplify compliance, offers lower slab rates but restricts most deductions and exemptions. From recent assessment years, the new tax regime has been set as the default option, though eligible taxpayers can still opt for the old regime, subject to conditions.
Key Slab Changes After Budget 2025
Budget 2025 significantly reshaped the new tax regime to make it more attractive. The basic exemption limit was increased, slab intervals were widened, and the rebate under Section 87A was enhanced, effectively making income up to ₹12 lakh tax-free under the new regime. The highest slab rate of 30 per cent now applies at a higher income threshold compared to earlier years. These changes have reduced the dependence on deductions for many professionals and shifted the decision-making process toward slab-based comparison.
Deductions and Exemptions Available in the Old Tax Regime
The old tax regime continues to allow a wide set of deductions and exemptions that directly reduce taxable income. Common benefits include investment deductions under Section 80C, health insurance premiums under Section 80D, house rent allowance, leave travel allowance, and interest on home loans. For professionals with structured tax planning, long-term investments, and loan commitments, these deductions can substantially lower tax liability despite higher slab rates.
Is Standard Deduction Allowed in the New Tax Regime?
The standard deduction is allowed in the new tax regime. Salaried individuals can claim a standard deduction of ₹75,000 while computing taxable income under the new regime. This change has narrowed the gap between the two regimes and made the new option more viable even for those without significant additional deductions.
Is Home Loan Interest Allowed in New Tax Regime?
Home loan interest on a self-occupied property is not allowed as a deduction in the new tax regime. This benefit remains exclusive to the old tax regime, where interest up to ₹2 lakh per year can be claimed. Professionals servicing large housing loans often find the old regime more tax-efficient due to this restriction.
Is Section 80C Allowed in New Tax Regime?
Deductions under Section 80C are not allowed in the new tax regime. Investments such as provident fund contributions, life insurance premiums, ELSS, tuition fees, and principal repayment of home loans are only deductible under the old tax regime. This makes the old regime more suitable for individuals with consistent long-term investment planning.
Is Health Insurance Deduction Under Section 80D Allowed in the New Tax Regime?
Section 80D deductions for health insurance premiums are not permitted under the new tax regime. These deductions remain available only in the old regime, providing tax relief to professionals who prioritise medical insurance for themselves and their families.
Income-Based Breakeven Analysis for Professionals
Professionals often rely on breakeven analysis to choose between regimes. At lower income levels with minimal deductions, the new tax regime usually results in lower tax liability due to slab benefits and rebates. As income rises, the old regime becomes beneficial only when total eligible deductions cross specific thresholds. This breakeven point varies with income and must be recalculated each year based on actual deductions.
How Salaried Professionals Evaluate Old vs New Tax Regime
Salaried professionals typically review their Form 16, investment proofs, housing loan details, and insurance premiums before deciding. Since salaried individuals can switch regimes every year, the decision is based on current-year deductions rather than long-term commitments. Many opt for the new regime when deductions are limited and shift to the old regime when housing loans or high investments come into play.
How Freelancers and Business Professionals Decide the Tax Regime
Freelancers and business professionals assess the regime choice more carefully due to additional restrictions. Once the old regime is opted out, switching back is limited unless business income ceases. These taxpayers evaluate not only deductions but also income volatility, presumptive taxation options, and long-term planning before selecting a regime.
Role of Form 10-IEA in Switching Tax Regimes
Form 10-IEA plays a critical role for taxpayers with business or professional income. It is required to formally opt out of the new tax regime and choose the old regime. Salaried individuals without business income are not required to file this form and can select the regime directly on the return.
Annual Checklist Professionals Follow Before Choosing a Tax Regime
Professionals usually begin by calculating gross income, subtracting the standard deduction, and listing all eligible deductions under the old regime. They then compute tax liability under both regimes using applicable slabs and rebates. Reviewing TDS deducted by employers, recent budget changes, and future income expectations ensures a well-informed decision.
Using Digital Tools to Compare Old vs New Tax Regime
Online tax calculators and filing platforms allow professionals to simulate tax liability under both regimes quickly. These tools factor in updated slabs, rebates, and deduction eligibility, reducing manual errors and helping taxpayers visualise savings before filing the return.
How TaxBuddy Simplifies Annual Tax Regime Evaluation
How TaxBuddy simplifies annual tax regime evaluation goes beyond a simple comparison of slab rates. The platform is designed to mirror the actual decision-making process professionals follow each year, while removing manual effort and guesswork.
TaxBuddy begins by securely auto-fetching income details such as salary information, TDS records, and previous return data wherever available. This reduces dependency on manual data entry and ensures that calculations are based on accurate, up-to-date figures. For salaried professionals, this includes a clear view of income components reflected in Form 16, while for freelancers and consultants, income streams can be captured systematically.
Once income data is in place, the platform intelligently tracks eligible deductions and exemptions. Under the old tax regime, TaxBuddy prompts users to declare investments, insurance premiums, housing loan details, and other eligible claims, while clearly indicating which of these are not applicable under the new regime. This step-by-step approach prevents common errors such as assuming deductions are available in both regimes or missing out on eligible benefits due to oversight.
TaxBuddy then runs parallel tax computations under both the old and new tax regimes using the latest slab rates, rebate thresholds, and standard deduction rules. Instead of presenting raw numbers, the platform highlights the net tax payable, effective savings, and the breakeven point where one regime becomes more beneficial than the other. This makes it easier for professionals to understand not just which regime is better, but why it is better for their specific financial situation.
For users with business or professional income, TaxBuddy also factors in regime selection constraints and guides them on compliance requirements such as Form 10-IEA. The platform clearly flags whether switching regimes is permitted for the year, helping users avoid invalid selections that could lead to notices or return defects.
Another key advantage is real-time validation during filing. If a regime is selected that does not align with declared deductions or income type, TaxBuddy alerts the user immediately. This reduces the risk of incorrect regime selection, mismatched TDS adjustments, or post-filing corrections.
By consolidating income data, deduction tracking, tax comparison, and compliance checks into a single flow, TaxBuddy turns what is usually a complex annual exercise into a structured and transparent decision. Professionals are able to choose the most tax-efficient regime each year with confidence, backed by accurate projections rather than assumptions.
Conclusion
Choosing between the old and new tax regimes is no longer a one-time decision for professionals. Annual evaluation based on income, deductions, and legislative changes ensures optimal tax outcomes and compliance. Platforms that provide structured comparisons and guided filing reduce complexity and decision fatigue. 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
Q. 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 ITR filing plans. The self-filing option is designed for individuals with straightforward income sources who are comfortable filing their returns independently using a guided, automated platform. For taxpayers with complex income, multiple deductions, capital gains, business income, or past compliance issues, the expert-assisted plan provides end-to-end support from qualified tax professionals. This flexibility allows users to choose the level of assistance based on their comfort and tax complexity.
Q. Which is the best site to file ITR?
The best site to file ITR is one that ensures accuracy, data security, updated tax rules, and access to professional support when required. While the government income tax portal allows direct filing, many taxpayers prefer platforms that simplify calculations, reduce errors, and offer guided workflows. Platforms like TaxBuddy combine automated checks with expert review, making them suitable for both simple and complex returns.
Q. Where to file an income tax return?
An income tax return can be filed online through the official income tax e-filing portal or through authorised e-filing platforms. Using a structured platform helps in selecting the correct ITR form, applying the appropriate tax regime, validating deductions, and completing e-verification smoothly. This approach is particularly helpful for professionals managing multiple income streams.
Q. Can professionals switch between old and new tax regimes every year?
Salaried professionals without business income are allowed to switch between the old and new tax regimes every financial year at the time of filing the return. However, professionals with business or professional income face restrictions. Once they opt out of the new tax regime and choose the old regime, switching back is permitted only once unless business income ceases. This distinction makes regime selection more critical for freelancers and consultants.
Q. Is the new tax regime mandatory for salaried individuals?
The new tax regime is the default option for salaried individuals, meaning tax is initially computed under this regime unless a choice is made otherwise. However, it is not mandatory. Salaried taxpayers can opt for the old tax regime while filing their return if it results in lower tax liability due to deductions and exemptions.
Q. Does the new tax regime allow any deductions at all?
The new tax regime allows limited deductions. These include the standard deduction for salaried individuals and the employer’s contribution to the National Pension System within prescribed limits. Most other popular deductions, such asSection 80C, 80D, HRA, and home loan interest, are not permitted. This makes the new regime suitable for taxpayers with minimal deduction planning.
Q. When is Form 10-IEA required for tax regime selection?
Form 10-IEA is required for individuals who have business or professional income and wish to opt out of the new tax regime and choose the old regime. This form must be submitted within the prescribed timeline. Salaried individuals without business income are not required to file Form 10-IEA and can choose the regime directly in their ITR.
Q. Is the old tax regime better for professionals with home loans?
The old tax regime is generally more beneficial for professionals servicing home loans, especially self-occupied properties. It allows deduction of interest up to ₹2 lakh per year and principal repayment benefits under Section 80C. These deductions can significantly reduce taxable income, making the old regime more tax-efficient for such individuals.
Q. How does the Section 87A rebate impact regime selection?
The enhanced rebate under Section 87A has a major impact on regime selection. Under the new tax regime, eligible taxpayers effectively pay zero tax up to the specified income threshold due to this rebate. This makes the new regime highly attractive for professionals with income within that range and limited deductions.
Q. Are freelancers treated differently from salaried individuals for regime choice?
Yes, freelancers and professionals with business income are treated differently. Their regime choice is subject to additional conditions, including the requirement of Form 10-IEA and restrictions on frequent switching. Freelancers must consider long-term implications before selecting a regime, unlike salaried individuals who enjoy greater flexibility.
Q. Does TDS get deducted assuming the new tax regime by default?
Yes, employers generally deduct TDS assuming the new tax regime as the default option. Employees who wish to be taxed under the old regime must inform their employer in advance for accurate TDS deduction. Even if TDS is deducted under one regime, the final choice can still be made at the time of filing the return.
Q. How early should professionals evaluate their tax regime before filing?
Professionals should ideally evaluate their tax regime before the end of the financial year. Early evaluation allows time to plan investments, assess deductions, and correct TDS mismatches. Waiting until the filing deadline limits flexibility and may result in higher tax liability or missed benefits.
