How Professionals Decide Between Old and New Tax Regime Each Year
- CA Pratik Bharda
- 15 hours ago
- 9 min read
Professionals in India choose between the old and new tax regimes each year by comparing their final tax liability under both options using the latest income tax slabs, deductions, and rebates. With the new tax regime becoming the default under Section 115BAC and offering higher basic exemption limits, increased standard deduction, and rebate benefits, the decision now depends largely on the level of deductions claimed. Salaried employees, freelancers, and consultants evaluate investments, exemptions, and compliance flexibility annually before making the selection during income tax return filing.
Table of Contents
Old vs New Tax Regime: What Professionals Need to Compare Each Year
Every year, professionals must compare the old and new tax regimes based on three core factors: applicable tax slabs, availability of deductions and exemptions, and the final tax payable after rebates. The comparison is not static because income levels, deductions, and government policy change over time. The old tax regime focuses on deductions and exemptions under the Income Tax Act, while the new tax regime prioritises lower tax rates and simplified compliance. The correct choice depends on whether a professional’s deductions meaningfully offset the higher slab rates under the old regime.
Tax Slab Differences That Impact Professional Income
Tax slabs directly affect take-home income, especially for mid- and high-income professionals. The new tax regime offers wider slab intervals and lower incremental rates, along with a higher basic exemption limit. This structure benefits professionals with fewer deductions. The old tax regime continues with steeper slab jumps but allows deductions that can significantly reduce taxable income. Professionals earning higher incomes must examine how slab progression interacts with deductions to determine which regime results in lower effective tax.
Is Standard Deduction Allowed in the New Tax Regime?
Yes, standard deduction is allowed in the new tax regime. For salaried professionals, a higher standard deduction is available, which directly reduces taxable salary income without requiring any investment or documentation. This deduction plays a key role in making the new tax regime attractive for professionals who do not actively invest in tax-saving instruments.
How Standard Deduction Works in the Old Tax Regime
Standard deduction is also available in the old tax regime, but at a lower amount compared to the new regime. It reduces taxable salary income before slab rates are applied. However, in the old regime, standard deduction is only one of many available deductions and is usually combined with benefits such as HRA, Section 80C, and health insurance deductions to achieve optimal tax savings.
Is Rebate Under Section 87A Available in the New Tax Regime?
Yes, a rebate under Section 87A is available in the new tax regime and is one of its most significant benefits. If taxable income falls within the prescribed threshold after the standard deduction, the rebate can reduce the final tax liability to zero. This feature makes the new regime particularly beneficial for professionals in lower and middle-income brackets.
How Rebate Benefits Work in the Old Tax Regime
Rebate under Section 87A is also available in the old tax regime, but is capped at a much lower income threshold. Professionals using the old regime must rely more heavily on deductions and exemptions to reduce taxable income below the rebate limit. For higher-income professionals, the rebate alone is rarely sufficient without substantial deductions.
Deductions Professionals Can Claim in the Old Tax Regime
The old tax regime allows a wide range of deductions that can substantially reduce taxable income. These include investment-based deductions under Section 80C, house rent allowance, home loan interest for self-occupied property, health insurance premiums, education loan interest, and certain allowances provided by employers. Professionals who consistently invest in tax-saving instruments or have housing and insurance commitments often benefit more from the old regime.
What Deductions Are Allowed in the New Tax Regime for Professionals
The new tax regime permits only limited deductions. These primarily include standard deduction, employer contribution to NPS under Section 80CCD(2), and interest on home loan for let-out property. Popular deductions such as Section 80C, HRA, and most allowances are not available. This makes the regime suitable for professionals who prefer liquidity over long-term tax-saving investments.
How Salaried Professionals Evaluate Old vs New Tax Regime
Salaried professionals usually evaluate both regimes by reviewing Form 16, current investments, insurance premiums, rent paid, and expected deductions. If deductions are modest or minimal, the new tax regime often results in lower tax due to reduced slab rates and higher rebate limits. Those with structured tax planning through investments and housing generally find the old regime more beneficial.
How Freelancers and Business Professionals Decide on Tax Regime
Freelancers and professionals with business income must consider additional factors such as regime lock-in rules and compliance flexibility. Once the old regime is chosen after opting out of the new regime, switching back is restricted. These professionals evaluate projected income stability, expense deductions, and long-term tax planning before making a regime selection.
Annual Decision Process During ITR Filing
The final regime decision is made at the time of filing the income tax return. Professionals calculate tax liability under both regimes after considering income, deductions, and rebates, then select the option with the lower payable tax. This annual evaluation ensures that changes in income, deductions, or tax laws are properly accounted for.
When the Old Tax Regime Becomes More Beneficial for Professionals
The old tax regime becomes more beneficial when total deductions are substantial enough to offset higher slab rates. Professionals with significant investments under Section 80C, housing loans, insurance premiums, and other exemptions often achieve lower taxable income under this regime, resulting in overall tax savings.
When the New Tax Regime Is the Better Choice
The new tax regime is more suitable for professionals with limited deductions, higher cash flow needs, or a preference for simplified tax filing. The lower slab rates, higher basic exemption, and generous rebate structure provide relief without the need for long-term investment commitments.
Role of Tax Calculators and Filing Platforms in Regime Selection
Tax calculators and filing platforms have become essential tools for professionals when deciding between the old and new tax regimes. Manual tax calculations often lead to errors, especially when income is spread across multiple sources such as salary, freelance receipts, interest income, or capital gains. Tax calculators eliminate this risk by automatically applying the correct tax slabs, rebate thresholds, surcharge rules, and cess based on the selected regime.
A key advantage of tax calculators is their ability to compute tax liability under both regimes side by side. Professionals can instantly see how deductions, exemptions, and slab rates impact the final payable tax in each option. This comparison is particularly useful when deductions are close to the break-even point, where even small changes in investments or income can shift the advantage from one regime to the other.
Filing platforms further enhance this process by validating eligibility for deductions and benefits before applying them. For example, the platform checks whether a deduction is allowed under the selected regime and prevents incorrect claims that could trigger notices later. This regime-specific validation is especially important under the new tax regime, where most traditional deductions are not permitted.
Another important role of filing platforms is handling complex income structures. Professionals with multiple Form 16 entries, variable pay, freelance income, or rental income often struggle to consolidate figures accurately. Filing platforms organise this data systematically, ensuring that each income component is taxed correctly under the chosen regime.
Platforms like TaxBuddy also simplify compliance by integrating calculators directly into the filing workflow. As income details are entered, the system continuously updates tax liability under both regimes, allowing professionals to make informed decisions without running separate calculations. This real-time comparison reduces guesswork and ensures that the final regime choice is based on accurate numbers rather than assumptions.
Beyond calculations, filing platforms help professionals stay aligned with current tax laws. Changes in slab rates, rebate, and standard deduction amounts are automatically updated, eliminating the need for manual tracking of Budget announcements. This ensures that regime comparisons are based on the latest applicable provisions.
Overall, tax calculators and filing platforms transform regime selection from a complex, error-prone exercise into a structured and reliable process. By combining accurate computations, regime-specific validation, and seamless filing support, they enable professionals to choose the most tax-efficient option with confidence and minimal effort.
Conclusion
Choosing between the old and new tax regimes is not a one-time decision but an annual evaluation based on income structure, deductions, and applicable tax benefits. A systematic comparison each year ensures optimal tax outcomes while remaining compliant with current tax laws. 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. Self-filing plans are designed for professionals with straightforward income structures who are comfortable entering details on their own using guided workflows and built-in checks. Expert-assisted plans are suitable for professionals with complex income, multiple deductions, capital gains, or regime comparison needs, where a qualified tax expert reviews the return before submission and handles queries, notices, or revisions if required.
Q. Which is the best site to file ITR?
The best site to file an income tax return depends on the complexity of the return and the level of guidance required. The government income tax e-filing portal is suitable for users who are confident with tax rules and calculations. Platforms like TaxBuddy are often preferred by professionals who want step-by-step guidance, automatic regime comparison, deduction validation, and reduced risk of filing errors.
Q. Where to file an income tax return?
An income tax return can be filed directly on the official income tax department e-filing portal or through authorised online tax filing platforms. Third-party platforms such as TaxBuddy integrate with the government system and allow returns to be filed securely while offering additional support such as tax calculators, regime comparison, and post-filing assistance.
Q. Can professionals change tax regimes every year?
Salaried professionals without business income can choose between the old and new tax regimes every financial year while filing their income tax return. However, professionals with business or freelance income face restrictions. Once they opt out of the new tax regime, switching back is allowed only once, subject to conditions prescribed under the Income Tax Act.
Q. Is the new tax regime compulsory?
The new tax regime is not compulsory. It is the default regime applied during filing, but professionals can actively opt for the old tax regime if it results in lower tax liability. The choice must be exercised correctly while filing the income tax return to ensure the selected regime is applied.
Q. Are deductions like HRA allowed in the new tax regime?
No, deductions such as House Rent Allowance, Section 80C investments, health insurance deductions, and most other exemptions are not allowed in the new tax regime. Professionals choosing the new regime rely primarily on lower tax slab rates, standard deduction, and limited permitted deductions rather than investment-linked tax savings.
Q. Does the standard deduction apply to both regimes?
Yes, the standard deduction applies to both the old and new tax regimes for salaried professionals. However, the deduction amount differs between the two regimes. Standard deduction reduces taxable salary income automatically and does not require any proof or investment, making it a key benefit in both regimes.
Q. Is the new tax regime better for high-income professionals?
The new tax regime can be beneficial for high-income professionals who do not claim significant deductions or exemptions. If deductions under the old regime are limited, the lower slab rates and simplified structure of the new regime may result in lower overall tax liability. High-income professionals with substantial investments and exemptions often find the old regime more tax-efficient.
Q. Do freelancers face restrictions in regime switching?
Yes, freelancers and professionals with business income face regime-switching restrictions. Once they opt out of the new tax regime and choose the old regime, they are generally allowed to switch back to the new regime only once. This makes it important for freelancers to evaluate long-term income patterns and deductions before making a regime choice.
Q. When is the tax regime selected?
The tax regime is selected at the time of filing the income tax return for the relevant assessment year. Even if a regime is chosen earlier during salary declaration, the final and legally binding choice is made only when the return is filed on the income tax portal.
Q. Can TaxBuddy help compare tax regimes?
Yes, TaxBuddy helps professionals compare the old and new tax regimes by automatically calculating tax liability under both options. The platform factors in income, deductions, rebates, and slab rates, allowing professionals to make an informed decision before filing. Expert-assisted plans further ensure that the chosen regime aligns with long-term tax efficiency.
Q. Should professionals review their regime choice every year?
Yes, professionals should review their tax regime choice every year. Changes in income, deductions, tax slabs, and government policies can significantly alter which regime is more beneficial. Annual evaluation ensures optimal tax planning, prevents overpayment of tax, and maintains compliance with the latest tax rules.
