How TaxBuddy Evaluates Old vs New Tax Regime for Different Income Profiles
- CA Pratik Bharda
- 19 hours ago
- 8 min read
Choosing between the old and new tax regimes directly impacts tax outgo, refunds, and long-term planning. With the new tax regime becoming the default and offering tax-free income up to ₹12 lakh after Budget 2025 updates, the decision now depends more on income profile than assumptions. TaxBuddy evaluates both regimes side by side by factoring in income level, deductions, exemptions, and taxpayer category to identify the option that results in the lowest tax liability while remaining compliant with the Income Tax Act, 1961. This evaluation removes guesswork and ensures regime selection is data-driven rather than generic.
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How TaxBuddy Compares Old vs New Tax Regime Using AI Tools
TaxBuddy compares the old and new tax regimes using AI-driven income tax calculators that process user-provided financial details in real time. The system evaluates taxable income under both regimes separately by applying the correct slab rates, rebates, and allowable deductions as per the Income Tax Act, 1961. For the new tax regime, calculations are aligned with Section 115BAC, including revised slab rates and enhanced Section 87A rebate benefits introduced in recent budget updates. For the old tax regime, the system factors in eligible deductions, exemptions, and higher basic exemption limits where applicable. The AI engine then compares the final tax payable under both structures and highlights the regime that results in lower tax liability, while also flagging any compliance conditions or switching limitations.
Understanding Income Profiles Used for Tax Regime Evaluation
TaxBuddy evaluates tax regimes based on distinct income profiles rather than applying a one-size-fits-all approach. These profiles include salaried individuals, senior citizens, professionals, business owners, and individuals with mixed income sources. Each profile is assessed based on income stability, availability of deductions, exemption eligibility, and flexibility to switch regimes. For example, salaried individuals with fixed income and limited deductions are evaluated differently from professionals with fluctuating earnings or business taxpayers with depreciation and expense claims. This profiling ensures that regime selection reflects actual earning patterns instead of assumptions.
Key Differences Between the Old and New Tax Regimes That Impact Evaluation
The old tax regime offers multiple deductions and exemptions, such as Section 80C investments, health insurance under Section 80D, HRA, LTA, home loan interest, and higher exemption limits for senior citizens. However, it follows higher tax slab rates. The new tax regime provides lower slab rates, a higher rebate threshold, making income up to ₹12 lakh tax-free, and a simplified structure with limited deductions. Most exemptions are not available, except the standard deduction and the employer contribution to NPS under Section 80CCD(2). TaxBuddy’s evaluation focuses on how these differences affect net tax payable rather than just headline slab rates.
Is Standard Deduction Allowed in the New Tax Regime?
Yes, the standard deduction is allowed under the new tax regime. Salaried individuals and pensioners can claim a higher standard deduction compared to earlier years, which directly reduces taxable income before slab application. TaxBuddy ensures this deduction is applied correctly while computing tax under the new regime and excludes other deductions that are not permitted. This clarity helps prevent incorrect comparisons and inaccurate tax savings assumptions.
How Deductions and Exemptions Work in the Old Tax Regime
Under the old tax regime, deductions and exemptions play a major role in reducing taxable income. Eligible benefits include investments under Section 80C, medical insurance premiums under Section 80D, interest on home loans under Section 24(b), HRA, LTA, and several other allowances. TaxBuddy captures all applicable deductions based on user inputs and validates limits before computing taxable income. This ensures the old regime comparison reflects actual savings potential rather than maximum theoretical benefits.
Evaluation for Low-Income and Early-Career Taxpayers
For taxpayers in lower income brackets or early stages of their career, the new tax regime often results in lower or nil tax liability due to the enhanced Section 87A rebate and simplified slabs. TaxBuddy identifies such cases by checking whether income falls within rebate thresholds and whether meaningful deductions are available. If deductions are minimal, the system typically recommends the new regime for simplicity and compliance ease.
Evaluation for Salaried Individuals With Moderate Deductions
Salaried individuals earning mid-range incomes often face a close comparison between regimes. TaxBuddy evaluates whether deductions like 80C investments, HRA, or insurance premiums are sufficient to offset higher slab rates under the old regime. If total deductions remain modest, the new regime may still offer better outcomes. The comparison clearly shows tax payable under both options, allowing informed selection without guesswork.
Evaluation for High-Income and High-Deduction Profiles
High-income taxpayers with substantial deductions, home loans, or structured tax-saving investments often benefit more under the old tax regime. TaxBuddy simulates scenarios by applying all eligible deductions first and then compares them against the new regime slab benefits. This ensures that taxpayers with significant financial commitments do not lose legitimate tax advantages by defaulting to the new regime.
How Business Owners and Professionals Are Evaluated Differently
Business owners and professionals are evaluated with additional considerations such as expense claims, depreciation, presumptive taxation eligibility, and restrictions on regime switching. TaxBuddy factors in the one-time option rule applicable to business taxpayers opting out of the new regime. This ensures regime selection is aligned with long-term tax planning rather than short-term savings alone.
Tax Comparison Table for Different Income Levels
TaxBuddy presents a comparative tax table showing tax payable under both regimes for different income ranges, assuming minimal deductions. This table highlights how tax outcomes shift as income rises and deductions vary. The comparison makes it easier to identify break-even points where the old regime starts becoming beneficial over the new regime, or vice versa.
How TaxBuddy Simplifies Regime Selection During ITR Filing
How TaxBuddy simplifies regime selection during ITR filing by embedding the comparison directly into the filing workflow rather than treating it as a separate step. Once income details, deductions, and exemptions are entered, the system simultaneously computes tax liability under both the old and new tax regimes using the applicable slab rates, rebates, and conditions for the relevant financial year. This removes the need for taxpayers to manually calculate tax or rely on external calculators.
The side-by-side display clearly shows taxable income, total tax payable, and the impact of deductions or rebates under each regime. This makes it easier to understand not just which option results in lower tax, but also why one regime is more beneficial than the other. The calculation logic automatically excludes deductions that are not allowed under the selected regime, ensuring compliance with the Income Tax Act, 1961.
Based on these computations, the system highlights the regime that results in a lower tax liability. However, the final choice remains with the taxpayer. If a different regime is preferred due to future planning considerations for personal preference, the selection can be changed before submission without affecting accuracy or compliance.
This integrated evaluation also accounts for practical filing aspects such as default regime rules, eligibility to switch regimes, and restrictions applicable to business taxpayers. By handling these checks within the filing process itself, TaxBuddy reduces the risk of incorrect regime selection, minimises errors that could trigger notices, and ensures that the return is filed using the most tax-efficient and legally compliant option available.
Conclusion
Choosing between the old and new tax regimes depends on income structure, deductions, and long-term planning considerations. TaxBuddy removes uncertainty by evaluating both regimes objectively and guiding taxpayers toward the option that minimises tax liability while ensuring compliance. 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 options. The self-filing plan is designed for individuals with straightforward income structures who are comfortable entering details on their own with system-led validations. The expert-assisted plan is suitable for taxpayers with multiple income sources, deductions, capital gains, business income, or regime-related complexity. This flexibility allows taxpayers to choose the level of support based on their filing needs rather than forcing a single approach.
Q. Which is the best site to file ITR?
The best site to file an income tax return is one that ensures accurate tax computation, correct application of deductions and rebates, and compliance with the latest tax laws. Platforms that automatically compare the old and new tax regimes, validate entries, and reduce manual errors provide a better filing experience. Ease of use, data security, and post-filing support are also important factors when choosing a filing platform.
Q. Where to file an income tax return?
Income tax returns can be filed either directly through the official income tax e-filing portal or through authorised online tax filing platforms. While the government portal allows direct filing, many taxpayers prefer assisted platforms that simplify calculations, help with regime selection, and reduce the risk of mistakes. The choice depends on the taxpayer’s comfort level and the complexity of income details.
Q. Is the new tax regime mandatory for all taxpayers?
The new tax regime is the default option for most taxpayers, but it is not mandatory. Eligible individuals can opt for the old tax regime while filing their return if it results in a lower tax liability. The option must be exercised within the return filing process, and the choice directly affects which deductions and exemptions are allowed.
Q. Can salaried individuals switch tax regimes every year?
Yes, salaried individuals are allowed to switch between the old and new tax regimes every financial year. The choice can be made at the time of filing the income tax return, regardless of the declaration given to the employer earlier in the year. This flexibility allows salaried taxpayers to reassess their deductions and income structure annually before selecting a regime.
Q. Are senior citizens better off under the old tax regime?
Senior citizens may benefit more under the old tax regime in many cases because it offers higher basic exemption limits and access to deductions such as health insurance premiums and interest income benefits. However, the outcome depends on actual income levels and deductions claimed. A proper comparison is necessary before concluding which regime is more beneficial.
Q. Does the new tax regime allow HRA benefits?
House Rent Allowance benefits are not allowed under the new tax regime. Taxpayers who receive HRA and claim rent-based exemptions can do so only under the old tax regime. This exclusion is one of the key factors considered while comparing regimes for salaried individuals living in rented accommodation.
Q. How does TaxBuddy ensure accurate regime comparison?
TaxBuddy computes tax liability under both regimes separately by applying the correct slab rates, rebates, and eligible deductions as per applicable rules. Benefits that are not allowed under a specific regime are excluded automatically. This side-by-side calculation ensures that regime selection is based on actual tax payable rather than assumptions or partial information.
Q. Does higher income always mean the new regime is better?
Higher income does not automatically make the new tax regime more beneficial. While the new regime offers lower slab rates, taxpayers with significant deductions, home loans, or structured investments may still pay less tax under the old regime. The final outcome depends on how deductions and exemptions offset higher slab rates.
Q. Can professionals with variable income rely on automated evaluation?
Yes, professionals with fluctuating income can rely on scenario-based automated evaluation. Such an evaluation considers variations in income, eligible expenses, and advance tax implications. This approach helps professionals understand how regime selection impacts tax liability across different earning patterns within the same financial year.
Q. Does regime choice affect refund processing?
Yes, regime selection affects tax computation, which in turn impacts refund eligibility and processing. An incorrect regime choice can lead to excess tax payment or mismatches, resulting in refund delays or notices. Accurate regime selection reduces such risks and ensures smoother refund processing.
Q. Is professional advice necessary for regime selection?
Professional advice is not mandatory for all taxpayers, but it is helpful for individuals with complex income structures, multiple deductions, capital gains, or business income. Expert-assisted evaluation helps ensure the correct regime is chosen, avoids compliance issues, and aligns regime selection with long-term tax planning.
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