How TaxBuddy Evaluates Old vs New Tax Regime for Different Income Profiles
- Nimisha Panda
- 15 hours ago
- 10 min read
Choosing between the old and new tax regimes directly impacts annual tax outgo and cash flow. The decision depends on income composition, eligibility for deductions, and slab-wise tax rates introduced under Budget 2025. TaxBuddy evaluates both regimes using an AI-driven framework that considers salary structure, deductions, exemptions, and business income to identify the lower-tax option. This evaluation removes guesswork by presenting a side-by-side comparison tailored to each income profile, ensuring compliance with the Income Tax Act, 1961, while minimising tax liability.
Table of Contents
How the Old Tax Regime Works for Different Income Profiles
The old tax regime follows a deduction-driven structure. Tax liability is calculated after allowing various exemptions and deductions under the Income Tax Act, 1961. This regime generally benefits individuals who actively invest in tax-saving instruments or incur eligible expenses.
For salaried individuals with structured pay components such as House Rent Allowance, Leave Travel Allowance, and employer benefits, the old regime allows these exemptions to reduce taxable income significantly. Those with home loans, health insurance premiums, and retirement investments can further lower tax outgo.
For self-employed professionals and business owners, the old regime allows expense deductions, depreciation, and investment-linked benefits. As income rises, the value of deductions becomes more meaningful, especially when taxable income crosses higher slabs.
How the New Tax Regime Applies Across Income Levels
The new tax regime is slab-oriented and simplified. It offers lower tax rates across income bands in exchange for giving up most exemptions and deductions. Taxable income is calculated primarily on gross income, with only limited adjustments such as the standard deduction.
For individuals with straightforward income and minimal deductions, the new regime often results in lower tax liability. This is especially true for early-career professionals, freelancers with limited expenses, and salaried individuals without housing or large investments.
At higher income levels, the new regime continues to provide competitive rates, particularly where deductions under the old regime do not exceed a practical threshold. The structure prioritises predictability and ease of compliance over tax planning.
Is the ₹12 Lakh Rebate Allowed in the New Tax Regime?
Yes, the rebate applies only under the new tax regime, subject to income limits prescribed for FY 2025–26. If total taxable income does not exceed ₹12 lakh after the standard deduction, the rebate effectively reduces tax liability to zero.
This rebate does not exist under the old tax regime. Individuals evaluating tax regimes must first check rebate eligibility before comparing deductions. For many middle-income salaried taxpayers, the rebate alone can make the new regime more beneficial, even without exemptions.
How Deductions Like 80C and HRA Work in the Old Tax Regime
Deductions under Section 80C, up to ₹1.5 lakh, apply only under the old tax regime. Eligible investments include provident fund contributions, life insurance premiums, ELSS funds, and principal repayment on home loans.
House Rent Allowance exemption is also available only in the old regime, subject to salary structure, rent paid, and city of residence. For individuals living in rented accommodation, HRA can significantly reduce taxable income.
Other commonly used deductions, such as Section 80D for health insurance and Section 24(b) for home loan interest, further strengthen the old regime’s advantage for taxpayers with planned finances.
TaxBuddy’s AI-Based Comparison Methodology for Old vs New Regime
TaxBuddy uses an AI-driven evaluation engine to compare tax liability under both regimes simultaneously. The system captures income details, deduction eligibility, exemptions, and slab applicability based on the latest Budget provisions.
The comparison does not rely on assumptions. Each component—salary structure, investment pattern, business expenses, and rebate eligibility—is applied mathematically to both regimes. The outcome highlights the net tax payable under each option and flags the more efficient choice.
This approach removes manual guesswork and ensures regime selection is aligned with actual financial data rather than generic advice.
Evaluation of Salaried Income Profiles Using TaxBuddy
For salaried individuals, the evaluation begins with gross salary and pay components. The system checks eligibility for standard deduction, HRA, and investment-linked deductions before calculating tax under the old regime.
Under the new regime, the same income is assessed with simplified slabs and rebate eligibility. Profiles with income below ₹12 lakh and limited deductions often see zero or minimal tax liability under the new regime.
For higher salaries, the tool highlights whether accumulated deductions under the old regime are sufficient to offset higher slab rates. This ensures regime selection is income-specific, not one-size-fits-all.
Evaluation of Business and Professional Income Profiles
Business owners and professionals are evaluated differently due to expense deductions and depreciation. Under the old regime, allowable business expenses, capital allowances, and investment deductions reduce taxable income effectively.
The new regime limits such flexibility, making it less suitable for businesses with high operating costs. However, professionals with low expenses and stable income may still benefit from lower slab rates under the new regime.
TaxBuddy’s evaluation accounts for these variables and also flags regime lock-in conditions applicable to non-salaried taxpayers.
Latest Income Tax Slabs Considered by TaxBuddy for FY 2025–26
The evaluation uses updated slab rates applicable for FY 2025–26. The new regime features progressive slabs with lower rates across income bands and a higher standard deduction.
The old regime continues with higher slab rates but allows exemptions and deductions. Health and education cess at 4 per cent is applied uniformly under both regimes, along with surcharge wherever applicable.
Slab application is automated to avoid calculation errors and ensure compliance with current law.
Common Scenarios Where the Old Tax Regime Performs Better
The old regime typically performs better in cases involving:
High Section 80C and 80D investmentsSubstantial HRA exemptionHome loan interest deductionsBusiness income with significant expenses
Taxpayers with disciplined tax planning and long-term financial commitments often find the old regime more efficient despite higher slab rates.
Common Scenarios Where the New Tax Regime Is More Efficient
The new regime is usually more efficient for:
Income below ₹12 lakh with limited deductionsYoung professionals with simple salary structuresFreelancers with minimal expensesTaxpayers seeking ease of filing and predictability
The rebate and lower slabs often outweigh the absence of deductions in such cases.
Errors Taxpayers Make While Choosing Between Tax Regimes
Errors while choosing between the old and new tax regimes often arise from assumptions rather than calculations. One of the most common mistakes is selecting a regime without computing tax liability under both options. Many taxpayers rely on experience or general advice and continue with the same regime every year, even though changes in income structure, slab rates, or rebates can alter the outcome significantly. Without a side-by-side calculation, it is easy to overlook which option actually results in lower tax for the current financial year.
Another widespread error is the belief that the presence of deductions automatically makes the old tax regime more beneficial. While deductions such as those under Section 80C, 80D, or HRA do reduce taxable income, their actual impact depends on the total amount claimed. If the cumulative deductions are relatively small, the benefit may not be enough to offset the higher slab rates under the old regime. In such cases, the new tax regime, with its lower slab rates and rebate provisions, may still lead to a lower overall tax liability.
Ignoring rebate eligibility under the new tax regime is also a frequent oversight. Many taxpayers fail to check whether their taxable income falls within the rebate threshold, especially after accounting for the standard deduction. This can result in choosing the old regime and paying tax unnecessarily, even when the new regime could have reduced the liability to zero or near zero. Rebate provisions are central to the new regime’s design and should always be evaluated before making a decision.
For individuals with business or professional income, a critical mistake is not accounting for regime lock-in rules. Unlike salaried taxpayers, business owners cannot freely switch between regimes every year. Selecting a regime without considering long-term income patterns, future deductions, and growth prospects can lead to constraints in subsequent years. Once a regime is locked in, reversing the choice may not be straightforward, potentially resulting in higher tax outgo over time.
Another error involves overlooking changes introduced through recent Budgets. Tax regimes are not static, and slab rates, standard deductions, and rebate thresholds can change. Taxpayers who base their decision on outdated rules may end up choosing a less efficient regime. Keeping track of current provisions is essential to avoid decisions based on obsolete information.
Some taxpayers also underestimate the importance of income composition. Salary, business income, capital gains, and other sources are taxed differently, and their interaction with deductions and slabs can influence which regime works better. Evaluating only gross income, without considering how different income heads are treated, can distort the comparison.
Finally, a common issue is making the regime choice too early in the year and not revisiting it before filing the return. Income details, deductions, or investment decisions may change during the year. Failing to reassess the regime choice at the time of filing can result in missed opportunities to reduce tax liability. A final evaluation before submission helps ensure the selected regime truly aligns with the taxpayer’s financial position.
Conclusion
Choosing between the old and new tax regimes depends on income structure, deduction usage, and eligibility for rebates. Automated evaluation ensures this decision is data-driven rather than assumption-based. 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 ITR filing options. The self-filing plan is designed for individuals with straightforward income sources who are comfortable entering details on their own. It provides guided prompts, automated calculations, and built-in validations to reduce errors.
For individuals with complex income structures—such as multiple salary components, business income, capital gains, or foreign income—expert-assisted plans are available. In these plans, a qualified tax expert reviews the data, applies applicable tax laws, and ensures the return is filed correctly.
Q2. Which is the best site to file ITR?
The best site to file an income tax return is one that stays updated with the latest tax laws, applies accurate calculations, and provides support beyond just filing. A reliable platform should help users choose the correct tax regime, validate income details, compute tax accurately, and assist with notices or corrections if required later.
Ease of use, data security, and post-filing support are equally important factors when selecting an ITR filing platform.
Q3. Where to file an income tax return?
Income tax returns can be filed online through authorised platforms that are integrated with the Income Tax Department’s systems. These platforms allow direct submission of returns, Aadhaar-based verification, and status tracking after filing.
Online filing ensures faster processing, quicker refunds where applicable, and easy access to past returns and acknowledgements.
Q4. Can the tax regime be changed every year?
Salaried individuals are allowed to choose between the old and new tax regimes every financial year while filing their return. This flexibility allows regime selection based on current income, deductions, and rebate eligibility.
However, individuals with business or professional income face restrictions. Once a regime is chosen, switching back may not be allowed every year. This rule makes careful evaluation especially important for non-salaried taxpayers.
Q5. Are deductions allowed in the new tax regime?
Most deductions and exemptions are not allowed under the new tax regime. Popular benefits such as Section 80C investments, HRA exemption, and home loan interest deduction are available only under the old regime.
The new regime allows limited benefits such as the standard deduction and specific employer-related contributions, making it suitable mainly for taxpayers with minimal deductions.
Q6. How does TaxBuddy ensure accurate regime comparison?
TaxBuddy compares both regimes by applying actual income figures, eligible deductions, slab rates, rebates, cess, and surcharge to each option simultaneously. The comparison is calculation-driven rather than assumption-based.
This approach ensures the final recommendation reflects real tax liability under each regime, helping users avoid selecting a regime based on general advice or incomplete understanding.
Q7. Is the HRA exemption available in the new tax regime?
No, House Rent Allowance exemption is not available under the new tax regime. It can be claimed only if the old tax regime is selected.
Taxpayers receiving HRA as part of their salary must evaluate whether the exemption benefit under the old regime outweighs the lower slab rates and rebate available under the new regime.
Q8. Which regime is better for income below ₹12 lakh?
For income levels up to ₹12 lakh, the new tax regime often results in zero or minimal tax liability due to the rebate available under the regime, subject to conditions. This makes it attractive for individuals with limited deductions.
However, if substantial deductions such as HRA, 80C, or home loan benefits apply, the old regime may still result in lower tax. A side-by-side calculation is essential before deciding.
Q9. Does the comparison include cess and surcharge?
Yes, tax calculations include health and education cess at the applicable rate, along with surcharge wherever income exceeds prescribed thresholds. These components are mandatory under the Income Tax Act and apply to both regimes.
Ignoring cess or surcharge can lead to underestimation of tax liability, which is why they are always factored into the final comparison.
Q10. Can professionals switch regimes every year?
Professionals and business owners do not enjoy the same flexibility as salaried individuals. Once a tax regime is selected, switching back and forth may not be permitted in subsequent years.
This restriction makes it important for professionals to consider long-term income patterns and deduction eligibility before locking in a regime.
Q11. Are capital gains treated differently under tax regimes?
Capital gains taxation largely remains the same under both regimes. Rates, holding period rules, and exemptions applicable to capital gains are mostly unaffected by regime selection.
However, certain set-off rules and planning opportunities may differ slightly, which is why capital gains should still be factored into the overall tax evaluation.
Q12. Can the regime choice be revised before filing?
Yes, the selected tax regime can be reviewed and changed at any time before the final submission of the income tax return. This allows taxpayers to recalculate and reassess their choice if income details or deductions change.
Once the return is filed, the selected regime becomes final for that assessment year, making pre-filing evaluation crucial.
