Old vs New Tax Regime 2025: Which One Should You Choose?
- PRITI SIRDESHMUKH
- 3 days ago
- 10 min read
Choosing between the old and new tax regime for FY 2025–26 depends on income level, deduction eligibility, and overall financial planning. The government’s refinements in Budget 2025, such as enhanced exemption limits and increased standard deduction under the new regime, have significantly altered how taxpayers evaluate both systems. The old regime continues to reward disciplined saving and investment habits, while the new regime simplifies compliance and offers relief through lower slab rates. Understanding which one provides maximum benefit requires comparing structure, rates, and total deductions applicable to each category of taxpayer.
Table of Contents
Understanding the Difference Between Old and New Tax Regimes
Standard Deduction and Exemption Eligibility Under the New Tax Regime
Which Regime Saves More Tax? Practical Scenarios and Comparison Table
How Home Loan Interest Deduction Differs in Old vs New Tax Regime
Choosing Between Old and New Regime for Salaried Individuals
Old vs New Tax Regime for Business Professionals and Freelancers
Final Verdict: Which Tax Regime Should You Choose for FY 2025–26
Understanding the Difference Between Old and New Tax Regimes
The old and new tax regimes differ primarily in how they treat deductions, exemptions, and compliance. The old regime continues to reward taxpayers who invest in eligible instruments or incur specific expenses that qualify for tax benefits. It allows deductions under Sections 80C, 80D, and exemptions like HRA, LTA, and home loan interest. On the other hand, the new regime aims to simplify tax filing by removing most exemptions and offering lower tax rates instead. This approach eliminates the need for detailed investment proofs and makes tax computation faster and easier, especially for individuals with fewer tax-saving investments.
The government’s intent behind introducing the new regime was to create a parallel structure — one that caters to both taxpayers who prefer long-term savings and those who prioritize liquidity and simplified compliance. Over time, with Budget 2025 enhancing standard deduction and slab limits, the new regime is becoming more attractive for middle-income earners.
Latest Tax Slabs and Key Changes in FY 2025–26
Budget 2025 has revised the slab rates under the new tax regime, offering greater relief to individuals by increasing the basic exemption limit and adjusting slab thresholds. The key highlights are:
Income up to ₹4,00,000 – 0%
₹4,00,001 to ₹8,00,000 – 5%
₹8,00,001 to ₹12,00,000 – 10%
₹12,00,001 to ₹16,00,000 – 15%
₹16,00,001 to ₹20,00,000 – 20%
₹20,00,001 to ₹24,00,000 – 25%
Above ₹24,00,000 – 30%
The old regime’s slab structure remains unchanged, with the basic exemption at ₹2.5 lakh and standard deduction at ₹50,000 for salaried taxpayers. The new regime now allows a standard deduction of ₹75,000, making it more appealing to those who do not claim large deductions under other sections. These refinements simplify the choice between regimes, as more taxpayers can now find parity in savings depending on their investment patterns.
Standard Deduction and Exemption Eligibility Under the New Tax Regime
The new regime allows a standard deduction of ₹75,000 for salaried taxpayers and pensioners. However, unlike the old regime, most other exemptions and deductions are not available. Popular ones such as Section 80C (PF, ELSS, LIC), 80D (medical insurance), HRA, LTA, and housing loan interest under Section 24(b) cannot be claimed.
This structure is designed to reduce complexity and minimize the paperwork associated with claiming exemptions. The new regime benefits those who prefer not to lock their funds in long-term instruments or whose employers already cover major expenses like health insurance. With the increased standard deduction, even taxpayers with moderate incomes benefit from a lower taxable base.
How Deductions Work in the Old Tax Regime
The old regime operates on the foundation of deductions and exemptions. Taxpayers can claim multiple deductions that reduce taxable income significantly. Key provisions include:
Section 80C: Up to ₹1.5 lakh for investments in PPF, ELSS, NSC, life insurance, or principal repayment on home loan.
Section 80D: Up to ₹25,000 for health insurance premiums (₹50,000 for senior citizens).
Section 24(b): Up to ₹2 lakh deduction on home loan interest for self-occupied property.
HRA and LTA exemptions:Â Reduce taxable salary based on rent paid and travel expenses.
The old regime is ideal for taxpayers with disciplined investment habits and multiple financial commitments, as it allows comprehensive planning for both savings and tax optimization.
Which Regime Saves More Tax? Practical Scenarios and Comparison Table
To illustrate the difference, here’s a simplified comparison:
Annual Income | Deductions Claimed | Old Regime Tax Payable | New Regime Tax Payable | Beneficial Regime |
₹8,00,000 | ₹1,50,000 | ₹39,000 | ₹30,000 | New Regime |
₹15,00,000 | ₹4,50,000 | ₹1,29,000 | ₹1,50,000 | Old Regime |
₹25,00,000 | ₹7,00,000 | ₹3,90,000 | ₹3,75,000 | New Regime |
The results show that for incomes below ₹12–13 lakh, the new regime often results in lower tax due to reduced rates. However, for those with higher deductions, the old regime may still provide better savings.
Is HRA Exemption Allowed in the New Tax Regime?
HRA exemption is not available under the new regime. Individuals opting for the new regime cannot claim exemption for rent paid, even if they receive a House Rent Allowance component in their salary. This change simplifies salary computation but can increase taxable income for employees living in rented accommodations.
However, for those living in metro cities or paying high rent, the old regime remains advantageous since HRA significantly lowers taxable income. The new regime’s design prioritizes simplicity over customized deductions, which benefits employees with lower rent expenses or those staying in owned homes.
How Home Loan Interest Deduction Differs in Old vs New Tax Regime
Under the old regime, home loan borrowers can claim up to ₹2 lakh as a deduction on interest paid for a self-occupied property under Section 24(b). First-time homebuyers may also claim additional benefits under Section 80EEA. These deductions are not available under the new regime.
In the new regime, although these specific deductions are not allowed, lower tax rates and higher exemption limits can offset the impact for some taxpayers. For those paying high EMIs, the old regime remains the better choice due to significant interest deductions.
Choosing Between Old and New Regime for Salaried Individuals
Salaried employees with limited investments and fewer claims usually find the new regime more convenient and tax-efficient. The simplified structure eliminates the need for detailed proof submissions to employers.
Conversely, individuals with higher deductions—such as HRA, insurance premiums, tuition fees, or home loan interest—gain more from the old regime. Using TaxBuddy’s regime comparison calculator can help employees evaluate which option reduces their net tax outflow the most, based on income and deductions.
Old vs New Tax Regime for Business Professionals and Freelancers
For business professionals, the decision depends on the availability of deductions and business expenses. The old regime allows claims for business-related expenses, depreciation, and deductions under Chapter VI-A. The new regime removes these but offers a simplified rate structure.
Freelancers with limited expenses or minimal deductions may prefer the new regime for easier compliance. However, those with substantial expenses or claiming deductions like Section 80C and 80D may still find the old regime advantageous. Professionals should evaluate both structures annually before filing, as switching back to the old regime after choosing the new one can be restricted for business income.
TDS and Employer Declaration Requirements
Employees must declare their chosen regime to their employer at the start of the financial year for accurate TDS calculation. Employers use this declaration to compute monthly deductions from salary. If an employee does not make a declaration, the default option will be the new tax regime as per recent CBDT notifications.
However, the regime declared to the employer can still be changed at the time of filing the Income Tax Return. This flexibility ensures taxpayers can evaluate their deductions and finalize the regime that provides the maximum benefit before submission.
Tools and Platforms for Regime Comparison and ITR Filing
Digital platforms like TaxBuddy provide smart tools to help taxpayers compare both regimes accurately. The platform’s regime calculator allows users to input salary, deductions, and allowances to determine which regime saves more tax. Additionally, TaxBuddy’s mobile app streamlines the filing process with automated data import, AI-driven validation, and expert-assisted options for complex cases.
Such platforms eliminate manual computation errors and help taxpayers comply with the latest Budget 2025 changes effortlessly.
Final Verdict: Which Tax Regime Should You Choose for FY 2025–26
The new tax regime is better suited for individuals who prefer simplicity and have limited deductions. It offers clarity, lower rates, and fewer documentation requirements. The old regime remains valuable for those who utilize multiple deductions, such as investments, insurance, or home loans, to bring down taxable income.
Evaluating total tax outflow before filing ensures the best outcome. TaxBuddy’s automated system simplifies this decision by analyzing both regimes and recommending the one that offers optimal savings and compliance ease.
Conclusion
Both regimes cater to different financial profiles. The old regime rewards consistent savers with significant deductions, while the new regime offers simplicity and lower rates for those without extensive investments. Choosing the right one depends on income level, deduction eligibility, and long-term goals.
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?Â
TaxBuddy offers both self-filing and expert-assisted options to suit different taxpayer needs. Under the self-filing plan, users can upload documents such as Form 16, AIS, and TDS certificates, and the AI-driven system automatically fills in details and validates entries for accuracy. The expert-assisted plan connects users with tax professionals who handle end-to-end filing, including complex income cases like capital gains, business income, or foreign income. This dual approach ensures that taxpayers, whether first-timers or experienced filers, can choose the level of support that best matches their comfort and complexity.
Q2. Which is the best site to file ITR?
 While the official Income Tax e-filing portal (www.incometax.gov.in) is the government’s statutory platform, many taxpayers prefer using private platforms like TaxBuddy for a smoother and error-free experience. TaxBuddy’s AI-backed engine simplifies the process by auto-filling data, validating entries, and identifying the best tax regime based on deductions and slab comparisons. It also offers guided assistance, which reduces manual errors and ensures compliance with the latest Budget 2025 updates and CBDT notifications.
Q3. Where to file an income tax return?Â
Income tax returns can be filed online through two primary options — the official Income Tax Department website and trusted e-filing platforms like TaxBuddy. The official portal allows direct form submission and manual entry, while TaxBuddy provides a guided experience that automates most steps. TaxBuddy also ensures all documents are digitally stored and accessible, making it easier to retrieve past returns or respond to tax notices.
Q4. Can a taxpayer switch between the old and new regimes every financial year?Â
Yes, most individual taxpayers can switch between the old and new tax regimes every financial year when filing their returns. This flexibility allows them to choose the option that minimizes tax liability for that specific year. However, taxpayers who have income from business or profession must be careful — once they opt for the new regime, switching back is restricted and can be done only once. Hence, salaried individuals enjoy greater flexibility compared to business owners in changing regimes annually.
Q5. What is the basic exemption limit under the new regime in FY 2025–26?Â
For FY 2025–26, the basic exemption limit under the new regime has been increased to ₹4,00,000, as announced in Budget 2025. This change is part of the government’s effort to make the new regime more beneficial for lower and middle-income earners. In contrast, the old regime continues with a ₹2,50,000 exemption limit. The revised threshold, combined with the ₹75,000 standard deduction, provides greater relief for salaried individuals and pensioners.
Q6. Are deductions under Section 80C and 80D available in the new regime?Â
No, deductions under Sections 80CÂ and 80DÂ are not available in the new tax regime. These sections, which cover investments in PPF, ELSS, and insurance premiums (80C), and health insurance payments (80D), are applicable only under the old regime. The new regime removes these deductions in exchange for lower slab rates and a higher standard deduction. Taxpayers who heavily rely on such deductions should evaluate carefully before opting for the new regime.
Q7. How does the standard deduction differ between the old and new regimes?Â
Under the old regime, the standard deduction for salaried individuals and pensioners is ₹50,000. In the new regime for FY 2025–26, this amount has been raised to ₹75,000. The increase aims to make the new regime more competitive and appealing to taxpayers who do not claim multiple exemptions. This deduction automatically reduces taxable income without requiring any proof submission, making compliance simpler.
Q8. Which regime is better for salaried employees earning ₹15–20 lakh annually?Â
For salaried individuals earning between ₹15–20 lakh annually, the choice depends on the deductions they claim. If total deductions and exemptions (like HRA, 80C, 80D, and home loan interest) exceed ₹4–5 lakh, the old regime typically results in lower tax liability. However, for employees with limited deductions, the new regime offers easier compliance and often a smaller overall tax bill due to its lower rates. Using a regime comparison calculator on TaxBuddy can help assess which option gives higher take-home pay.
Q9. Can self-employed professionals claim the same deductions under both regimes?Â
No, self-employed professionals cannot claim the same deductions under both regimes. The old regime allows deductions for business-related expenses, depreciation, and investments under Chapter VI-A. The new regime, however, restricts most of these benefits and relies on lower slab rates instead. Professionals must evaluate the nature of their expenses and long-term investment goals before opting for the new structure, as switching back to the old regime later can have limitations.
Q10. How does TDS differ when an employee opts for the new regime?Â
TDS (Tax Deducted at Source) computation changes depending on the tax regime chosen. Employees who select the new regime have TDS deducted at lower rates since exemptions like HRA and deductions under 80C or 80D are not applied. Employers require a declaration of the preferred regime at the start of the financial year to ensure accurate TDS calculation. If no declaration is made, the employer defaults to the new regime, but employees can change their selection while filing the final ITR.
Q11. Are senior citizens more benefited under the old or new regime?Â
Senior citizens often benefit more under the old regime because of higher deductions available for health insurance, savings instruments, and interest income. The old regime provides an additional basic exemption limit and flexibility in claiming deductions under 80C, 80D, and 80TTB. However, for senior citizens with limited investments or those depending mainly on pension income, the new regime’s higher standard deduction and simplified rates can still offer relief. The better option depends on total income and eligible deductions.
Q12. Does the TaxBuddy mobile app help in comparing both regimes before filing ITR?Â
Yes, the TaxBuddy mobile app includes a built-in tax regime comparison tool that automatically evaluates which option — old or new — leads to lower tax liability. It allows users to input income details, deductions, and investment data to receive instant recommendations. The app also provides AI-based filing support, expert-assisted review options, and ensures compliance with the latest income tax laws.
