What is the main difference between the Old and New Tax Regime?

The primary difference lies in the number of deductions and exemptions available. The Old Tax Regime allows a wide range of deductions (e.g., HRA, 80C, 80D) and exemptions (e.g., LTA, home loan interest), which can significantly lower the taxable income. The New Tax Regime offers lower tax slabs but eliminates most deductions and exemptions, providing a simplified filing process.

How does the standard deduction work under both tax regimes?

The Old Tax Regime provides a standard deduction of ₹50,000 for salaried individuals. The New Tax Regime offers a higher standard deduction of ₹75,000, giving more relief to salaried employees.

Can I claim HRA under the New Tax Regime?

No, the New Tax Regime does not allow claiming House Rent Allowance (HRA) as an exemption. This benefit is only available under the Old Regime.

Which regime is better for someone with significant home loan interest payments?

The Old Tax Regime is more beneficial if you have significant home loan interest payments, as it allows a deduction of up to ₹2 lakh under Section 24(b) for a self-occupied property. The New Regime only allows this for let-out property.

Are the deductions under Section 80C available in the New Tax Regime?

No, deductions under Section 80C are not available in the New Tax Regime. These are only allowed under the Old Tax Regime, up to ₹1.5 lakh.

How do the tax slabs compare between the two regimes for FY 2024-25?

The Old Tax Regime starts at 5% for income above ₹2.5 lakh and goes up to 30%. The New Regime starts at 0% for income up to ₹3 lakh, with more graduated slabs up to 30%, along with a rebate for incomes up to ₹12 lakh.

What are the advantages of choosing the New Tax Regime?

The New Tax Regime benefits individuals who have few or no tax-saving investments, prefer a simpler filing process, and earn up to ₹12 lakh, as it offers relaxed slabs and fewer compliance requirements.

Which regime should a salaried individual choose?

A salaried individual should opt for the Old Regime if they have significant deductions like HRA, 80C, or home loan interest. The New Regime is better if they prefer simpler filing and have fewer deductions.

Is it possible to switch between the Old and New Regime?

Yes, taxpayers can switch between the Old and New Tax Regime each financial year based on which one suits their situation better.

What deductions are available under the New Tax Regime?

Only a few deductions are allowed under the New Regime, including: ₹75,000 standard deduction, employer’s NPS contribution (Section 80CCD), interest on let-out property, and family pension deduction up to ₹25,000.

How does the New Tax Regime impact taxpayers with higher incomes?

The New Regime offers more relaxed slabs and a higher rebate for incomes up to ₹12 lakh. However, for high earners with substantial deductions, the Old Regime may offer greater tax savings.

What are the changes in deductions and exemptions for FY 2025-26?

For FY 2025-26, the standard deduction under the New Regime remains at ₹75,000, and the family pension deduction continues at ₹25,000. There may be minor slab revisions to offer more relief to middle-income earners.

Old vs New Tax Regime: Which Gives Better Deductions in FY 2024-25 & FY 2025-26?

Rashmita Choudhary
Apr 29
8 min read

Updated: 2 days ago

The Indian tax system offers taxpayers a choice between two regimes: the Old Tax Regime and the New Tax Regime. Each regime provides distinct tax slabs, exemptions, and deductions. The decision between them depends on factors like income level, available deductions, and personal preference for tax planning versus simpler filing. Understanding which regime offers better deductions is key to optimizing your tax liability for the financial years 2024-25 and 2025-26.

Old vs New Tax Regime: Which Gives Better Deductions
Which Regime Offers Better Deductions?
Illustrative Tax Comparison for FY 2024-25
When Does Old Regime Outperform New Regime?
Key Changes in Budget 2024 Impacting FY 2024-25 & FY 2025-26
Summary: Which Regime Should You Choose?
Conclusion: Which Regime Should You Choose?
FAQs

Old vs New Tax Regime: Which Gives Better Deductions

The choice of regime depends on individual circumstances. If you have substantial deductions such as HRA, 80C, and home loan interest, the Old Regime is generally more advantageous. However, if you prefer simplified filing with fewer deductions, the New Regime may be better, especially for those with minimal tax-saving investments or income up to ₹12 lakh.

Overview of Both Regimes

The Indian Income Tax Act, 1961, provides taxpayers with the option to choose between the Old Tax Regime and the New Tax Regime. Both offer different benefits, tax slabs, and exemptions, allowing individuals to select the one that best suits their income level, investments, and personal financial situation.

Feature	Old Tax Regime	New Tax Regime
Income Tax Slabs	Higher slabs starting from ₹2.5 lakh	Relaxed slabs starting from ₹0 with more slabs up to ₹15 lakh
Basic Exemption Limit	₹2.5 lakh	₹12 lakh (₹12.75 lakh for salaried individuals)
Standard Deduction	₹50,000 (FY 2024-25)	₹75,000 (FY 2024-25 and FY 2025-26)
Deductions Allowed	Wide range: HRA, LTA, 80C (up to ₹1.5 lakh), 80D, home loan interest, etc.	Limited: only a few like standard deduction, employer’s NPS contribution, interest on let-out property, family pension deduction
Exemptions Allowed	Yes (HRA, LTA, gratuity, etc.)	No (most exemptions like HRA, LTA not allowed)
Tax Slabs for FY 2024-25 & 2025-26	5%, 20%, 30% beyond ₹2.5 lakh	0% up to ₹3 lakh, then slabs at 5%, 10%, 15%, 20%, 25%, 30% up to >₹15 lakh
Compliance	Higher documentation and proof required	Lower compliance, simpler filing

Deductions and Exemptions in Detail

Old Tax Regime

The Old Tax Regime offers a wide range of deductions and exemptions. These include:

Section 80C: Up to ₹1.5 lakh (investments in PPF, ELSS, life insurance, etc.)
Section 80D: Health insurance premiums
HRA Exemption: Allowed if you live in rented accommodation
LTA: Leave travel allowance exemption
Interest on Home Loan: Deduction up to ₹2 lakh for self-occupied property (Section 24b)
Other Sections:
Section 80E: Education loan interest
Section 80G: Donations
Section 80CCD: NPS contributions
Standard Deduction: ₹50,000 for salaried individuals in FY 2024-25 and FY 2025-26

New Tax Regime

The New Tax Regime offers limited deductions and exemptions:

Standard Deduction: ₹75,000 for salaried employees
Selective Deductions:
Employer’s contribution to NPS (Section 80CCD)
Interest on home loan for let-out property (Section 24b)
Contributions to Agniveer Corpus Fund (Section 80CCH)
Family pension deduction (up to ₹25,000)
No HRA, LTA, 80C, or 80D deductions allowed
Relaxed tax slabs with an increased rebate limit up to ₹12 lakh

Which Regime Offers Better Deductions?

The Old Tax Regime generally offers better deductions for individuals who have significant tax-saving investments and expenses. If you have:

Substantial deductions like HRA, 80C, and home loan interest,
Investments in health insurance under Section 80D,
Deductions for education loans, or
Claimable exemptions like LTA or gratuity,

then the Old Tax Regime will likely reduce your tax liability more effectively.

On the other hand, the New Tax Regime is beneficial for those with fewer or no tax-saving investments or exemptions. It offers a simpler filing process with lower compliance requirements, making it ideal for taxpayers with a simpler financial profile or those whose total deductions would not be significant enough to offset the tax benefit from the new regime's lower tax slabs.

Illustrative Tax Comparison for FY 2024-25

To understand the difference between the two regimes, here’s a practical example for a gross salary of ₹15 lakh.

Particulars	New Regime (₹)	Old Regime (₹)
Gross Salary	₹15,00,000	₹15,00,000
Less: Standard Deduction	₹75,000	₹50,000
Less: Other Deductions (HRA, LTA, 80C, 80D, etc.)	Not Allowed	₹2,02,000
Taxable Income	₹14,25,000	₹12,48,000
Tax Payable (incl. cess)	Approx. ₹1,30,000	Approx. ₹1,42,896

In this example, even though the Old Regime allows for various deductions, the New Regime’s relaxed tax slabs and higher standard deduction result in slightly lower tax payable.

When Does Old Regime Outperform New Regime?

The Old Tax Regime is likely to outperform the New Regime in the following situations:

Higher Deductions and Exemptions: If your total deductions and exemptions exceed ₹3-5 lakh (e.g., significant home loan interest, HRA exemption, and investments under 80C).
Income Above ₹12 Lakh: If your income exceeds ₹12 lakh and you have substantial deductions (e.g., home loan, HRA, 80C), the Old Regime may offer greater savings.
Preference for Detailed Tax Planning: If you are comfortable with tax planning and prefer to claim multiple exemptions and deductions, the Old Regime will help reduce taxable income more effectively.

For mid to high-income earners with multiple deductions, the Old Regime may prove advantageous.

Key Changes in Budget 2024 Impacting FY 2024-25 & FY 2025-26

The 2024 Budget brought several key changes:

Standard Deduction Increase: The standard deduction under the New Regime has been increased from ₹50,000 to ₹75,000 for salaried employees.
Family Pension Deduction: This deduction has been increased from ₹15,000 to ₹25,000.
Revised Tax Slabs: The New Regime’s tax slabs have been revised to provide more relief, especially for incomes up to ₹12 lakh, making it more attractive for low to middle-income taxpayers.
Reduction in Highest Surcharge: The highest surcharge rate has been reduced to 25% under the New Regime, compared to 37% under the Old Regime for high earners.

Summary: Which Regime Should You Choose?

Scenario	Recommended Regime
Income ≤ ₹12 lakh, few deductions	New Regime
Income > ₹12 lakh, minimal deductions	New Regime
Income > ₹12 lakh, substantial deductions (≥ ₹3-5 lakh)	Old Regime
High HRA and home loan interest	Old Regime
Preference for simple filing	New Regime

The decision between the Old and New Tax Regimes depends on your income, available deductions, and preference for simpler filing versus tax planning. The Old Regime works best for those with significant deductions and exemptions, while the New Regime is ideal for individuals with fewer deductions or those who prefer simpler tax filing.

Conclusion: Which Regime Should You Choose?

In conclusion, the choice between the Old and New Tax Regimes largely depends on your financial profile. If you have significant tax-saving investments, such as those under Section 80C or substantial deductions like HRA, the Old Regime may prove more beneficial. However, for those with fewer deductions or who prefer simpler tax filing without the need for extensive documentation, the New Tax Regime may be more advantageous. Understanding your own financial situation, income, and available deductions will help you make the most tax-efficient choice for the financial years 2024-25 and 2025-26.

FAQs

What is the main difference between the Old and New Tax Regime?
The primary difference lies in the number of deductions and exemptions available. The Old Tax Regime allows a wide range of deductions (e.g., HRA, 80C, 80D) and exemptions (e.g., LTA, home loan interest), which can significantly lower the taxable income. On the other hand, the New Tax Regime offers lower tax slabs but eliminates most deductions and exemptions, providing a simplified filing process. The choice between the two depends on your income level and whether you have substantial tax-saving investments or not.
How does the standard deduction work under both tax regimes?
The Old Tax Regime provides a standard deduction of ₹50,000 for salaried individuals. However, the New Tax Regime offers a higher standard deduction of ₹75,000, which is an advantage for salaried individuals opting for the new system. This deduction is available to all taxpayers under both regimes, but the New Regime gives more relief.
Can I claim HRA under the New Tax Regime?
No, the New Tax Regime does not allow claiming House Rent Allowance (HRA) as an exemption. If you are living in a rented house, you will not be able to avail of this benefit under the new regime, whereas the Old Tax Regime allows HRA exemption based on your rent paid and income.
Which regime is better for someone with significant home loan interest payments?
If you have a significant home loan interest payment, the Old Tax Regime is more beneficial. Under the Old Regime, you can claim a deduction of up to ₹2 lakh under Section 24(b) for interest on a home loan for a self-occupied property. The New Tax Regime only allows this deduction for interest on let-out property, making the Old Regime more advantageous for homeowners with self-occupied property.
Are the deductions under Section 80C available in the New Tax Regime?
No, the New Tax Regime does not allow deductions under Section 80C, which covers investments in PPF, ELSS, life insurance premiums, and other specified savings instruments. In the Old Tax Regime, taxpayers can avail of a deduction of up to ₹1.5 lakh under this section.
How do the tax slabs compare between the two regimes for FY 2024-25?
The Old Tax Regime follows a traditional set of tax slabs, starting at 5% for income above ₹2.5 lakh, with higher rates for higher income brackets (20%, 30%). In comparison, the New Tax Regime has more relaxed slabs, starting at 0% up to ₹3 lakh, and gradually increasing to 5%, 10%, 15%, 20%, 25%, and 30% for higher incomes, with a rebate for income up to ₹12 lakh.
What are the advantages of choosing the New Tax Regime?
The New Tax Regime is beneficial for individuals who:
Have fewer or no tax-saving investments.
Prefer a simpler filing process with fewer documents and compliance.
Earn up to ₹12 lakh, as it provides significant relief through lower tax slabs and a higher basic exemption limit.
Do not need to worry about maintaining detailed documentation for deductions.
Which regime should a salaried individual choose?
A salaried individual should choose the Old Tax Regime if they have significant deductions like HRA, 80C investments, home loan interest, or health insurance premiums. If they have few or no tax-saving investments and prefer a simpler filing process, the New Tax Regime would be more suitable.
Is it possible to switch between the Old and New Regime?
Yes, it is possible to switch between the Old and New Tax Regime each financial year. Taxpayers can choose the regime that best suits their financial situation for each assessment year, based on their income and available deductions.
What deductions are available under the New Tax Regime?
The New Tax Regime allows only a few limited deductions:
Standard Deduction: ₹75,000 for salaried employees.
Employer’s Contribution to NPS: Under Section 80CCD.
Interest on Home Loan for Let-out Property: Under Section 24(b).
Family Pension Deduction: Up to ₹25,000. However, it does not allow deductions for 80C, 80D, HRA, LTA, or any other exemptions under the Old Tax Regime.
How does the New Tax Regime impact taxpayers with higher incomes?
The New Tax Regime benefits taxpayers with higher incomes by offering more relaxed tax slabs and a higher rebate limit, particularly for those with incomes up to ₹12 lakh. For high earners with significant deductions, however, the Old Tax Regime might still offer better tax-saving opportunities due to the variety of available deductions and exemptions.
What are the changes in deductions and exemptions for FY 2025-26?
For FY 2025-26, the New Tax Regime will see some key updates:
Standard Deduction will remain ₹75,000.
The Family Pension Deduction will continue to be available up to ₹25,000.
Tax slabs may see minor revisions to provide additional relief for middle-income taxpayers. These changes aim to further simplify the tax process while offering some relief for lower and middle-income earners.