Should You Opt for New Tax Regime in FY 2024-25? Pros and Cons
- PRITI SIRDESHMUKH
- Sep 16
- 10 min read
Updated: Sep 29
The Finance Act 2023 introduced several modifications to the income tax system, and the new tax regime has become a popular option for many taxpayers. For FY 2024-25, taxpayers now face the decision of whether to continue with the old tax regime or opt for the new one, which offers lower tax rates but restricts certain exemptions and deductions. Choosing the right regime can have a significant impact on your tax liability, savings, and overall financial planning. Understanding the features, benefits, and drawbacks of both regimes is essential to make an informed choice. With the right guidance and tools like TaxBuddy, taxpayers can easily evaluate which regime maximizes their benefits while ensuring seamless and error-free filing.
Table of Contents
Should You Opt for the New Tax Regime?
The new tax regime provides lower income tax rates with minimal deductions. However, it eliminates many exemptions available in the old regime, such as House Rent Allowance (HRA), standard deductions beyond ₹75,000, and certain Section 80C investments. Choosing the new regime depends on whether your deductions and exemptions in the old regime significantly reduce your taxable income. For taxpayers with fewer eligible deductions, the new regime may offer higher savings, whereas those with multiple investments and exemptions may benefit more from the old regime.
Key Features of the New Tax Regime in FY 2024-25
The new tax regime for the Financial Year 2024-25 (Assessment Year 2025-26) introduces several updates aimed at simplifying the tax structure for individual taxpayers. One of the most notable changes is the increase in the tax-free income threshold, which now extends up to ₹12 lakh. This means that individuals earning up to this amount will not pay any income tax, providing relief to middle-income taxpayers and reducing their overall tax liability.
Another important update is the increase in the standard deduction to ₹75,000. This deduction automatically reduces the taxable income of salaried individuals and pensioners without requiring any investment or proof, making it easier to lower taxable income under the new regime.
The new regime also applies revised tax rates across various income slabs, ensuring a lower tax burden for most taxpayers. For example, incomes above ₹12 lakh are taxed at marginally reduced rates compared to the previous regime, while lower-income slabs enjoy even more favorable rates.
A key feature of the new regime is the limited scope for deductions. Taxpayers cannot claim most common deductions available under the old regime, including Section 80C (investments in LIC, PPF, ELSS, etc.), Section 80D (health insurance premiums), Section 80E (education loan interest), and House Rent Allowance (HRA). This shift encourages taxpayers to adopt a simpler approach, focusing more on income reporting than on extensive deduction calculations.
However, certain optional benefits remain available. Contributions to the National Pension Scheme (NPS) and Employee Provident Fund (EPF) may still be allowed, offering some opportunities for retirement savings while remaining within the simplified tax structure. Overall, the new tax regime emphasizes transparency, lower compliance burden, and straightforward tax computation, making it easier for taxpayers to understand and manage their income tax obligations without extensive planning for multiple deductions.
Pros of the New Tax Regime
Lower Tax Rates: The new tax regime offers reduced income tax rates across various income slabs compared to the old regime. This structure is particularly beneficial for individuals who do not claim many deductions or exemptions, as it directly lowers their overall tax liability. Taxpayers can calculate their taxes easily and benefit from reduced rates without having to go through multiple exemptions and rebates.
Simplified Filing: Under the new regime, the number of deductions and exemptions is significantly reduced. This makes the process of preparing and filing Income Tax Returns (ITR) much faster and easier. Individuals no longer need to track numerous tax-saving instruments or maintain extensive records for deductions like HRA, LTA, or 80C investments, making compliance more straightforward.
Reduced Documentation: One of the key advantages is that fewer proofs and supporting documents are required during filing. Since the new regime does not allow most exemptions, taxpayers spend less time gathering investment proofs or employer-provided allowance details.
Predictable Tax Liability: Without relying on multiple exemptions and deductions, taxpayers can easily estimate their tax liability upfront. This clarity allows for better financial planning, avoiding surprises during tax payment or filing.
Cons of the New Tax Regime
Loss of Exemptions: Many commonly used deductions are no longer available under the new regime. Benefits like House Rent Allowance (HRA), Leave Travel Allowance (LTA), and deductions under Section 80C (such as PPF, ELSS, and insurance premiums) cannot be claimed. Taxpayers who previously relied on these exemptions may end up with higher taxable income.
Limited Tax Planning Options: The new regime restricts tax-saving strategies. Traditional avenues to reduce taxable income through investments or exemptions no longer apply, which may reduce flexibility in personal financial planning. Individuals seeking to optimize taxes through insurance, savings schemes, or other exemptions may not find the new regime advantageous.
May Not Benefit High Deduction Taxpayers: Taxpayers with significant eligible deductions under the old regime may find that the new tax regime results in higher taxes. For those heavily investing in tax-saving instruments or receiving substantial allowances, the old regime might still be financially more beneficial.
How Old Tax Regime Benefits Taxpayers
The old tax regime offers taxpayers the opportunity to significantly reduce their taxable income through a wide range of exemptions and deductions. Under this regime, taxpayers can claim deductions under Section 80C, which includes investments in life insurance, Employee Provident Fund (EPF), Public Provident Fund (PPF), National Savings Certificates (NSC), and equity-linked savings schemes (ELSS). This allows individuals to save up to ₹1,50,000 annually in taxable income.
Additionally, the old regime allows deductions for medical insurance premiums under Section 80D, providing relief to individuals and families, including senior citizen parents. Education loan interest under Section 80E is another benefit, allowing repayment interest to be claimed without any cap. For salaried employees, House Rent Allowance (HRA) exemptions can reduce taxable income if rent is paid for accommodation.
For taxpayers who actively invest in these tax-saving instruments, or who have multiple eligible deductions, the old tax regime often results in substantial tax savings, even though the applicable tax slab rates are higher. It is particularly advantageous for families, senior citizens, and individuals with significant recurring tax-saving expenses.
When to Choose the New Tax Regime
The new tax regime is designed to simplify tax filing and reduce compliance burdens for individuals with minimal investments or deductions. It provides lower income tax slab rates but removes most exemptions and deductions available under the old regime. Taxpayers with limited deductions, such as those claiming only the standard deduction of ₹75,000, may find the new regime more beneficial.
Salaried individuals or professionals who do not invest in multiple tax-saving instruments, or who prefer not to maintain proofs for deductions, may benefit from the straightforward calculation of taxes under this system. The new regime is also ideal for business owners or freelancers with simple, straightforward income streams that do not involve complex investments or recurring exemptions.
By opting for the new tax regime, such taxpayers can simplify their filing process, reduce paperwork, and focus on financial planning without tracking multiple exemptions, while still enjoying lower effective tax rates for their income bracket.
When to Stick with the Old Tax Regime
Taxpayers should consider continuing with the old tax regime if they have access to multiple deductions and exemptions, as this regime allows significant reductions in taxable income. Key deductions include House Rent Allowance (HRA), Leave Travel Allowance (LTA), Section 80C investments (such as Provident Fund, ELSS, or Life Insurance premiums), and Section 80D health insurance premiums. Additionally, certain other exemptions like standard deduction, interest on housing loans under Section 24(b), and tuition fees under Section 80C can further reduce taxable income.
The old regime is particularly beneficial for individuals with families and dependents, those with home loans, and long-term investors in tax-saving instruments. Families relying on HRA for rented accommodation, or taxpayers paying substantial health insurance premiums, can significantly lower their overall tax liability by sticking with the old regime. Essentially, if deductions and exemptions cumulatively reduce your taxable income by a considerable margin, the old regime often offers a more financially advantageous option.
Comparing Tax Liability: Old vs New Regime Example
To illustrate the practical difference, consider a taxpayer earning ₹15 lakh annually with the following deductions:
Section 80C: ₹2 lakh (investments in PF, ELSS, etc.)
Section 80D: ₹50,000 (health insurance premiums)
HRA exemption: ₹1 lakh
Old Tax Regime:
Total deductions: ₹2 lakh + ₹50,000 + ₹1 lakh = ₹3.5 lakh
Taxable income: ₹15 lakh – ₹3.5 lakh = ₹11.5 lakh
Tax liability: Approximately ₹1.47 lakh
New Tax Regime:
No deductions or exemptions are allowed, so the full ₹15 lakh is taxable
Tax calculated at lower slab rates under the new regime results in a liability of ₹1.55 lakh
This example clearly demonstrates that taxpayers with substantial deductions benefit more from the old regime, as the total tax payable is lower despite the new regime offering simpler rates. For individuals with fewer deductions, the new regime may still be attractive due to its simplicity and lower rates for moderate incomes.
Impact on Salaried vs Business Income Earners
The choice between the old and new tax regimes can have a different impact depending on the nature of income. Salaried individuals often benefit significantly from the old tax regime because it allows multiple exemptions and deductions such as House Rent Allowance (HRA), standard deduction of ₹75,000, contributions to the Employees’ Provident Fund (EPF), and tax benefits under Section 80C. These deductions can substantially reduce taxable income, making the old regime financially attractive for employees with structured benefits.
On the other hand, business and professional income earners usually have fewer applicable deductions. For them, the new tax regime may be more beneficial due to its lower tax rates and simplified structure, which reduces compliance complexity. Business owners often maintain detailed accounts with numerous transactions, and calculating deductions manually under the old regime can be cumbersome. The new regime simplifies tax computation, providing a clearer overview of tax liability and reducing the administrative burden associated with multiple deductions and exemptions.
Additionally, professionals and business owners with variable incomes or seasonal earnings may find the predictable slab rates of the new regime easier to plan for, supporting better cash flow management and tax planning.
How TaxBuddy Can Simplify Your Choice and Filing
TaxBuddy is designed to help taxpayers navigate the complexities of choosing between the old and new tax regimes with ease. Its AI-driven platform allows users to instantly compare the financial implications of both regimes, taking into account income, eligible deductions, exemptions, and applicable benefits. This helps taxpayers make an informed decision tailored to their specific financial situation, whether they are salaried employees, freelancers, or business owners.
Once the optimal regime is selected, TaxBuddy ensures seamless e-filing. The platform automatically verifies calculations, matches TDS credits, and guides users through all compliance requirements. For those who prefer expert support, TaxBuddy offers assisted filing plans, ensuring accurate submission while minimizing the risk of errors or mismatches.
By combining automated tax calculations, AI-driven recommendations, and secure filing, TaxBuddy streamlines the entire process, saves time, and enhances accuracy. This makes the platform particularly valuable for taxpayers with diverse sources of income, helping them maximize benefits, avoid penalties, and enjoy a smooth, hassle-free tax filing experience.
Conclusion
Choosing between the old and new tax regimes is a critical financial decision. While the new regime offers simplicity and lower rates for limited deductions, the old regime remains advantageous for taxpayers with multiple exemptions and investments. Platforms like TaxBuddy provide clarity, detailed calculations, and hassle-free filing, ensuring taxpayers can optimise their tax liability. 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 help in comparing old and new tax regimes before filing?
Yes, TaxBuddy provides a clear comparison of the old and new tax regimes based on your income, deductions, and exemptions. It shows potential tax liabilities under both regimes, helping you choose the most beneficial option before filing your ITR. This feature ensures a data-driven decision without confusion or manual calculations.
Q2. Can salaried individuals benefit more from the old regime?
Salaried individuals with multiple deductions, such as Section 80C investments, HRA, and medical expenses, may find the old tax regime more advantageous. TaxBuddy analyses your financial data and highlights whether the old regime offers higher tax savings compared to the new simplified regime.
Q3. Is the new tax regime suitable for business owners?
The new regime can be beneficial for business owners who do not claim many exemptions or deductions, as it offers lower tax rates across slabs but removes most deductions. TaxBuddy helps business owners evaluate their specific income and deductions to determine if the new regime is optimal.
Q4. How does TaxBuddy simplify ITR filing under both regimes?
TaxBuddy streamlines ITR filing with an AI-driven interface, automatically importing Form 16, TDS details, and other income data. It guides users step by step, ensuring correct selection of the tax regime, accurate computation of tax, and proper filing with minimal effort.
Q5. What deductions are not allowed under the new tax regime?
Most exemptions and deductions, including Section 80C, 80D, HRA, and standard deduction benefits, are not available under the new regime. TaxBuddy clearly flags these deductions while preparing your ITR, ensuring you do not claim disallowed benefits, which could lead to notices or errors.
Q6. Can I switch regimes every financial year?
Yes, taxpayers can choose the old or new tax regime each financial year. TaxBuddy allows users to simulate tax calculations for both regimes annually, helping them select the regime that provides the maximum benefit for that year.
Q7. How does TaxBuddy ensure error-free filing?
TaxBuddy cross-verifies all income sources, TDS statements, and deduction claims against official records. The platform flags inconsistencies or missing information, minimizing mistakes and ensuring accurate and compliant ITR filing.
Q8. Are there any exemptions available in the new regime?
While most deductions are removed, the new regime still allows some benefits such as NPS contributions by the employer, employer contributions to EPF, and certain allowances. TaxBuddy automatically incorporates these exemptions while preparing your return.
Q9. Does TaxBuddy provide expert-assisted filing for both regimes?
Yes, TaxBuddy offers both self-filing and expert-assisted plans for ITR filing under the old and new tax regimes. Tax experts review your data, verify computations, and ensure correct filing, giving added confidence and compliance assurance.
Q10. How can I calculate my tax liability before choosing a regime?
TaxBuddy provides a built-in tax calculator that uses your income, deductions, and exemptions to compute tax liabilities under both regimes. This feature helps you make an informed decision before filing your return.
Q11. Is online filing with TaxBuddy secure?
Absolutely. TaxBuddy uses encrypted connections, secure data storage, and stringent authentication protocols. Your financial and personal information is protected throughout the filing process, ensuring a safe and confidential experience.
Q12. Can TaxBuddy handle both salaried and business income taxpayers?
Yes, TaxBuddy caters to salaried individuals, freelancers, and business owners. It supports multiple income sources, including salary, business/professional income, capital gains, and rental income, making it suitable for a wide range of taxpayers while providing a seamless and efficient filing experience.
Comments