Old vs New Tax Regime Comparison 2025: Advantages and Disadvantages

Note: This blog has been updated based on Budget 2025 announcements. This will help you understand how the latest changes will impact your tax calculation in Financial Year 2025-26. 

Finance Minister Nirmala Sitharaman introduced a new tax regime in the Union Budget 2025 that offers salaried individuals two options for filing their Income Tax Return (ITR)-old tax regime and new tax regime. 

This revised tax structure received mixed reactions from taxpayers across the nation. While some welcomed the exemptions and reduced liabilities in the old tax regime, others preferred the new tax regime with its lower tax rates and standard deductions.

Choosing the right regime is therefore instrumental in achieving a stable tax liability. In this blog, we will explore the advantages and disadvantages of both the tax regimes, understand the deductions, and help you answer the most revered question "which tax regime should I choose."

Income Tax Slabs: FY 2023-24, 2024-25

Before we take a look what are the changes proposed in tax slabs, let's quickly glance through how the tax slabs looked like in 2024-25:

Now let understand how Budget 2025 widened the slabs and added a new one:

Changes in the Basic Exemption Limits

This is how the Income Slabs looked like before Budget 2025:

Let's understand the Revised Income Tax Slabs under New Regime-2025

What are the advantages of Old Tax Regime?

The old tax regime offers several advantages, particularly through exemptions and deductions that help reduce tax liability. Taxpayers can claim deductions on various expenses, such as the standard deduction, home loan interest, medical expenses, and education loan interest. 

Additionally, the old regime encourages long-term wealth creation by providing tax benefits on investments in instruments like the Public Provident Fund (PPF), National Pension Scheme (NPS), and Equity-Linked Saving Scheme (ELSS). 

These incentives make the old tax regime a favourable choice for those looking to optimise their tax savings while securing their financial future.

What are the disadvantages of Old Tax Regime?

One of the biggest disadvantage of the old tax regime is its complex tax structure that includes multiple exemptions and deductions. This can be challenging for taxpayers to understand and comply with. 

Additionally, it offers limited flexibility, as once investments are made and deductions claimed, taxpayers cannot alter their tax plan during the financial year. This rigidity makes it difficult for individuals to optimise their tax strategy as and when needed.

What are the advantages of New Tax Regime? 

The new tax regime offers several advantages, primarily through lower tax rates, which can help taxpayers save money and increase their in-hand income. Additionally, it features a simpler tax structure compared to the old regime, eliminating the need to navigate multiple exemptions and deductions. This streamlined approach makes tax filing easier and reduces the compliance burden for individuals. 

What are the disadvantages of New Tax Regime?

Despite the benefits, the new tax regime comes with certain disadvantages, primarily due to the limited availability of exemptions and deductions. While it does offer a few advantages like standard deduction, leave travel concession, and tax-free withdrawals from the Provident Fund, it lacks the extensive deductions available under the old regime. 

Additionally, it provides fewer opportunities for tax planning. This can be a drawback for individuals looking to maximise their tax savings through strategic investments and deductions.

Old Vs. New Tax Regime: Should I choose old tax regime or new?

Under the new tax regime, tax rates have been rationalised into five tax slabs ranging from 0% to 30%. The total tax you pay after or without deductions from your annual income, health insurance, etc., also differs based on your source of income. 

As a salaried individual who uses all their deductions, you may benefit from the new regime slab. Senior citizens, on the other hand, may opt for the new regime. The tax exemption limit also depends on your income slab, and you should choose your preferred regime based on your individual tax calculation.

Conclusion

Choosing between the old and new tax regimes completely depends on your preference. The old regime offers more exemptions and deductions, allowing for greater tax planning and savings. However, it has a complex structure and limited flexibility. 

The new regime provides lower tax rates and a simpler structure but has fewer exemptions and limited tax planning opportunities. Individuals should carefully assess their income, deductions, and tax liabilities to determine which regime is more beneficial for them. 

Consulting with a tax professional can help make an informed decision based on individual tax calculations.

Frequently Asked Questions (FAQs)

Where do I select old and new tax regime?

As per Budget 2023, the new tax regime is now the default option. Taxpayers who choose to opt out of the new regime and move to the old tax regime must file Form 10-IEA.

Is 80C allowed in the new regime?

Section 80C deductions are not available under the new tax regime.

Can we claim HRA and 80C in new tax regime?

No, HRA and 80C exemptions are not available under the new tax regime. Try HRA Calculator if you are opting for the old tax regime. 

What are the new income tax slabs under the new regime of 2023-24?

The new tax regime has five tax slab rates from 0% to 30%, with a basic exemption limit of ₹3 lakh. It has a maximum tax rate of 30% for income over ₹15 lakh. There's also a tax rebate on income up to ₹7 lakh under section 87A.

Should I opt for the old tax regime or the new one if I earn more than ₹15 lakhs?

For high-income individuals, the tax liability will mainly differ based on whether they can claim any exemptions and deductions or not, as the tax rate is the same. If your deductions exceed ₹4 lakhs, the old tax regime might be beneficial for you. However, if your deductions are lower than that, you might save more with the new regime.

What is the difference between new and old tax slabs?

The new tax regime has lower tax rates but fewer deductions and exemptions compared to the old tax regime. The old tax regime has more deductions and exemptions but higher tax rates. 

Calculate income tax liabilities for yourself using an income tax calculator and talk to a professional before choosing a regime. 

Which tax regime is better for a person earning less than ₹6 LPA?

For a person earning less than ₹6 LPA, the new regime is better as the tax rate is lower compared to the old tax regime.

Are deductions 80C, 80D, and 80E available in the new tax regime?

No, deductions like 80C (for investments), 80D (for medical insurance premiums), and 80E (for education loan interest) are no longer allowed under the new tax regime.

Is NPS tax-free under the new tax regime?

Yes, in accordance with Section 80CCD(2) introduced in the Union Budget 2024, employees can now deduct up to 14% of their basic salary invested in NPS. 

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