Old Tax Regime and the New Tax Regime Which one is best

Author : Jnanaloka Published : January 22, 2025

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In India, the government offers two tax regimes for individuals: the Old Tax Regime and the New Tax Regime. Each comes with its own advantages, and the choice between them depends on your income level, deductions, and financial situation. Below is a detailed comparison:

1. Old Tax Regime

In the old tax regime, taxpayers can avail themselves of various deductions and exemptions. It includes deductions under sections like 80C (for investments), 80D (for insurance premiums), 24(b) (for home loan interest), and others.

Tax Slabs (for individuals below 60 years):

• Income up to ₹2.5 lakh: No tax
• ₹2.5 lakh to ₹5 lakh: 5% tax
• ₹5 lakh to ₹10 lakh: 20% tax
• Above ₹10 lakh: 30% tax

Key Features of the Old Tax Regime:

Deductions and exemptions available:

80C: Investments in PPF, EPF, life insurance, etc. (up to ₹1.5 lakh).

80D: Deductions for health insurance premiums.

HRA: House Rent Allowance, if eligible.

Interest on home loan: Up to ₹2 lakh for self-occupied properties.

Other deductions: Education loan, donations, and more.

Taxable income is reduced after applying deductions and exemptions.

Advantages of the Old Tax Regime:

You can save a significant amount in taxes if you have substantial deductions (like home loan interest, medical insurance, etc.).

This regime is better for those with investments or expenses that qualify for deductions.

2. New Tax Regime

Introduced in Budget 2020, the new tax regime offers reduced tax rates but does not allow exemptions or deductions. It is meant to simplify the tax structure for taxpayers.

Tax Slabs (for individuals below 60 years):

Income up to ₹2.5 lakh: No tax

₹2.5 lakh to ₹5 lakh: 5% tax

₹5 lakh to ₹7.5 lakh: 10% tax

₹7.5 lakh to ₹10 lakh: 15% tax

₹10 lakh to ₹12.5 lakh: 20% tax

₹12.5 lakh to ₹15 lakh: 25% tax

Above ₹15 lakh: 30% tax

Key Features of the New Tax Regime:

No deductions: You cannot claim deductions under 80C, 80D, HRA, or other exemptions.

Simpler tax filing: With no need to track deductions, this regime is easier for individuals without complex financial situations.

Advantages of the New Tax Regime:

• Lower tax rates, especially for middle-income groups.
• Simplified tax filing process.
• No need to keep track of deductions and exemptions.

Which One is Best for You?

The best tax regime depends on your specific financial situation:

Old Tax Regime is better if:

• You have significant deductions (like insurance premiums, home loan, and investments under 80C).
• You are eligible for exemptions (HRA, etc.).
• You are okay with a slightly more complicated tax filing process.

New Tax Regime is better if:

• You do not have many deductions or exemptions.
• You prefer a simpler tax filing process.
• You want to pay lower taxes on a higher income without worrying about making tax-saving investments.

Decision Points:

• If your deductions and exemptions add up to a large amount, the old regime could be more beneficial.
• If your deductions are minimal, or you don’t want to bother with complicated paperwork, the new regime might save you time and make tax payment simpler.

Example Comparison:

Consider two individuals earning ₹12 lakh annually.

Old Regime (assuming ₹1.5 lakh in deductions):

• Income: ₹12 lakh
• Deductions: ₹1.5 lakh (80C, 80D, etc.)
• Taxable income: ₹10.5 lakh
• Tax: ₹1,00,000 (based on slabs)

New Regime:

• Income: ₹12 lakh
• No deductions, so taxable income remains ₹12 lakh.
• Tax: ₹1,12,500 (based on slabs)

Here, the old regime results in slightly lower tax, but this depends heavily on the available deductions.

Conclusion:

If you have large deductions, the old regime is likely more beneficial.

If you have minimal deductions or prefer simplicity, the new regime may be a better option.

For most taxpayers with average expenses and no major tax-saving investments, the new tax regime may work out as a simpler and more cost-effective choice. However, for those who regularly claim deductions, the old regime may lead to greater savings.

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Old Tax Regime VS New Tax Regime 

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