Income Tax: Old Regime vs New Regime, Which One Is Better For ITR Filing AY 2025-26?
While the new regime promises lower tax rates, it does not allow exemptions and deductions; the old regime continues to favour those who actively invest in tax-saving instruments.
Income Tax New Regime Vs Old Regime For AY 2025-26: Even as the income tax department has notified ITR-1, ITR-3, ITR-4 and ITR-5 forms, the income tax return filing for AY 2025-26 (FY 2024-25) is expected to start soon. While filing the ITR, salaried individuals, professionals, and pensioners must again make a key decision: stick with the new tax regime or opt for the old one?
While the new regime promises lower tax rates, it does not allow exemptions and deductions. On the other hand, the old regime continues to favour those who actively invest in tax-saving instruments.
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Let’s break down both regimes and help you decide which one can lead to maximum savings.
Income Tax Slabs for AY 2025-26
New Tax Regime (Default for AY 2025-26)
| Income Slab (Rs) | Tax Rate |
|---|---|
| Up to 3,00,000 | Nil |
| 3,00,001 – 6,00,000 | 5% |
| 6,00,001 – 9,00,000 | 10% |
| 9,00,001 – 12,00,000 | 15% |
| 12,00,001 – 15,00,000 | 20% |
| Above 15,00,000 | 30% |
Key Features:
- Standard deduction of Rs 50,000 is available for salaried and pensioners.
- No tax up to Rs 7 lakh due to Section 87A rebate.
- No exemptions allowed (except for NPS employer contribution, EPF interest, etc.).
Old Tax Regime (Optional)
| Income Slab (Rs) | Tax Rate |
|---|---|
| Up to 2,50,000 | Nil |
| 2,50,001 – 5,00,000 | 5% |
| 5,00,001 – 10,00,000 | 20% |
| Above 10,00,000 | 30% |
Key Features:
- Eligible for over 70 exemptions and deductions.
- Popular deductions:
- Section 80C: Up to Rs 1.5 lakh (PF, ELSS, LIC, tuition fees, etc.)
- Section 80D: Medical insurance premium
- HRA, LTA, home loan interest (Section 24), etc.
- Rebate under Section 87A applies if income is up to Rs 5 lakh.
Which Regime Offers More Savings?
Let’s consider three scenarios:
Example 1: No investments, Rs 7.5 lakh salary:
| Criteria | Old Regime | New Regime |
|---|---|---|
| Income | Rs 7,50,000 | Rs 7,50,000 |
| Deductions | Rs 0 | Rs 0 |
| Tax (after rebate) | Rs 52,500 | Rs 0 |
Winner: New Regime
Effective tax is zero due to rebate up to Rs 7 lakh; only marginal tax above that.
Example 2: Rs 10 lakh income + full deductions under old regime:
Assume:
* Rs 1.5 lakh under Section 80C
* Rs 50,000 standard deduction
* Rs 25,000 under Section 80D
| Criteria | Old Regime | New Regime |
|---|---|---|
| Gross Income | Rs 10,00,000 | Rs 10,00,000 |
| Deductions | Rs 2,25,000 | Rs 50,000 |
| Taxable Income | Rs 7,75,000 | Rs 9,50,000 |
| Tax Payable (approx.) | Rs 72,500 | Rs 52,500 |
Winner: New Regime still cheaper
But, the gap narrows when deductions are maximised under old regime.
Example 3: Rs 15 lakh income + Rs 3.75 lakh deductions:
Assume:
- Rs 1.5 lakh under 80C
- Rs 50,000 standard deduction
- Rs 50,000 home loan interest
- Rs 25,000 80D
- Rs 1 lakh HRA exemption
| Criteria | Old Regime | New Regime |
|---|---|---|
| Taxable Income | Rs 11,25,000 | Rs 14,50,000 |
| Tax Payable | Rs 1,17,000 | Rs 1,45,000 |
Winner: Old Regime by Rs 28,000
Who Should Choose What?
Choose New Tax Regime if:
- You don’t claim many exemptions or deductions
- You are a young professional or gig worker without housing or insurance commitments
- You earn Rs 7 lakh or less (zero tax due to rebate)
Choose Old Tax Regime if:
- You invest regularly in 80C instruments
- You claim HRA, home loan interest, health insurance, education loan deductions, etc.
- You prefer long-term tax planning
How to Choose the Regime for AY 2025-26?
- Salaried taxpayers: Can choose regime every year while filing ITR.
- Business/professional income: Once you switch to the new regime, reverting back is allowed only once.
The Union Budget 2023 made the new tax regime the default option for individual taxpayers from the assessment year (AY) 2024-25 onward (FY 2024-25).
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