Old vs New Tax Regime - Which is Better for Salaried Employees?

The Old vs New Tax Regime debate centers on tax slabs and deductions. The Old Regime allows exemptions and deductions like HRA, standard deduction, Section 80C, and 80D, making it suitable for those with high investments. The New Regime offers lower tax rates but removes most deductions. Choosing the better option depends on your income, salary structure, and eligible tax-saving investments.

Old v/s New Tax Regime - Income Tax Slabs

New Regime Income Tax Slabs FY 2025-26 (AY 2026-27) 

The Budget 2025 introduced enhanced income tax slab rates under the new tax regime, thus increasing the basic exemption limit to Rs. 4 lakh and making income above Rs. 24 lakh to be taxed at 30%.

The Income Tax slab rates under the new tax regime applicable for FY 2025-2026 are as follows:

New Regime Income Tax Slabs - FY 2024-25 (AY 2025-26) 

The Income Tax slab rates under the new tax regime applicable for FY 2024-2025 are as follows:

Budget 2024 has increased the standard deduction under the new tax regime to Rs. 75,000. The family pension deduction has also been increased from Rs. 15,000 to Rs. 25,000. With the revised tax structure the taxpayer will save Rs.17,500. 

Income Tax Slabs Under Old Regime 

The slab rates under the old regime has not changed for the recent financial years. The following slab rates are applicable for individuals aged below 60 years and non-residents.

Income Tax Slabs applicable for resident senior citizens aged between 60-80 under the old regime years are given below

For resident super senior citizens aged above 80 years, the basic exemption limit increases to ₹5,00,000.

There is no separate slab benefit for senior citizens under the new tax regime.

Old v/s New Tax Regime - Deductions and Exemptions

There are numerous deductions available under the old regime, for which deductions are not available under the new regime. Let us understand how the new tax regime differs from the old regime based on deductions and exemptions. 

Rebate

Standard Deduction

House Rent

Home Loan Interest

Chapter VI-A Deductions

Retirement Benefits

Other Deductions

Old v/s New Tax Regime - Other Differences

The significant differences are already explained above. However, the following table describes other differences between the old and new regime in general.

Form 10 IEA Requirements

 Other Differences

New Tax Regime vs Old Tax Regime FY 2024-25 - Which Is Better?

Choosing between the Old and New Tax Regimes depends on your income level, deductions, and exemptions. 

For salaried individuals with minimal deductions, the New Regime is likely more beneficial due to relaxed tax slabs and a rebate up to ₹7 lakh or ₹12 lakh (based on updated 87A provisions). 

However, if you claim substantial deductions under Sections 80C, 80D, HRA, or home loan interest, the Old Regime may offer greater tax savings. Check out the beneficial regime for you based on income and deduction level in the table below for FY 2025-26 (AY 2026-27) 

Let us understand the most beneficial regime using the following examples:

Example-1

Mr. A, has a salary income of Rs. 10 lakhs. He has investment deductions under section 80C for Rs.1 lakhs and medical insurance premium paid of Rs. 30,000 for his self and family. The computation of taxable income and total tax payable under both the regimes is tabulated below:

New regime proved to be beneficial irrespective of the fact that more tax saving deductions are available under the old regime. 

Example-2

Mr. A, has a salary income of Rs. 20 lakhs. He has investment deductions as follows:

• Investment deductions under section 80C - Rs.1 lakh
• Medical insurance premium paid of Rs. 30,000 for his self and family.
• Interest on home loan (self occupied property) - Rs. 2,00,000
• Donation to political party - Rs. 2,75,000
•  The computation of taxable income and total tax payable under both the regimes is tabulated below:

In the current example, the old tax regime proved to be more beneficial due to high tax saving deductions, irrespective of the relaxed slab rates.

The Learning: Not necessarily the new regime is beneficial in all cases, if there are many tax saving deductions available to the assessee, even the old regime proves to be beneficial.

Hence, the question of what level of deductions would be sufficient such that the old regime is more beneficial. The following table shows the amount of deductions required for FY 2024-25 so that the old regime is the most beneficial, for various income levels.

Note: 

1. Deduction amount more than the amount specified on column 2 is required to make the old regime the most beneficial. If the deduction amount is less than what is shown in column 2, new regime is the most beneficial.
2. The income level here denotes the income net of standard deduction.

New Tax Regime vs Old Tax Regime FY 2025-26 - Which Is Better?

The following table summarizes the level of deduction required to make the old regime the most beneficial for you.

Note: First column contains income levels and first row contains deduction amount. The above table applies only for FY 2025-2026.

Note: 

1. Deduction amount more than the amount specified on column 2 is required to make the old regime the most beneficial. If the deduction amount is less than what is shown in column 2, new regime is the most beneficial.
2. The income level here denotes the income net of standard deduction.

Use the ClearTax Income Tax Calculator to compare both options before filing your ITR for FY 2024-25.

New Tax Regime vs Old Tax Regime - Key Takeaways

• To choose between the Old and New Tax Regime, calculate your net taxable income after claiming all eligible exemptions and deductions under the old regime (like HRA, 80C, 80D, etc.). Then, compare the tax liability under both regimes. The regime with lower tax payable is the better choice.
• Salaried individuals should inform their employer of their preferred regime for correct TDS deduction.
• If you have losses from house property, capital gains, or business income, note that under the new regime, such losses cannot be set off or carried forward. This may affect future tax liabilities, so factor it in before making your decision.

The new tax regime is more beneficial for taxpayers with income up to ₹24 lakh who claim few or no deductions, as it offers lower tax rates without exemptions. In contrast, the old tax regime is better suited for high-income earners who claim significant deductions under Section 80C, home loan interest, or insurance premiums, which can reduce taxable income substantially.

Conclusion

The new tax regime benefits individuals with minimal deductions or those who prefer a simpler filing process. It suits taxpayers with personal or vehicle loan repayments, medical expenses for dependents, or those ineligible for exemptions like HRA, standard deduction, or employer pension contributions.

On the other hand, the old tax regime is ideal for those who can claim significant deductions and exemptions. Senior citizens, in particular, may benefit more under the old regime through Section 80TTB, which allows a ₹50,000 deduction on interest income.