Old vs New Tax Regime: Key Differences & Which One to Choose in 2025

Introduction

Tax season is here, and if you’re wondering whether to opt for the old tax regime or switch to the new tax regime, you’re not alone. With evolving income tax rules for FY 2025-26, taxpayers must evaluate which tax regime is better based on their income, deductions, and financial goals.

In this article, we break down the tax regime comparison for 2025, highlighting key differences, benefits, and expert insights to help you make an informed decision

Understanding the Old vs New Tax Regime

Old Tax Regime: Deductions and Exemptions Galore

The old tax regime allows taxpayers to claim various deductions and exemptions, such as:
✅ Section 80C deductions (PPF, EPF, LIC, etc.) – Up to ₹1.5 lakh
✅ HRA (House Rent Allowance) and LTA (Leave Travel Allowance)
✅ Standard Deduction of ₹50,000 for salaried individuals
✅ Home Loan Interest Deduction under Section 24(b) – Up to ₹2 lakh

This tax structure benefits individuals who invest in tax-saving instruments and claim multiple deductions to reduce taxable income.

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New Tax Regime: Simpler, Lower Tax Slabs but No Deductions

Introduced to simplify the tax process, the new tax regime offers reduced tax rates but removes most tax exemptions and deductions. The income tax slabs for FY 2025-26 under this regime are:

Which Tax Regime is Better for You?

👉 If you have high investments in tax-saving options, the old tax regime might be beneficial.
👉 If you prefer a simpler tax filing process with lower tax rates, the new tax regime could work better.

💡 Expert Tip: Use an income tax calculator to check which regime results in a lower tax liability based on your income and deductions.

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Tax Saving Strategies for FY 2025-26

1️⃣ If choosing the old regime:
✔️ Maximize deductions under Section 80C, 80D (Health Insurance), and HRA
✔️ Invest in tax-free instruments like PPF, ELSS, and NPS
✔️ Claim home loan tax benefits

2️⃣ If opting for the new regime:
✔️ Plan finances efficiently to take advantage of lower tax rates
✔️ Focus on high-return investments without tax-saving constraints
✔️ Consider salary restructuring to optimize tax benefits

FAQs: Old vs New Tax Regime in FY 2025-26

1. Which tax regime is better for salaried employees in FY 2025-26?

If you claim multiple deductions (HRA, 80C, NPS, etc.), the old tax regime may be more beneficial. However, if you don’t invest in tax-saving instruments, the new tax regime could be simpler and offer lower tax rates.

2. Can I switch between the old and new tax regimes every year?

Yes, salaried individuals can switch every financial year when filing ITR. However, taxpayers with business income can only switch once.

3. Will I get a standard deduction in the new tax regime?

Yes! From FY 2023-24 onwards, a standard deduction of ₹50,000 is available in both old and new tax regimes.

4. Which tax regime is better for individuals earning above ₹15 lakh?

For high earners without tax-saving investments, the new tax regime may result in lower taxes. However, those who claim exemptions under 80C, 80D, and home loan deductions may benefit from the old tax regime.

5. Is it mandatory to shift to the new tax regime?

No, the government has made the new tax regime the default option, but taxpayers can opt for the old regime while filing their ITR.

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Final Verdict: Old or New Tax Regime?

There’s no one-size-fits-all answer! If you’re a salaried employee with investments, the old tax regime might help you save more tax. But if you prefer lower tax rates and a hassle-free filing process, the new tax regime could be the way forward.

💰 Planning your taxes wisely can save you thousands! Stay updated with the latest tax laws and consult a tax expert to make an informed choice.