Old vs. New Tax Regime: Which One Should You Choose?

Understanding the difference between old and new tax regimes is important for every Indian taxpayer. The Government of India introduced the new tax regime in Budget 2020 to offer a simpler alternative to the traditional or old tax regime. But with both options still available, many people are confused about whether the new vs old tax regime, which one is beneficial.

In this article, we will break down both tax regimes in easy language, explain their slabs, benefits, and drawbacks, and help you decide which tax regime is better for your income and lifestyle.

What is the Old Tax Regime?

The old tax regime is the traditional system of taxation. It comes with various deductions and exemptions that help you reduce your taxable income. If you invest in certain schemes like LIC, PF, ELSS, health insurance, or pay for education loans or home loans, you can claim tax benefits.

Income Tax Slab - Old Regime

Here are the income tax slabs under the old tax regime for individuals below 60 years:

Note: Senior citizens get higher exemption limits.

What is the New Tax Regime?

The new tax regime is a simplified version of income tax. It has lower tax rates but does not allow most exemptions or deductions. It’s useful for those who don’t invest much in tax-saving options and want a hassle-free process.

Income Tax Slab - New Regime (FY 2024–25)

Note: This regime is now the default option unless you choose otherwise.

Key Differences Between Old and New Tax Regime

Let’s understand the main difference between the old and new tax regimes in simple terms:

Benefits of the Old Tax Regime

Here are the advantages of the old tax regime:

• Multiple Deductions : Save tax using various sections like 80C, 80D, 80E, 24(b), etc.

• Best for Investors : If you already invest in PPF, ELSS, insurance, or home loans, you can reduce your tax significantly.

• Ideal for Salaried People : You can claim HRA, LTA, and other salary components.

Benefits of the New Tax Regime

Let’s look at the benefits of the new tax regime:

• Lower Tax Rates : You pay less tax if you have fewer investments or deductions.

• Easy Filing : No need to collect proofs or maintain documents.

• Extra Rebate : If your income is up to ₹7 lakh, you get a full tax rebate under Section 87A.

• Better Cash Flow : Since you don’t lock money in tax-saving plans, you have more money in hand.

Deductions in New Tax Regime

What are the deductions in the new tax regime?

Most deductions are not allowed, but from FY 2023–24, a few are included:

• Standard deduction of ₹50,000 for salaried and pensioners

• EPF/NPS employer contribution up to ₹7.5 lakh (Section 17(2)(vii))

• Section 80CCD(2) – Employer contribution to NPS

• Transport allowance for disabled employees

So, while many exemptions allowed in the new tax regime are gone, a few still exist.

Who Should Choose the Old Tax Regime?

Go for the old regime if:

• You invest heavily in 80C options (LIC, PF, ELSS).

• You claim HRA, LTA, and home loan interest.

• You or your family have high medical insurance premiums.

• You want to save tax through education loans or donations.

Example: Rahul earns ₹10 lakh per year. He claims deductions worth ₹2.5 lakh. Under the old regime, he pays tax on ₹7.5 lakh. If he chooses the new regime, he cannot claim these deductions and ends up paying more tax.

Who Should Choose the New Tax Regime?

Choose the new regime if:

• You don’t have many deductions.

• You prefer simplicity and less paperwork.

• You earn up to ₹7 lakh (full rebate available).

• You are just starting your job and don’t want to lock money in long-term plans.

Example: Sneha earns ₹6.5 lakh and doesn’t invest in 80C or pay rent. Under the old regime, she pays tax on the full amount. But under the new regime, she gets a rebate under Section 87A and pays zero tax.

Still Confused? Use Zactor to Decide

If you are not sure which tax regime is better for you, don’t worry! The Zactor app can help you make the right choice. It gives:

• AI-based tax comparison for old vs new regime

• Step-by-step savings tips

• Smart goal setting based on income

• Easy tracking of tax and investments

Zactor simplifies your tax planning and helps you take control of your finances without any confusion.

Download on Android

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Quick Checklist: Old vs New Tax Regime

Summing Up

The difference between old and new tax regimes lies in tax rates vs. deductions. The old regime suits those who use tax-saving tools, while the new regime fits those who want an easy process and don’t use deductions much.

There is no one-size-fits-all answer to which tax regime is better. It depends on your income, spending, savings, and financial goals.

Before filing your taxes, take time to compare both regimes. Want to make smarter tax choices with zero stress?

Let Zactor guide your financial journey from tax planning to goal tracking!

Zactor: Simplifying finance for every Indian.