Old vs New Tax Regime: The biggest question facing taxpayers in the financial year 2025-26 is whether to choose the new tax regime or the old one? The new system offers a simpler tax structure, while the old one offers more opportunities to save tax through deductions and exemptions. Let us know which tax regime will be better for you.
Old vs New Tax Regime: With the beginning of the financial year 2025-26, many taxpayers are confused about which tax regime they should choose, new or old. This confusion has also increased because in Budget 2025, Finance Minister Nirmala Sitharaman has made income up to Rs 12 lakh per annum tax free under the New Tax Regime. On the other hand, if we talk about the Old Tax Regime, then many types of tax deductions are available in it.
Let us compare both the tax regimes and find out what benefits are available in each. Also, which tax system can be chosen to save more tax.
Benefits of the old tax regime
The old tax regime is beneficial for those taxpayers who want to reduce tax through investments like savings, insurance and loans. Under section 80C, investments like PPF, EPF, life insurance and home loan get a deduction of up to ₹ 1.5 lakh. At the same time, under 80D, a deduction of up to ₹ 25,000 (₹ 50,000 for senior citizens) is available on health insurance premium.
There are also additional exemptions under section 80GG for education loan interest (section 80E), house rent allowance (HRA), and 80GG for renters. Apart from this, exemptions under section 80U, 80TTA/TTB, LTA, and medical expenses can also reduce tax liability significantly.
Deductions under old tax regime
| Section | Details | Maximum Limit |
| 80C | PPF, EPF, ELSS, Life insurance premium etc | ₹1.5 lakh per year |
| 80D | Health Insurance Premium |
₹25,000 (₹50,000 for senior citizens)
|
| 80E | interest on education |
No limit, up to a maximum of 8 years
|
| 80DDB | Treatment expenses for critical illnesses |
as per specified limit
|
| 80GG | Rent in case HRA is not received |
₹5,000 per month or 25% of income (whichever is lower)
|
| 80TTA/80TTB | Interest on Savings Account |
₹10,000 / ₹50,000 (senior citizen)
|
| 80U | Exemption for differently abled taxpayers |
₹75,000 / ₹1.25 lakh (for severe disability)
|
| (10(13A)) | house rent allowance |
as per salary and rent
|
| LTA | Travel Allowance |
Twice in India, in blocks of 4 years
|
Benefits of the new tax regime
The new tax regime is beneficial for those who do not want to get into the hassle of investments and deductions and want a simple tax structure. There are fewer tax slabs in it, which can lead to less tax, especially if you have not invested in many tax saving schemes.
The new tax regime offers a standard deduction of ₹75,000 (FY 2024-25), deduction on NPS contribution by the employer (80CCD(2)), and deduction under 80JJAA for companies providing new employment. Apart from this, tax exemption is also available on voluntary retirement, gratuity, leave encashment and Agniveer Corpus Fund. This makes this scheme very attractive for employed people and young taxpayers.
Deductions in the new tax regime
| Provision | Details | Limit |
| 16(iii) | Standard Deduction |
₹75,000 (FY 2024-25)
|
| 80CCD(2) | Employer Contribution in NPS |
Maximum 14% of salary
|
| 80JJAA | Additional discount on new employment |
Up to three assessment years
|
| 80CCH | Contribution to Agniveer Corpus Fund | Full amount |
| 10(10), 10(10C), 10(10AA) | VRS, Gratuity, Leave Encashment | Statutory limits |
| 10(14) | Travel, Daily Allowance, Office Allowance |
Actual expenses incurred in connection with the work
|
| 56(2)(x) | Discount on gifts |
Up to ₹50,000 (net value)
|
| 24(b) | Interest from let out property | as per applicable limits |
Which tax regime is better for you?
If you regularly make tax saving investments, have health insurance, are paying education or home loan or you get benefits on house rent and travel allowances, then the old tax system may be more beneficial for you. On the other hand, the new tax system may be convenient for those taxpayers who have limited scope of exemptions on their income and give importance to a simple tax structure.
Before choosing a tax regime, you should analyze your yearly investments, expenses and potential benefits. If you are confused, you can also take advice from a tax calculator and tax advisor.
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