Old and new tax regimes: How to choose the best option for saving money

Each regime has its own tax slabs, deductions, and exemptions

Salaried individuals have two options when filing their Income Tax Return (ITR): the old or the new tax regime. Each has its own tax slabs, deductions and exemptions. Selecting the appropriate regime can have a substantial effect on your overall tax liability.

 

Income Tax slabs in new regime

 

Income up to Rs 4 lakh: Nil

 

Income from Rs 4 lakh to Rs 8 lakh: 5 per cent

 

Income from Rs 8 lakh to Rs 12 lakh: 10 per cent

 

Income from Rs 12 lakh to Rs 16 lakh: 15 per cent

 

Income from Rs 16 lakh to Rs 20 lakh: 20 per cent

 

 

Income from Rs 20 lakh to Rs 24 lakh: 25 per cent

 

Income above Rs 24 lakh: 30 per cent  Use Income Tax Calculator 2025-26

 

Deduction in new tax regime:

 

Section 24(b): Deduction for interest on housing loan for rental property

 

Section 80CCD (2): Deduction for employer’s contribution to the national pension scheme (NPS), limited to 14 per cent of salary

 

Tax slabs under the old tax regime:

 

Income up to Rs 250,000: Nil

 

Income from Rs 250,001 to Rs 5,00,000: 5 per cent

 

Income from Rs 5,00,001 to Rs 10,00,000: 20 per cent

 

Income above Rs 10,00,000: 30 per cent

 

The old tax regime has various deductions, including:

 

Section 80C: Deductions up to Rs 150,000 for investments in PPF, ELSS, and LIC premiums.

 

Section 80D: Deductions for health insurance premiums.

 

Section 24(b): Deductions for home loan interest up to Rs 200,000.

 

Additional exemptions like HRA and LTA.

 

Let us have a look at both tax regimes using an example of Rs 50 lakh income for AY 2025-26.

 

Old Regime (AY 2025-26)		New Regime (AY 2025-26)
Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
Total Income	50,00,000	Total Income	50,00,000
Deductions:
Section 80C (Investment  in EPF, NSC, Life Insurance, Premium etc)	1,50,000
Section 80CCD(1B) (NPS)	50,000
Section 80D (Health  Insurance Premium)	25,000
Section 80TTA (Interest  on savings bank account)	10,000
Total Deductions	2,35,000
Taxable Income	47,65,000	Taxable Income	50,00,000
Tax Rates		Tax Rates
Up to 2.5L (Nil)		Up to 3L (Nil)	0
2.5 L - 5 L (5%)	12,500	3 L - 7 L (5%)	20,000
5 L - 10 L (20%)	1,00,000	7 L - 10 L (10%)	30,000
Above 10 Lacs (30%)	11,29,500	10 L - 12 L (15%)	30,000
		12L - 15 L (20%)	60,000
		Above 15 Lacs (30%)	10,50,000
Total Tax	12,42,000	Total Tax	11,90,000
Health and Education Cess	49,680	Health and Education Cess	47,600
Total Tax Liability	12,91,680	Total Tax Liability	12,37,600

  Source credit: Gaurav Jain, partner, direct tax at Forvis Mazars  The above computation shows that under the old regime, available deductions reduce the taxable income to about Rs 47.65 lakh. In contrast, the new regime taxes the full Rs 50 lakh without offering such deductions, but it compensates with lower tax slab rates and simpler compliance.

 

Gaurav Jain, partner, direct tax at Forvis Mazars In India, listed what taxpayers should consider while choosing a regime:

 

Availability of deductions: The old regime allows deductions whereas the new regime offers lower tax rates but no major deductions.

 

Tax liability: The results may vary and the old regime may turn out to be beneficial, if the amount of deductions, like Donation under section 80G, Interest on Housing Loan under section 24(b), House Rent Allowance under section 10(13A), etc., are higher.

 

Investment flexibility: The new regime benefits those who prefer fewer tax-saving investments.

 

Simplicity: The old regime involves detailed planning, while the new one is simpler.

 

Long term strategy: Those who invest heavily for deductions or carry multiple sources of income carrying exemptions, the old regime may be beneficial.

  Ultimately, if you benefit from significant deductions/exemptions, the old regime might be more advantageous; otherwise, the new regime’s ease and lower rates could be ideal.