Every economic 12 months, taxpayers in India face the essential choice of choosing between the vintage and new tax regimes while filing their profits tax returns. With the profits tax go back prolonged deadline in some cases and the government introducing incentives for each regimes, knowledge which machine fits your wishes is extra crucial than ever.
The introduction of the new tax regime in Budget 2020 delivered a simplified shape with decreased tax quotes but fewer exemptions. However, the vintage gadget, with its deductions and exemptions, continues to attract many taxpayers. So, which must you pick? Let us wreck down the earnings tax slabs, key variations, and factors you ought to take into account before figuring out.
Understanding the Two Regimes
The old tax regime offers a range of exemptions and deductions, which include famous ones like Section 80C (investments in PPF, ELSS, and LIC), Section 80D (medical insurance rates), HRA (house hire allowance), and LTA (leave travel allowance). These provisions allow taxpayers to reduce their taxable earnings, every so often appreciably, depending on their investments and prices.
The new tax regime, on the other hand, offers decreased tax charges throughout income slabs however removes most exemptions and deductions. It turned into designed to simplify the filing technique and decrease tax costs for folks that do not typically claim many deductions.
Comparing Income Tax Slabs
Here is a snapshot of the income tax slabs under both regimes for individual taxpayers under 60 years of age for FY 2024–25:
Old Tax Regime
Income up to Rs. 2.5 lakh: Nil
Rs. 2.5 lakh – Rs. 5 lakh: 5%
Rs. 5 lakh – Rs. 10 lakh: 20%
Above Rs. 10 lakh: 30%
Additionally, senior citizens (above 60) and super senior citizens (above 80) have higher basic exemption limits.
New Tax Regime
Income up to Rs. 3 lakh: Nil
Rs. 3 lakh – Rs. 6 lakh: 5%
Rs. 6 lakh – Rs. 9 lakh: 10%
Rs. 9 lakh – Rs. 12 lakh: 15%
Rs. 12 lakh – Rs. 15 lakh: 20%
Above Rs. 15 lakh: 30%
The new regime’s appeal is its simplicity and lower rates, but it comes with a trade-off: no standard deduction, no Section 80C benefits, no HRA or LTA exemptions, and no deductions on housing loan interest (except in specific cases).
Who Benefits from the Old Regime?
The old tax regime works well for taxpayers who make use of multiple deductions and exemptions. For example, salaried employees who claim HRA, invest in tax-saving instruments under Section 80C, pay health insurance premiums under Section 80D, and repay home loan interest under Section 24(b) may find that their taxable income reduces enough to keep them in a lower tax bracket under the old regime.
If you are disciplined about tax-saving investments, the old system can still help you minimise tax liability significantly.
Who Benefits from the New Regime?
The new tax regime is designed for those who prefer simplicity and do not have significant exemptions or deductions to claim. This includes young professionals who may not have home loans or insurance, or taxpayers who prefer to keep their finances flexible without locking money into specific investment schemes solely for tax benefits.
If you do not usually claim deductions under Section 80C, 80D, or others, you may find the lower slab rates of the new regime more beneficial.
Key Considerations before Choosing
When deciding between the old and new tax regimes, consider the following factors:
Total income and expenses: Calculate your gross income and list out eligible deductions under the old regime (investments, insurance, rent, home loans). Use online calculators to see which regime offers lower tax liability.
Investment habits: Are you already investing to save taxes, or would you prefer financial flexibility? If you regularly invest in PPF, ELSS, or NPS, the old regime might offer better savings.
Simplicity vs savings: The new regime simplifies the filing process but may not necessarily save you more, especially if you are eligible for multiple deductions.
Long-term plans: For salaried individuals with ongoing home loans, the old regime can offer significant benefits, thanks to home loan interest deductions. However, if you are early in your career or prioritizing liquidity, the new regime might suit you better.
Importance of Reviewing Annually
With each financial year, you can switch between the regimes depending on what benefits you more (except for businesses, which must stick to their chosen regime). It is wise to review your income, investments, and deductions every year to decide afresh.
The government occasionally extends the income tax return filing deadline, giving taxpayers more time to evaluate their options. However, it is always best to assess your tax situation early, so you are not rushed into making decisions at the last moment.
Final Thoughts
Choosing between the old and new tax regimes depends entirely on your individual financial profile. Neither regime is universally better; the right choice depends on how you earn, spend, save, and invest.
Make sure to review the income tax slabs carefully, calculate your tax under both systems, and consider how much you are benefiting from available deductions. Use reliable online tax calculators and consult a tax professional if needed. Remember, the income tax return extended timelines are meant to give you more room for smart decision-making — so use the time wisely to ensure you are making the best tax choice for your situation.
