Old Vs New Tax Regime: Which Saves More Money for Salaried?
Taxes form the crux of our economy, but choosing between old and new tax regimes makes a difference. Though the Indian government has recently introduced incentives for encouraging taxpayers to go with the new tax slab, understanding which is beneficial is crucial. The changes in the tax structure indicate that the Indian government wants taxpayers to migrate to the new tax bill and sign off on the old one. Still, individuals and businesses are facing critical choices regarding the old vs. new tax regime!
Let’s explore below to understand both in detail, and which is beneficial!
Old Vs New Tax Regime: Introduction!
Old Tax Regime!
The traditional or the old tax law triumphed before the inception of the new one. This traditional income tax system enables individuals to reduce their taxable income with over 70 exemptions and deductions available. This caters to HRA and LTA, which minimises your tax liabilities. Think of it as a gateway where you can claim deductions under sections like 80c for investments, 80d for health insurance, HRA, LTA, and more.
The old tax regime is mostly beneficial for taxpayers who regularly invest, avail themselves of insurance plans, pay rents, or have home loans. Truly, every deduction claimed helps you save tax.
Let’s move on to understand the new tax regime in detail.
What is New Tax Regime?
A new tax bill or regime is a simplified version of the tax structure presented in the Indian budget 2020. It caters to altered tax slabs with rebated tax rates. But, if you opt for this simplified income tax structure, you cannot opt for exemptions and deductions under section 80C, 80D, HRA, LTA, etc. This motivated registered taxpayers to choose the old tax law.
The Indian administration altered the tax structure for stimulating registered individuals to migrate to the new tax regime. These changes are the same for FY24-25, let’s scroll down to know more!
1. Revised tax Slabs!
The tax exemption limit for salaried is set to 3LPA, let’s check out the tax slabs for FY24-25!
2. Enhanced Tax Rebate!
Under section 87A, the tax rebate is raised to provide relief to low- and middle-class-income earners. For individuals earning ₹ 7LPA, a full tax rebate is allowed. In other words, taxpayers with a taxable income of ₹7LPA don’t need to pay any taxes under the new tax regime.
3. New Income Tax Bill- A default Option!
From FY24-25, the new tax structure was made as the default option for all the taxpaying individuals. Taxpayers choosing between the old vs new tax regimes, can retain the old one if they find it better.
4. Standard Deductions!
For salaried employees, the old tax regime offered a standard deduction of ₹50,000. This deduction has now been expanded to ₹75,000 under the new tax bill, which stands applicable from FY24-25.
5. Family Pension!
Taxpayers benefitting from family pension can claim deduction of 1/3rd of their pension amount or ₹15,000 depending on the amount which is low. Under the new tax regime, this pension amount is now extended to ₹25,000, effective from FY24-25.
6. Reduced Surcharge for Individuals with High Net Worth!
For taxpayers earning ₹5Cr or more, the surcharge rate is reduced from 37% to 25%. This initiative lowers the effective tax rate from 42.74% to 39%
7. Leave Encashment Exemption!
For non-government working officials, the exemption limit is increased from ₹ 3 lakh to ₹ 25 lakh. This accounts for 8 times more exemptions.
How Income Earned Up to ₹ 12 LPA has Nil Tax Liability Under New Tax Regime?
Take a quick look at the table to understand the new tax slabs under the income tax bill for the financial year 2025-26!
| Tax Slabs for FY25-26 | Tax Rates |
| Up to ₹4Lakh | NIL |
| ₹4 – ₹8Lakh | 5% |
| ₹8 – ₹12Lakh | 10% |
| ₹12 – ₹16Lakh | 15% |
| ₹16 – 20 Lakh | 20% |
| ₹20 – ₹24Lakh | 25% |
| Above ₹24Lakh | 30% |
According to section 87A, the rebate is raised to ₹60,000 for the new tax structure from ₹25,000. Since the rebate has raised the tax liability for income up to ₹ 12 LPA for accounts to zero.
Rebates are not imposed on income subject to tax at special rates.
Read More: GST Rates in India 2025-26
Old Vs New Tax Regime: How to Choose?
Between the new vs old tax regime, choosing one depends on a taxpayer’s income bracket, deductions, and exemptions. It is important to understand your tax slabs, the number of deductions you claim, and exemptions.
Old Tax Regime
- Taxpayers claiming multiple exemptions and deductions should go with the old tax law.
- It allows major exemptions and deductions like 80C (LIC, PPF, ELSS, etc.), 80D (health insurance), HRA, LTA, Home Loan, etc.
- But, when it comes to the new vs old tax regime, the old one involves complicated paperwork, and needs proper planning to save tax.
- It rewards smart tax planning and long-term savings for taxpayers.
New Tax Structure
- Taxpayers who prefer a simple process and don’t claim many deductions can benefit from the new tax law.
- It facilitates simplified tax slabs with low rates
- It raises the standard deductions to ₹75,000 for employees with salaries and pensioners.
- For individuals earning up to ₹ 12 LPA, zero tax liability is applicable under section 87A rebate
- For people claiming exemptions like 80c, HRA, etc, the new tax regime is not advisable.
Which Tax Regime is Better, Old or New?
Let’s Conclude!
Old Vs New Tax Regime- A tough choice? Not now, if you have read the article completely, you know which tax regime to choose. Taxpayers who claim multiple deductions, the old tax structure can be the best option. But, for the ones with minimal deductions and expecting zero tax liabilities for income up to ₹12LPA, the new tax structure is suitable.
Still juggling between new vs old tax regime? Shoot your queries below and get expert advice from us!
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FAQs
1. What is rebate in income tax?
A rebate in income tax refers to the reductions in final tax payable applicable to the individuals under the section 87A rebate.
2. How to Save Tax in New Tax Regime?
To save tax under the new tax regime you can leverage standard deductions, employers NPS contribution, and rebate under section 87A.
3. How is tax calculated?
Income tax is computed by calculating gross total income, subtracting eligible deductions, applying income tax slabs, adding cess, and subtracting rebate (if eligible).
4. Old Vs new tax regime- which is better for income up to 12LPA?
The new tax structure is better for income up to 12 LPA as it offers zero tax liability under section 87A rebate.
5. Is section 80C allowed in the new regime?
Section 80C is not available under the new regime.
