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Difference Between Old and New Tax Regime – Which One Should You Choose?
Choosing between the old tax regime and the new tax regime under the Income-tax Act, 1961 is one of the most important annual tax decisions for every taxpayer in India. The wrong choice can result in unnecessary higher tax outgo, while the right choice can lead to substantial tax savings.
At Compliance Craft Advisors Private Limited, we regularly see taxpayers selecting the tax regime without proper calculation or comparison, which results in avoidable tax liability.
This article provides a clear, practical, and legally accurate tax regime comparison in India to help you decide which tax regime is better for your situation.
What Is the Old Tax Regime in India?
The old tax regime is the traditional taxation system which allows taxpayers to claim multiple deductions and exemptions, such as:
Section 80C (LIC, PPF, ELSS, etc.)
Section 80D (Medical insurance)
House Rent Allowance (HRA)
Home loan interest (Section 24)
Standard deduction
LTA, etc.
Under this regime, tax rates are higher, but taxable income is reduced by deductions and exemptions.
This structure is commonly preferred by individuals involved in long-term investments and capital assets, which are explained in detail here: What Is a Capital Asset? Meaning, Types & Taxation Explained.
What Is the New Tax Regime Under Income Tax?
The new tax regime was introduced to provide lower tax rates with a simpler structure, but most deductions and exemptions are not allowed.
Key features:
Lower slab rates
Very limited deductions allowed
Less paperwork and compliance
Suitable for taxpayers without major tax-saving investments
From FY 2023–24 onwards, new tax regime is the default regime, but taxpayers can still opt for the old regime.
This simplified structure is especially relevant for taxpayers operating under different types of business entities in India.
Old vs New Tax Regime: Key Differences Explained
Difference in Income Tax Slabs
New Tax Regime Slabs (FY 2024–25)
Up to ₹3,00,000 – Nil
₹3,00,001 to ₹7,00,000 – 5%
₹7,00,001 to ₹10,00,000 – 10%
₹10,00,001 to ₹12,00,000 – 15%
₹12,00,001 to ₹15,00,000 – 20%
Above ₹15,00,000 – 30%
(Plus applicable surcharge and cess)
Old tax regime slabs continue with ₹2.5 lakh basic exemption and higher slab rates.
Deductions and Exemptions Allowed
Tax Rates Comparison
The new tax regime vs old tax regime works like this:
If you claim high deductions and exemptions, old regime is usually better.
If you do not invest in tax-saving instruments, new regime is usually better.
There is no universal answer — it depends on your numbers.
Standard Deduction Under Old and New Tax Regime
Currently:
Standard deduction of ₹50,000 is available in both regimes for salaried taxpayers.
Who Should Choose the Old Tax Regime?
Old regime is better if you:
Claim large deductions under 80C, 80D, etc.
Pay home loan EMI
Claim HRA
Make regular tax-saving investments
Want to use tax planning tools legally
Who Should Choose the New Tax Regime?
New regime is better if you:
Do not have major deductions
Do not invest in tax-saving instruments
Want simple and hassle-free tax filing
Have clean salary structure
This regime is also suitable for businesses already managing GST and compliance obligations, such as e-invoicing and e-way bill compliance.
Which Tax Regime Is Better for Salaried Employees?
There is no one-size-fits-all answer.
Which Tax Regime Is Better for Self-Employed Individuals?
For business owners and professionals:
If you claim Chapter VI-A deductions or depreciation, old regime is usually beneficial.
If your structure is simple and deduction-free, new regime may be beneficial.
However, business taxpayers cannot switch regimes every year freely, especially depending on their business structure and entity type.
Can You Switch Between Old and New Tax Regime?
Salaried individuals can switch every year
Business or professional income taxpayers can switch only once
Once business taxpayers opt out of new regime, they cannot re-enter it unless business income ceases.
How to Choose the Right Tax Regime in 2025?
You should:
Prepare comparative tax calculation
Compute tax under both regimes
Consider future investment plans
Choose the regime with lower tax liability
Never choose a tax regime blindly. Always calculate.
Frequently Asked Questions
1. What is the difference between the old and new tax regime?
Old regime allows deductions and exemptions, new regime offers lower tax rates but without most deductions.
2. Which tax regime is better for salaried employees in India?
It depends on deductions. High deductions → Old regime. Low deductions → New regime.
3. Does the new tax regime allow deductions and exemptions?
Mostly no, except standard deduction and few limited items.
4. Can I switch between old and new tax regime every year?
Yes, if you are salaried. Business taxpayers have restrictions.
5. Which tax regime is better for high income earners?
Usually old regime, if they use deductions and tax planning instruments.
6. Is standard deduction available in the new tax regime?
Yes. ₹50,000 standard deduction is allowed.
7. Which tax regime results in lower tax liability?
Whichever gives lower tax after calculation. It varies case to case.
8. Is the new tax regime mandatory for taxpayers?
No. It is default, but you can opt for old regime.
9. Which tax regime is better if I invest in tax-saving schemes?
Old tax regime is better.
10. How do I choose the right tax regime for FY 2024–25?
By preparing a proper comparison calculation under both regimes.
Professional Advisory from Compliance Craft Advisors Private Limited
Wrong selection of tax regime can cost you thousands or even lakhs in extra tax every year. Tax regime selection should always be done after professional calculation and review.
How Compliance Craft Advisors Private Limited Can Help
We provide:
Comparative tax calculation under both regimes
Salary and business tax planning
Regime selection advisory
Error-free return filing
Notice handling and scrutiny support
Conclusion
There is no universally best tax regime. The best tax regime is the one that gives you the lowest legal tax liability. Always choose your regime based on calculation, not assumption.