Income Tax Old vs New Regime – Which is Better in 2025?
Choosing between the old tax regime and the new tax regime has always been a crucial decision for taxpayers in India. With Budget 2025 introducing higher rebate limits, revised slabs, and better standard deductions, the new regime has become even more attractive — but it might not be the right choice for everyone.
In this article, we compare Old vs New Tax Regime (FY 2025-26) and help you decide which option is better for your income level, deductions, and tax planning strategy.
What is the Old Tax Regime?
The old regime allows taxpayers to claim various deductions and exemptions, such as:
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Section 80C (Investments in ELSS, PPF, LIC, EPF, etc. – up to ₹1.5 lakh)
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Section 80D (Health Insurance Premiums)
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HRA (House Rent Allowance)
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LTA (Leave Travel Allowance)
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Home Loan Interest (Section 24(b))
But it has higher tax rates compared to the new regime.
What is the New Tax Regime?
Introduced in 2020 and now made default from FY 2023-24 onwards, the new regime offers lower tax rates but does not allow most exemptions and deductions.
However, Budget 2025 made it much more attractive by:
✅ Raising the tax rebate under Section 87A to ₹60,000 (no tax up to ₹12 lakh taxable income).
✅ Increasing standard deduction for salaried taxpayers to ₹75,000.
✅ Maintaining lower slab rates to simplify compliance.
Income Tax Slabs for FY 2025-26 (New Regime)
| Taxable Income | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Rebate: If your taxable income (after standard deduction) is up to ₹12,00,000, you pay zero tax under the new regime.
Old vs New Regime: Key Differences
| Feature | Old Regime | New Regime (2025) |
|---|---|---|
| Tax Rates | Higher | Lower |
| Deductions Allowed | Yes (80C, 80D, HRA, etc.) | No (only standard deduction allowed) |
| Compliance | More paperwork | Simple |
| Suitable for | Taxpayers with high deductions | Taxpayers with low/no deductions |
Which Regime is Better in 2025?
Here’s a simple way to decide:
✅ Choose New Regime if:
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Your annual taxable income is up to ₹12 lakh (zero tax after rebate).
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You do not claim major deductions under 80C, 80D, or home loan interest.
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You want simplified tax filing without tracking multiple proofs.
✅ Choose Old Regime if:
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You claim deductions exceeding ₹3-3.5 lakh annually.
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You have home loan interest, high HRA, or multiple tax-saving investments.
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You want to continue with traditional tax planning (ELSS, PF, insurance).
Example Calculation (FY 2025-26)
Case 1: Income = ₹15,00,000, Deductions = ₹50,000
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Old Regime Tax: Approx. ₹2.7 lakh
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New Regime Tax: Approx. ₹1.65 lakh ✅ (New Regime Better)
Case 2: Income = ₹15,00,000, Deductions = ₹3,50,000
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Old Regime Tax: Approx. ₹1.6 lakh ✅ (Old Regime Better)
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New Regime Tax: Approx. ₹1.65 lakh
Tax Planning Tips for 2025
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Calculate Both Regimes: Use online calculators or consult a CA before filing ITR.
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Invest Smartly: If you prefer the old regime, maximize 80C investments and claim all eligible deductions.
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Consider Future Years: If your deductions will reduce in coming years, it might be better to switch to the new regime early.
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Track Changes: Tax laws are evolving — review annually to stay compliant and save more.
Conclusion
The new regime in 2025 is highly favorable for middle-class taxpayers with lower deductions — especially with zero tax up to ₹12 lakh. But if you have significant deductions and are willing to manage documentation, the old regime may still save you more money.
Evaluate your income, deductions, and goals before making a choice. Remember, you can switch every year (except for those with business income, who have limited switch options).