Feeling confused about taxes? You’re not alone. Choosing between Old Tax Regime (with deductions) or New Tax Regime (lower rates but fewer deductions) can be tough. Taking a right decision can save a lot of money. In this article we will break down all the key diffences, from deductions to tax slabs, to help you make a smart choice. Find out which regime is best for you.
This article will cover:
โ All deductions available in Old vs New Regime
โ Latest tax slab rates (FY 2025-26)
โ Who should choose which regime?
โ Real-life tax calculation examples
Letโs dive in!
1. Old Tax Regime: More Deductions, More Savings
The Old Tax Regime allows taxpayers to reduce their taxable income through various exemptions and deductions.
Key Deductions in Old Tax Regime (FY 2025-26)
| Deduction | Maximum Limit | Whatโs Covered? |
|---|---|---|
| Section 80C | โน1.5 lakh | PPF, EPF, ELSS, Life Insurance, NSC, 5-year FD, Sukanya Samriddhi, Home Loan Principal Repayment |
| Section 80D | โน25,000 (โน50,000 for seniors) | Health Insurance Premium |
| HRA (House Rent Allowance) | Based on salary & rent paid | Tax exemption on rent paid |
| LTA (Leave Travel Allowance) | Actual travel cost (limited) | Tax-free travel allowance for family trips within India |
| Home Loan Interest (Section 24) | โน2 lakh (self-occupied) | Interest paid on home loan |
| Standard Deduction | โน50,000 | For salaried employees |
| Section 80TTA/80TTB | โน10,000 (โน50,000 for seniors) | Savings account interest |
| Section 80G | 50%-100% of donation amount | Donations to charities, NGOs |
| Section 80E | Full interest paid | Education loan interest deduction |
Who Should Choose the Old Regime?
โ
You invest in PPF, ELSS, insurance, or have a home loan.
โ
You claim HRA (if living on rent).
โ
You make donations (80G) or pay education loan interest (80E).
โ
Your total deductions exceed โน3-4 lakh (saves more tax than New Regime).
2. New Tax Regime: Simpler, But Fewer Deductions
The New Tax Regime offers lower tax rates but removes most exemptions. It is designed for those who donโt want to invest just for tax savings.
Deductions Allowed in New Tax Regime (FY 2025-26)
| Deduction | Maximum Limit | Whatโs Covered? |
|---|---|---|
| Standard Deduction | โน75,000 | For salaried employees |
| Employerโs NPS Contribution (80CCD(2)) | 14% of salary (govt employees) | Only employerโs NPS contribution |
| Transport Allowance for Disabled | As per actuals | For disabled employees |
| EPF Interest | Up to tax-free limit | Interest earned on EPF |
| Gratuity & Leave Encashment | Tax-free as per rules | Retirement benefits |
Whatโs NOT Allowed in New Regime?
โ Section 80C (PPF, ELSS, Insurance, etc.)
โ HRA Exemption
โ Home Loan Interest (Section 24)
โ LTA (Leave Travel Allowance)
โ Donations (80G), Education Loan (80E), etc.
Who Should Choose the New Regime?
โ
You donโt invest much in tax-saving schemes.
โ
You donโt have home loans or HRA claims.
โ
You prefer simple tax filing with no extra paperwork.
โ
Your total deductions are below โน2-3 lakh (New Regime may be cheaper).
3. Tax Slabs: Old vs New Regime (2025-26)
Old Tax Regime Slabs (with deductions)
| Income Range | Tax Rate |
|---|---|
| Up to โน2.5 lakh | 0% |
| โน2.5 โ โน5 lakh | 5% |
| โน5 โ โน10 lakh | 20% |
| Above โน10 lakh | 30% |
New Tax Regime Slabs (Default from FY 2025-26)
| Income Range | Tax Rate |
|---|---|
| Up to โน4 lakh | 0% |
| โน4 โ โน8 lakh | 5% |
| โน8 โ โน12 lakh | 10% |
| โน12 โ โน16 lakh | 15% |
| โน16 โ โน20 lakh | 20% |
| โน20 โ โน24 lakh | 25% |
| Above โน24 lakh | 30% |
Note: The New Regime has higher exemption limits (โน4 lakh vs โน2.5 lakh in Old Regime).
4. Real-Life Tax Calculation: Which Regime Saves More?
Case Study: Ramesh (Salary โน12 Lakh, Investments โน1.5L + HRA)
| Particulars | Old Regime | New Regime |
|---|---|---|
| Gross Income | โน12,00,000 | โน12,00,000 |
| Less: Standard Deduction | โน50,000 | โน75,000 |
| Less: 80C (PPF, Insurance, etc.) | โน1,50,000 | Not Allowed |
| Less: HRA (โน10,000/month rent) | โน60,000 | Not Allowed |
| Less: 80D (Health Insurance) | โน25,000 | Not Allowed |
| Taxable Income | โน9,15,000 | โน11,25,000 |
| Tax Payable | โน92,500 | โน1,02,500 |
Result: Old Regime saves โน10,000 due to higher deductions.
When Does New Regime Win?
If Ramesh had no HRA, no 80C, and no 80D, his tax under New Regime would be โน60,000 (vs โน1,40,000 in Old Regime).
5. Latest Updates (2025-26 Changes)
- New Regime is Now Default
- If you donโt select any regime, New Regime applies automatically.
- To opt for Old Regime, you must choose it while filing ITR.
- Higher Standard Deduction in New Regime
- From FY 2025-26, โน75,000 standard deduction applies in New Regime (vs โน50,000 in Old Regime).
- Rebate Under Section 87A Increased
- New Regime: Income up to โน12 lakh is tax-free (due to โน60,000 rebate).
- Old Regime: Rebate only up to โน5 lakh income.
6. How to Decide? 3 Simple Steps
- List Your Deductions (HRA, 80C, 80D, home loan, etc.).
- Calculate Tax in Both Regimes (Use EasyTaxCalculator.in).
- Choose the One with Lower Tax.
Final Verdict: Which Regime is Better?
| Factor | Old Regime | New Regime |
|---|---|---|
| Tax Rates | Higher | Lower |
| Deductions | Many (HRA, 80C, 80D, etc.) | Very Few |
| Best For | Investors, Home Loan Borrowers | Those with Few Deductions |
| Complexity | More Paperwork | Simple & Fast |
Pro Tip: If your deductions (80C, HRA, etc.) exceed โน3-4 lakh, Old Regime saves more tax. Otherwise, New Regime is better.
Still Confused? Try Our Tax Calculator!
Use EasyTaxCalculator.in to compare your tax liability in both regimes and make the best choice!
Got Questions? Ask in the comments below!
Disclaimer: Tax rules keep changing. Consult a CA for personalized advice.
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