Understanding Income Tax Regimes: Old vs New – A Complete Guide

Personal income tax in India has always followed a progressive slab system with various deductions and exemptions. Until February 2020, there was only one tax regime – Old Tax Regime – in the country. However, in 2020 Union Budget, the government introduced an alternative tax system called New Tax Regime. The New Tax Regime was launched with lower tax rates but with fewer deductions and exemptions.

In this article, we will dive deep into both tax regimes – Old Tax Regime and New Tax Regime. The write-up will explain features, benefits, recent changes, and practical implications for taxpayers of the both tax regimes.

Old Tax Regime: What is it and what are its main features?

The Old Tax Regime is the traditional system of personal income tax in India, which has been in practice for many years. This regime is beneficial for those taxpayers who want to take full advantage of tax exemptions and deductions through investments and expenses.

Old Tax Regime key features:

1. Facility of tax exemptions and deductions

The biggest feature of the old system is that you can avail tax exemptions and deductions under many sections. Such as:

Section 80C: Deduction up to Rs 1.5 lakh (on investments in LIC, PPF, ELSS, EPF etc.)

Section 80D: Deduction on health insurance premium

HRA: Deduction on rented house

LTA: Deduction on travel allowance

Deduction on home loan interest (Section 24b)

Many other deductions like 80E, 80G etc.

Tax Slabs:

The tax slabs in the old tax system are slightly different from the new system. Slabs as of AY 2024-25 for normal taxpayers (below 60 years of age):

Up to ₹2.5 lakh – No tax

₹2.5 lakh – ₹5 lakh – 5%

₹5 lakh – ₹10 lakh – 20%

Above ₹10 lakh – 30%

For senior citizens (60+ and 80+) the basic exemption limit is higher (up to ₹3 lakh or ₹5 lakh).

Flexibility and tax planning:

In this regime, you can save tax by planning your income and expenses. It is considered a good option to encourage savings.

Since this system has been in practice for a long time, most taxpayers are familiar with it and find it easy to invest and claim deductions under it.

Who is the Old Tax Regime suitable for?

Those who make full use of exemptions like Section 80C, 80D and HRA every year

Those who are proactive in tax planning and fill investment declaration

Those whose income structure is likely to have more allowances and deductions

Popular deductions under the Old Regime

Here is the table for popular deductions under the Old Tax Regime:

New Tax Regime: What is it and what are its main features?

The New Tax Regime was first introduced by the government in the financial year 2020-21 (assessment year 2021-22). Its aim was to simplify the tax system, especially for those who do not use tax exemptions. In this regime, the tax slabs have been reduced, but with this most of the tax exemptions and deductions have been removed.

New Tax Regime: Main features

Fewer tax slabs, but without exemptions and deductions

In the new tax regime, the slab rates are lower than the old regime, but it does not provide the facility of popular tax exemptions / deductions like Section 80C, 80D, HRA, LTA etc.

Updated Slabs (applicable from FY 2025-26):

In Budget 2025, the Finance Minister changed the tax slabs to make the New Tax Regime simple and attractive. These are the current slabs (for FY 2024-25):

₹0 – ₹4 lakh → 0%

₹4 – ₹8 lakh → 5%

₹8 – ₹12 lakh → 10%

₹12 – ₹16 lakh → 15%

₹16 – ₹20 lakh → 20%

₹20 – ₹24 lakh → 25%

Above ₹24 lakh → 30%

The income tax rebate has been increased from ₹25,000 to ₹60,000 for FY 2025-26. Thanks to this enhanced rebate under the new tax regime, individuals with an annual income of up to ₹12 lakh will now have zero tax liability.

For salaried taxpayers, the benefit goes even further. After factoring in the standard deduction of ₹75,000, those earning up to ₹12.75 lakh annually will not have to pay any income tax.

Default Tax Regime

From Budget 2023, the New Tax Regime has been made the default tax system. That is, if you do not choose any option in ITR, then your income will be taxed as per the new system (unless you choose the old tax regime).

Simple and less paperwork

Since there is no hassle of exemption on investments and expenses, it is a simple and easy tax system – especially for those who do not want or are unable to claim exemption.

New Tax Regime Income Tax Slab Rates for FY 2024-25

Those who are filing ITR for AY 2025-26 (FY2024-25), they will file their tax returns based on the tax slabs existed before February 1, 2025. So basically, these are the tax slabs that apply to the income earned between 1st April 2024 and 31st March 2025. The due date for filing income tax returns (ITRs) for non-audit cases is 15th September 2025 and 31st October for audit cases.

Income Tax Slabs and Rates (New Tax Regime – FY 2024-25)

Income up to ₹3 lakh – NIL (No tax)

₹3 lakh to ₹7 lakh – 5%

₹7 lakh to ₹10 lakh – 10%

₹10 lakh to ₹12 lakh – 15%

₹12 lakh to ₹15 lakh – 20%

Above ₹15 lakh – 30%

Note: So taxpayers under the New Tax Regime will file their ITR for AY 2025-26 (FY2024-25) based on the above tax slabs.

Date: 05/06/2025/ Source: Financial Express