With the introduction of the New Tax Regime in Budget 2020, Indian taxpayers now have two parallel tax systems to choose from—each with its benefits and limitations. The ongoing debate of the old tax regime vs new tax regime has become more relevant than ever, especially as individuals evaluate their tax-saving strategies and financial goals. For a broader perspective, it also helps to see how tax rules vary elsewhere—our overview of the differences in taxation across Asian countries highlights just how wide those contrasts can be.
While the Old Tax Regime continues to reward those who invest in tax-saving instruments and claim various deductions under sections like 80C and 24(b), the New Tax Regime slabs offer lower tax rates in exchange for foregoing most exemptions and deductions. On the other hand, those who benefit from substantial deductions may find the old tax regime slabs more suitable and tax-efficient.
Choosing the right regime can significantly impact your take-home salary and long-term financial planning. But the big question remains: which tax regime is better in India?
The answer isn’t one-size-fits-all—it depends entirely on your income structure, investment habits, and eligible deductions.
Types of Taxes in Asian Countries
Old Tax Regime Slabs
The old tax regime slabs offer tax savings through deductions and exemptions, but require more planning and paperwork.
Tax Slabs
| Age Group | Income Range | Tax Rate |
| Below 60 years | Up to ₹2.5 lakh | Nil |
| ₹2.5 lakh – ₹5 lakh | 5% | |
| ₹5 lakh – ₹10 lakh | 20% | |
| Above ₹10 lakh | 30% | |
| Senior citizens (60–79) | Up to ₹3 lakh | Nil |
| Super senior citizens (80+) | Up to ₹5 lakh | Nil |
Deductions & Exemptions Available
| Section | Benefit |
| Section 80C | Up to ₹1.5 lakh for investments (e.g., PPF, ELSS, life insurance, etc.) |
| Section 80D | Up to ₹50,000 for health insurance premiums (₹25,000 self + ₹25,000 parents <60) |
| HRA | Partial exemption for rent paid (subject to the salary structure and rent paid) |
| LTA | Exemption for travel expenses (on actual incurred during leave travel) |
| Section 24 | Up to ₹2 lakh deduction on home loan interest (self-occupied property) |
| Section 80E | Interest on education loans – fully deductible with no upper limit |
| Section 80G | Donations to eligible charitable institutions (50%-100% exemption based on criteria) |
The old regime slabs favor taxpayers who invest in tax-saving instruments and utilize deductions to lower taxable income.
New Tax Regime Slabs
The new tax regime slabs offer reduced slab rates but remove most traditional deductions and exemptions, making it more straightforward.
Tax Slabs
| Taxable Income | Rate |
| Up to ₹3 lakh | 0% |
| ₹3 – ₹6 lakh | 5% |
| ₹6 – ₹9 lakh | 10% |
| ₹9 – ₹12 lakh | 15% |
| ₹12 – ₹15 lakh | 20% |
| Above ₹15 lakh | 30% |
This regime is now the default (from FY 2023-24 onwards) and includes a higher standard deduction to make up for the loss of exemptions.
Allowed Deductions in the New Regime Slabs
| Deduction | Limit/Note |
| Standard Deduction | ₹75,000 for salaried individuals (raised from ₹50,000) |
| Employer’s NPS Contribution (Sec 80CCD(2)) | Up to 10% of basic salary (14% for government employees) |
| Agniveer Corpus Fund (Section 80CCH) | Full deduction for contributions made |
| Family Pension Deduction | Lower of ₹15,000 or 1/3rd of pension received |
| Deduction | Limit/Note |
Which Tax Regime Is Better in India?
| Criteria | Old Tax Regime | New Tax Regime |
| Tax Slabs | Higher slab rates | Lower slab rates with more granular slabs |
| Deductions Allowed | Multiple deductions like 80C, 80D, HRA, LTA, etc. | Most deductions and exemptions not allowed |
| Standard Deduction | ₹50,000 available | Now allowed (from FY 2023-24) |
| Investment Requirement | Requires planning and investing to claim deductions | No requirement to invest for tax saving |
| Complexity | Higher (due to documentation & calculations) | Simpler (straightforward calculation) |
| Suitable For | Individuals with high deductions & investments | Individuals with minimal deductions |
| Rebate (Under 87A) | Available for income up to ₹5,00,000 | Available for income up to ₹7,00,000 |
| Home Loan Interest (Sec 24B) | Deductible for self-occupied property | Not allowed |
| Flexibility | More flexible due to custom planning | Less flexible but easier to comply |
| Adoptability | The default for older filings | Default regime (from FY 2023-24 unless opted out) |
Which One Saves You More: old tax regime vs new tax regime?
The answer depends on how much you’re able to claim in deductions:
- If your total eligible deductions (80C, 80D, HRA, etc.) exceed ₹3.75 lakh, the old regime is likely to result in lower tax.
- If your deductions are below ₹3.75 lakh, especially under ₹2.5–₹3 lakh, the new regime may offer greater savings.
- For someone earning ₹50 lakh per year, Old Regime slabs save more if deductions exceed ₹3.75 lakh, and New Regime is better if deductions are limited or minimal.
Is the Old Tax Regime Slabs Right for You?
The Old Tax Regime slabs are ideal for those claiming high deductions and exemptions. Here’s when it benefits you:
- High HRA: If you live in a metro city and pay significant rent, the HRA exemption can reduce your tax.
- Home Loan: Deduct up to ₹2 lakh on home loan interest under Section 24(b).
- Investments: Full use of Section 80C (₹1.5 lakh), 80D (health insurance), and 80G (donations) adds up to major savings.
- Mid-to-High Incomes (₹12–24 L): If your deductions are ₹5–8 lakh, the old regime usually results in lower taxes.
- Senior Citizens: Get higher exemption limits (₹3–5 lakh) and ₹50,000 interest deduction (Section 80TTB).
- Other Benefits: Education loan interest (80E), structured salaries (LTA, reimbursements), and health insurance.
Choose the old regime slabs if you invest, pay rent or EMIs, have health insurance, or qualify for many deductions. Otherwise, the new regime slabs may be simpler and better.
Why the New Tax Regime Works Best for Minimal Deductions
The New Tax Regime slabs are designed for those who prefer simplicity and flexibility over claiming multiple deductions. It’s ideal when deductions are low (below ₹3.75 lakh).
The new tax regime slabs are a good choice for young people who are working or freelancing. Unlike the old system, you don’t need to invest in things like PPF, ELSS, or insurance just to save on taxes.
The tax rates are lower in this regime. For example, if you earn between ₹4 lakh and ₹24 lakh, your tax is between 5% and 25%. This means you get more money in your hands after paying taxes, which helps you manage rent, EMIs, or save for emergencies.
It also gives you the freedom to invest your money however you want. You can put it in mutual funds, save for short-term plans, or use it for your personal needs, without worrying about tax-saving rules or deadlines.
Tools and Tips to Decide Which Tax Regime Is Better in India
You can decide which regime is better, the new tax regime slabs and the old tax regime slabs, by using the Income Tax Department’s official tax calculator, which provides a side-by-side comparison. Another tool that can be used in ClearTax’s calculator which a guide users during each step.
Don’t Let These Tax Regime Mistakes Cost You
Many people choose a tax regime once and then forget about it, but your financial situation can change every year. A new job, taking a home loan, or starting investments can all impact which regime saves you more money.
Some people think one regime (either new or old) is always better. But that’s not true — the better option depends on your income and deductions.
Some people think any deduction makes the old regime better. But that’s not always true — you need a very high total of deductions to beat the lower tax rates of the new regime.
It is necessary to compare before choosing a tax regime. If not, then it will lead to paying more tax. If you are missing documents like those for Section 80C/80D, you can get fined.
Government Perspective and Recent Updates: On New Tax Regime Slabs
In the Union Budget 2024-25, the government emphasized the New Tax Regime slabs by making it the default option for taxpayers, while still allowing individuals to opt for the old regime slabs if they prefer. This move is part of a broader strategy to streamline tax processes and reduce complexities associated with multiple exemptions and deductions.
- Higher Standard Deduction: Salaried individuals can now claim a ₹75,000 standard deduction (earlier it was ₹50,000), which means more tax savings.
- Increased NPS Dedication: Employers can now contribute up to 14% of your basic salary to your NPS account (earlier it was 10%), and this amount is tax-deductible.
Higher Basic Exemption: The income exempt from tax has been raised to ₹4 lakh (earlier ₹2.5 lakh), so you start paying tax only if you earn above ₹4 lakh.
Conclusion
Choosing between the Old and New Tax Regimes depends on your financial situation. The old tax regime slabs benefit those with high deductions and long-term investments, making it ideal for individuals who actively use tax-saving instruments. In contrast, the new tax regime slabs are suitable for those who prefer simplicity and lower tax rates without having to invest in specific tax-saving schemes. The ongoing comparison of the old tax regime vs new tax regime shows that the ideal choice varies by person. If you’re unsure which path will maximize your savings, professional tax consulting in India can provide personalized guidance. That’s why it’s important to reevaluate your tax regime choice every year to avoid overpaying taxes. So, which tax regime is better in India? Ultimately, the right one is the one that aligns with your financial habits, income structure, and long-term goals.
