If you’re filing your Income Tax Return (ITR) this year, you’ve probably seen the prompt asking you to choose between the Old Tax Regime and the New Tax Regime.
But unless you’re a CA, it’s not always clear which one is better. Most taxpayers simply go with the default or copy last year’s option without thinking it through. The truth is, choosing the right regime can save you thousands of rupees—and it’s easier than it looks.
The Old Regime is what Indian taxpayers have followed for decades. It offers various deductions and exemptions under sections like 80C, 80D, HRA, LTA, and more.
The New Regime, introduced under Section 115BAC of the Income Tax Act in 2020, removed most of these deductions in exchange for lower tax rates.
Since FY 2023–24, the New Regime has become the default regime—meaning unless you opt out, your tax will be calculated based on the new slab rates. But you can still choose the Old Regime manually while filing your return.
Let’s compare how both regimes treat your income:
| Annual Income Slab | Old Regime Tax Rate | New Regime Tax Rate (FY 2023–24 onwards) |
|---|---|---|
| 0 – ₹2.5 lakh | Nil | Nil |
| ₹2.5 – ₹5 lakh | 5% | 5% |
| ₹5 – ₹7.5 lakh | 20% | 10% |
| ₹7.5 – ₹10 lakh | 20% | 15% |
| ₹10 – ₹12.5 lakh | 30% | 20% |
| ₹12.5 – ₹15 lakh | 30% | 25% |
| Above ₹15 lakh | 30% | 30% |
But the key difference isn’t just in the rates—it’s about what deductions you can claim. Under the Old Regime, you can reduce your taxable income by claiming:
| Deduction Type | Section | Max Limit |
|---|---|---|
| Investments in LIC, PPF, ELSS | 80C | ₹1.5 lakh |
| Health insurance premium | 80D | ₹25,000 to ₹1 lakh |
| Home loan interest (self-use) | 24(b) | ₹2 lakh |
| Education loan interest | 80E | No upper limit |
| NPS contribution | 80CCD(1B) | ₹50,000 |
| House Rent Allowance (HRA) | Not under 80C, separate calc | Depends on rent/salary |
If you have a lot of deductions (like home loan, insurance, tuition fees, PF), the Old Regime may give you more savings—even with higher slab rates.
On the other hand, the New Regime is simple: no paperwork, no proofs, no tax planning stress. Just flat tax based on your income. It works better if you’re a freelancer, gig worker, or a new earner who doesn’t invest much.
If you’re earning income as a service provider or freelancer, and confused how to factor in deductions and GST, check our post on Can Freelancers Be Taxed? Yes – Here’s How.
Also, to understand how to legally reduce your tax in the old regime, go through our blog on How to Save Tax Legally – Deductions Every Indian Should Know.
Choosing between the Old and New Tax Regime depends on how much you invest, what deductions you claim, and how simple or optimized you want your tax filing to be.
Let’s look at a practical example:
| Income Details | Amount |
|---|---|
| Gross Annual Salary | ₹12,00,000 |
| Deductions under Section 80C (LIC, PPF) | ₹1,50,000 |
| Section 80D (Health Insurance) | ₹25,000 |
| NPS under 80CCD(1B) | ₹50,000 |
| Home Loan Interest under Section 24(b) | ₹2,00,000 |
| Total Deductions | ₹4,25,000 |
| Taxable Income (Old Regime) | ₹7,75,000 |
| Taxable Income (New Regime) | ₹12,00,000 |
In this case, the Old Regime offers significant tax relief due to deductions. But if this person had no deductions or didn’t invest much, the New Regime would be simpler and possibly cheaper.
Here’s how to decide:
| Situation | Suggested Regime |
|---|---|
| You have investments and deductions | Old Regime |
| You’re a beginner or don’t invest much | New Regime (default) |
| You dislike paperwork or proof submission | New Regime |
| You earn salary + house property income | Old Regime for claiming interest benefit |
| You’re a freelancer with low expenses | New Regime often works better |
To formally switch regimes, salaried individuals can opt in or out every year while filing ITR. But if you have business or professional income, you can opt out of the New Regime only once—so choose carefully.
Still unsure how your deductions work in practice? Check out our blog on What is Form 16 and How to Use It to File ITR—it helps you understand the full salary and deduction structure.
And if you’re filing your return this year without a CA, go through our easy guide on How to File Your Own Income Tax Return Without a CA for stress-free help.
FAQs
1. Is the New Tax Regime compulsory?
No. It’s the default from FY 2023–24, but you can opt for the Old Regime while filing.
2. Can I switch between regimes every year?
Yes, if you are salaried. No, if you have business income—you can switch only once.
3. Which regime is better for someone without deductions?
The New Regime is generally better if you don’t invest or claim exemptions.
4. Do I have to submit proofs in the New Regime?
No. New Regime doesn’t allow deductions, so no documentation is needed.
5. Are standard deductions available in both regimes?
From FY 2023–24, ₹50,000 standard deduction is allowed even in the New Regime.
