Old vs. New Tax Regime: Which One Saves You More In FY 2025-26?

The differences between the old and new tax regimes sometimes cause numerous individuals to become confused. The new income tax regime is intended to help individuals who have more personal obligations, like paying back personal or auto loans, taking care of parents or dependents, or who don't want to deal with the hassle of complicated tax preparation or who have few tax deductions because they aren't eligible for section 10 exemptions, standard deductions, employer contributions to pension plans, etc.

On the other hand, elderly people who get a large amount of their income from interest can benefit from Section 80TTB, which enables them to claim Rs. 50,000 as an interest income deduction, and feel more safe under the old tax regime, which can result in greater tax savings. Although there are benefits and drawbacks to both the old and new tax regimes, taxpayers earning up to Rs. 12 lakhs annually are best suited for the New Personal Tax Regime, which offers a complete refund in accordance with the revisions made in the new tax regime in 2025 budget. The net taxable income can be calculated after deducting all applicable exemptions and deductions.

The New Tax Regime is ideal for taxpayers with an annual income of upto Rs. 12 lakhs where they are eligible for a full rebate. This is also preferable for individuals who do not avail of deductions under section 80C (provident fund, PPF, life insurance, principal repayment of housing loan, etc) or section 80D (medical insurance premium) among others as per CA Muskkan Kukreja, Assistant Director & Program Co-ordinator- Accounting and Finance, Dr. Shantilal K Somaiya School of Commerce and Business Studies, Somaiya Vidyavihar University.

Old vs. New Tax Regime

Many individuals often find themselves questioning the disparities between the old and new tax regimes. The new income tax regime is designed to accommodate those who have more personal commitments such as repayment of personal/vehicle loans, medical treatment of parents or dependents, or wish to avoid the burden of extensive tax preparation or have minimal tax deductions due to their ineligibility for section 10 exemptions, standard deductions, tax on employment, employer contribution to pension scheme etc., Conversely, the old tax regime can yield more tax savings for senior citizens, who derive a substantial portion of their income from interest, can benefit from Section 80TTB, which allows them to claim Rs.50,000 as interest income deduction and feel more secure under the old tax regime, said Shefali Mundra, Tax Expert, ClearTax.

"Both the old and new tax regimes possess advantages and disadvantages. The previous tax structure encourages taxpayers to cultivate a habit of saving, while the new tax structure favours employees with lower earnings and investments, resulting in fewer deductions and exemptions. The new tax system is considered safer and simpler, involving fewer records and reducing the potential for tax evasion fraud. However, due to the unique nature of individual deductions and exemptions, a thorough comparison of the two regimes is necessary to determine the best fit for each person," Shefali Mundra commented.

How To Choose Between Old And New Tax Regimes?

When deciding between the two tax regimes, it is important to take into account the tax exemptions and deductions available under the old tax regime. After deducting all eligible exemptions and deductions, the net taxable income can be determined. By calculating the tax liability based on this net taxable income under the old tax regime, it becomes possible to compare it with the tax liability under the new tax regime, according to Shefali Mundra.

"Choosing the regime with the lower tax liability is the logical approach, and it is essential to inform the employer about this choice so that the appropriate Tax Deducted at Source (TDS) can be deducted from the salary. If you have a loss from house property, capital gains, or business & profession, you need to consider them as well while making informed decisions on the selection of regime. Along with the current year's losses, even the previous year's losses eligible to set off will get lapsed as well. Ineligibility to carry forward such losses may impact your future income determination and taxes thereon," Shefali Mundra further stated.

Disclaimer

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