Old vs New Tax Regime: Which One to Choose While Filing ITR

Indian taxpayers have the option of adopting either the old or the new income tax regime during their returns filing since the year 2020. The old regime has HRA, Section 80C, 80D, and home loan interest deductions to reduce the taxable income. The new regime consists of reduced tax rates but eliminates most of the exemptions to make the filing process easier. Although it is meant to facilitate compliance, most people do not know which one is more saving. This article discusses the comparison between the two regimes and aids you in deciding which one is better to file your ITR in FY 2024- 25.

Understanding the Old Tax Regime

Before the new tax regime was introduced in FY 2020–21, the old tax regime was the standard method followed by all individual taxpayers in India. It continues to be available as an option today and remains popular among those who actively invest in tax-saving instruments or claim deductions based on their lifestyle expenses, housing, or loans. Though it requires more planning and documentation, choosing the old/new regime during income tax return filing can significantly reduce your taxable income and overall tax liability.

Here’s a closer look at the features of the old regime and the exemptions and deductions it allows:

Features of the Old Regime:

• Taxpayers are taxed at higher slab rates compared to the new regime.
  
• However, a wide range of deductions and exemptions are allowed under various sections of the Income Tax Act.
  
• Tax-saving under this regime rewards financial discipline through investments and insurance.
  
• You must maintain records and proofs to claim exemptions and deductions during return filing.
  
  

Common Exemptions and Deductions Available:

Section 80C

One of the most commonly used sections. You can claim deductions up to ₹1.5 lakh for investments and payments such as:

• Life insurance premiums
  
• ELSS mutual funds
  
• Employee Provident Fund (EPF)
  
• Public Provident Fund (PPF)
  
• Tax-saving fixed deposits (5-year FD)
  
• Tuition fees for children
  
• Principal repayment on the home loan
  
• Sukanya Samriddhi Yojana
  
  

Section 80D

Allows deduction for premiums paid on medical insurance.

• Up to ₹25,000 for self, spouse, and children
  
• Additional ₹25,000 for parents (₹50,000 if they are senior citizens)
  This section is especially useful for families with dependent parents or those with individual medical plans.
  
  

Section 80TTA / 80TTB

• Section 80TTA allows deduction of up to ₹10,000 on interest from savings bank accounts for individuals and HUFs.
  
• Section 80TTB is for senior citizens, allowing up to ₹50,000 on interest from savings and fixed deposits.
  
  

House Rent Allowance (HRA)

Salaried individuals receiving HRA as part of their salary can claim an exemption if they live in rented accommodation. The amount exempted is calculated based on salary, rent paid, and the city of residence.

Leave Travel Allowance (LTA)

Allows employees to claim tax exemption on domestic travel expenses incurred during leave. It can be claimed twice in a block of four years and covers only travel costs (not food or accommodation).

Standard Deduction

A flat deduction of ₹50,000 is available to all salaried employees and pensioners. This is automatically allowed and doesn’t require any proof of expense.

Home Loan Interest (Section 24b)

You can claim a deduction of up to ₹2 lakh per annum on interest paid on a home loan under Section 24(b), provided the loan is taken for a self-occupied property. For rented-out properties, there is no upper limit on the interest amount, but the loss from house property that can be adjusted against other income is capped at ₹2 lakh.

Understanding the New Tax Regime

Starting FY 2023–24, the new tax regime has become the default option for individual taxpayers in India. It was introduced to simplify the tax system, offering lower slab rates without the need for detailed tax planning, and make return filing easier for those who don’t invest in traditional tax-saving instruments.

However, while it appears attractive due to its lower , the new regime also removes most of the deductions and exemptions that taxpayers have been accustomed to using under the old regime.

Features of the New Regime:

• It follows a simplified slab structure with lower tax rates.
  
• No requirement to invest in specific tax-saving products to reduce tax liability.
  
• Best suited for individuals who have minimal or no deductions to claim, such as young professionals, gig workers, or those who prefer to invest in non-tax-saving financial products.
  
• From FY 2023–24, it is the default regime, meaning if you do not actively choose the old regime while filing your return, your taxes will be calculated based on the new regime.
  
• Taxpayers with business or professional income can opt into the new regime, but once selected, switching back comes with conditions.
  
• Income up to ₹3 lakh: Nil
  
• ₹3 lakh to ₹6 lakh: 5%
  
• ₹6 lakh to ₹9 lakh: 10%
  
• ₹9 lakh to ₹12 lakh: 15%
  
• ₹12 lakh to ₹15 lakh: 20%
  
• Above ₹15 lakh: 30%
  
  

Tax Slabs under the New Regime (FY 2024–25):

Deductions and Exemptions NOT Available under the New Tax Regime:

One of the biggest trade-offs in this regime is the removal of most traditional tax deductions and exemptions, including:

• No deduction under Section 80C (for PPF, ELSS, LIC premiums, etc.)
  
• No deduction under Section 80D (for health insurance premiums)
  
• No exemption for HRA (House Rent Allowance)
  
• No exemption for LTA (Leave Travel Allowance)
  
• No deduction for home loan interest on self-occupied property under Section 24(b)
  
• No standard deduction for pensioners (earlier available under the old regime)
  
• No deductions for education loan interest (Section 80E), donations (80G), or savings account interest (80TTA/80TTB)
  
  

Only Allowed Deductions/Exemptions (Limited):

While the new regime eliminates most deductions, a few have been retained, especially from FY 2023–24 onwards:

1. Standard Deduction (₹50,000) for salaried employees and pensioners
   Introduced in Budget 2023, this is now available under the new regime as well.
   
2. Employer’s Contribution to NPS (Section 80CCD(2))
   
   This deduction is allowed on the employer’s contribution (up to 10% of salary) towards the employee’s NPS account.
   
3. Rebate under Section 87A
   If your taxable income is ₹7 lakh or less, you are eligible for a full rebate under Section 87A, resulting in zero tax.
   
4. Agniveer Corpus Fund (Section 80CCH)
   For individuals enrolled under the Agnipath Scheme, contributions to the Agniveer Corpus Fund qualify for deduction.
   
   
   

These are the only limited deductions available. So, if your tax-saving investments or eligible expenses are high, this regime might not be suitable.

In short, the new tax regime is designed for ease and simplicity. It benefits individuals who:

• Don’t invest in traditional tax-saving instruments
  
• Don’t claim rent or housing benefits
  
• Prefer flexible financial planning over forced savings
  
  

However, for many, especially those with housing loans, insurance policies, tuition fees, or medical expenses, the old regime could still offer better tax savings.

Comparison Between Old and New Tax Regimes

Income Tax Slabs & Rates

Annual Income	Old Regime Tax Rate	New Regime Tax Rate (FY 2024–25)
Up to ₹2.5 lakh	Nil	Nil (up to ₹3 lakh)
₹2.5 – ₹3 lakh	5%	Nil
₹3 – ₹6 lakh	5%	5%
₹6 – ₹9 lakh	20%	10%
₹9 – ₹12 lakh	20%	15%
₹12 – ₹15 lakh	30%	20%
Above ₹15 lakh	30%	30%

Note: Under both regimes, individuals with income up to ₹5 lakh (old) and ₹7 lakh (new) can avail a rebate under Section 87A and pay zero tax.

Exemptions and Deductions Allowed

Dedication / Exemption	Old Regime	New Regime
Section 80C (PPF, ELSS, LIC, etc.)	Allowed	Not allowed
Section 80D (Health insurance)	Allowed	Not allowed
HRA (House Rent Allowance)	Allowed	Not allowed
LTA (Leave Travel Allowance)	Allowed	Not allowed
Standard Deduction (₹50,000)	Allowed	Allowed
Home Loan Interest (Section 24b)	Allowed	Not allowed
Education Loan Interest (80E)	Allowed	Not allowed
Donations (80G)	Allowed	Not allowed
Employer Contribution to NPS (80CCD(2))	Allowed	Allowed
Rebate Under Section 87A	Up to ₹5L	Up to ₹7L

Surcharge and Rebate

Component	Old Regime	New Regime
Surcharge Rates	10% to 37% on income above ₹50 lakh	Max 25% (Capped)
Section 87A Rebate	Available up to ₹5 lakh (₹12,500 rebate)	Available up to ₹7 lakh (₹25,000 rebate)
Marginal Relief	Available	Available

Simplicity vs. Tax Savings Potential

Factor	Old Regime	New Regime
Paperwork	Requires investment proofs, rent receipts, etc.	Minimal paperwork
Filing Complexity	Higher due to multiple deductions	Lower due to limited options
Suitable For	Taxpayers with high investments and eligible expenses	Individuals with fewer deductions or first-time earners
Flexibility	Forces financial discipline but limits investment choices	Offers flexibility to invest/spend without tax-linked pressure
Potential for Savings	Higher if claiming all major deductions	Higher only if deductions are minimal

The old regime works best for those who already claim substantial deductions like home loan interest, insurance, tuition fees, or rent exemptions. The new regime suits those who prefer a clean, no-frills approach with predictable tax rates and no need to invest just to save on taxes.

Factors to Consider

• Your Annual Income Level: If your income is below ₹7 lakh and you don’t claim deductions, the new regime gives a full rebate. For higher income levels, compare the effective tax after deductions.
  
• Your Investment Habits: If you regularly invest in PPF, ELSS, LIC, NPS, or pay insurance premiums and home loan EMIs, the old regime may give better tax savings.
  
• Claiming Allowances: If your salary includes HRA, LTA, and you pay rent or travel for work, the old regime allows exemptions that the new regime does not.
  
• Financial Planning Goals: The old regime promotes disciplined saving through tax-linked instruments. The new regime suits those who prefer liquidity or non-traditional investments.
  
• Flexibility of Choice: You can choose between regimes every year (if salaried). Business income taxpayers can switch back to the old regime only once after opting for the new regime.
  

  Making the Choice While E-Filing ITR for FY 2024-25

• The Default Regime: From FY 2023–24, the new regime is the default. If you don’t make a choice, your tax will be computed under the new regime.
  
• How to Opt for the Old Regime: While e-filing, select the old regime manually in your ITR form. If you have business income, file Form 10-IEA before filing the return.
  
  

Conclusion

When filing ITR for FY 2024–25, choose the tax regime that results in the lowest tax outflow. If you have minimal or no deductions to demand, the new tax regime with the low record rates can benefit you. However, if you have qualified cuts such as mortgage rates, insurance premiums, HRA or investment according to section 80c, the old regime can help you save more. Salaried taxpayers can switch between the government every year, so it is important to do mathematics based on your income and expenses before submission. The right choice depends on your financial habits and tax-saving capacity.