Old vs New Tax Regime: Which One Saves You More in 2025? As the financial year 2024–25 unfolds and Union Budget 2025 brings minor but impactful tweaks, taxpayers across India are again faced with a familiar question: Should I choose the Old Tax Regime or the New Tax Regime while filing my taxes? While both regimes aim to reduce your tax burden, each does so in very different ways. This guide by Rits Capital breaks down the latest Income Tax Slabs, available deductions, and comparison points to help you decide which option is better for your ITR filing in 2025.
Understanding the Two Tax Regimes The Old Tax Regime is the traditional tax system, offering a wide range of deductions and exemptions to reduce your taxable income. You can claim deductions under sections like 80C (investments), 80D (health insurance), HRA (House Rent Allowance), and more. The New Tax Regime, introduced in FY 2020-21, simplifies the structure by offering lower Income Tax Slabs but removes most deductions and exemptions. The goal is to simplify the tax filing process and benefit those who do not invest heavily in tax-saving instruments.
Income Tax Slabs for FY 2024-25 (AY 2025-26)
New Tax Regime (Default as per Union Budget 2025) Annual income
Tax rate
Up to ₹3,00,000
0%
₹3,00,001 – ₹6,00,000
5%
₹6,00,001 – ₹9,00,000
10%
₹9,00,001 – ₹12,00,000
15%
₹12,00,001-₹15,00,000
15%
Above ₹15,00,000
30%
Standard Deduction: ₹50,000 (introduced from FY 2023–24) Rebate under Section 87A: Available for income up to ₹7,00,000 (zero tax payable) Old Tax Regime
Annual Income (₹)
Tax Rate
Up to ₹2,50,000
0%
₹2,50,001 – ₹5,00,000
5%
₹5,00,001 – ₹10,00,000
20%
Above ₹10,00,000
30%
Standard Deduction: Not applicable earlier; may vary based on employment Multiple deductions under Sections 80C, 80D, HRA, etc. Rebate under Section 87A: Applicable for income up to ₹5,00,000
Key Differences Between Old and New Tax Regime
Feature
Old Tax Regime
New Tax Regime
Tax Rates
Higher rates
Lower rates
Deductions (80C, 80D, HRA, etc.)
Available
Not available
Standard Deduction
Limited/Not automatic
₹50,000 for salaried and pensioners
Ideal for
Those with high deductions
Those with few or no deductions
Complexity
Higher (due to multiple exemptions)
Lower (simple structure)
HRA, LTA, Home Loan Benefits
Available
Not applicable
Applicability
Optional – must choose annually
Default regime unless opted out
Example: Comparing Old vs New Tax Regime in 2025 Let’s compare Old vs New Tax Regime with a real-world example to understand the potential savings. Scenario:
Gross Salary: ₹12,00,000 per annum Deductions under Old Regime: Section 80C (EPF, PPF, ELSS, etc.): ₹1,50,000
Section 80D (Health Insurance): ₹25,000 HRA exemption: ₹1,00,000 Standard Deduction: ₹50,000
1. Old Tax Regime Calculation: Taxable Income = ₹12,00,000 – (₹1,50,000 + ₹25,000 + ₹1,00,000 + ₹50,000) Net Taxable = ₹8,75,000 Tax (as per slab) = ₹87,500 (approx., excluding cess)
2. New Tax Regime Calculation: Taxable Income = ₹12,00,000 – ₹50,000 (Standard Deduction) = ₹11,50,000 Tax (as per slab):
0–3L: Nil 3–6L: ₹15,000 6–9L: ₹30,000 9–11.5L: ₹37,500 Total = ₹82,500 (approx., excluding cess)
Conclusion: Despite lower deductions, the New Tax Regime comes close in tax liability in this case due to lower rates. However, if more deductions (like home loan interest) were claimed, the Old Regime might offer greater savings.
Pros and Cons of Each Tax Regime Old Tax Regime Pros:
High tax savings for investors and policyholders Best for salaried individuals with rent, loan EMIs, and insurance premiums
Suitable for families with multiple exemptions (education loan, children’s tuition, etc.)
Cons:
Complex documentation for tax filing Requires investment discipline to claim deductions
New Tax Regime Pros:
Hassle-free tax filing No need to maintain proofs of investments Encourages flexibility in financial planning
Cons:
No incentives to save or invest Loss of key benefits like HRA and home loan interest
How to Choose the Right Tax Regime in 2025 Before you make a choice, follow these three simple steps: 1. Calculate Your Total Income Include all sources: salary, business income, capital gains, and rental income. 2. Assess Your Deductions List your investments, insurance premiums, home loan interest, education expenses, and medical insurance. 3. Use a Tax Calculator There are many online tools (including one on the Rits Capital website) that help compare Old vs New Tax Regime side-by-side.
Note: You must declare your choice while filing your income tax return. Salaried employees can inform their employer in April but are allowed to change their choice during ITR filing.
Final Verdict: Which One Saves You More? There’s no one-size-fits-all answer. The right choice depends on your income level, spending habits, and ability to claim deductions.
Choose the Old Tax Regime if you: Have home loan EMI Claim HRA Invest in 80C schemes Pay life/health insurance premiums Opt for the New Tax Regime if you: Don’t claim major deductions Prefer simplicity in tax filing Have minimal investment obligations
Let Rits Capital Help You Decide At Rits Capital, we specialize in tax planning, investment strategies, and personal finance. If you’re unsure whether the Old or New Tax Regime is right for you in 2025, our experts can provide a detailed comparison tailored to your financial situation. Book a consultation today and take the guesswork out of your taxes! Read More
