The New Tax Regime was introduced in 2020 and became the default tax regime from FY 2023-24. It offers lower tax rates and higher rebates for individuals, but the taxpayers have to give up many exemptions and deductions available under the old regime. Due to this loss of benefits, many people were hesitant to switch to the new regime.
To make it more attractive, the government introduced some relaxations over time. That’s why it’s important to understand the latest tax rates, available deductions, and future updates before making a decision.
Old vs. New Tax Regime – Key Differences
The biggest difference between the Old Tax Regime and the New Tax Regime is the introduction of lower tax rates in exchange for fewer exemptions and deductions. However, there are other important distinctions as well. Here’s how the New Tax Regime stands apart:
- Lower Tax Rates for All Individuals– Concessional tax rates apply to everyone, regardless of age.
- No Common Exemptions & Deductions– Popular tax benefits like HRA, LTA, and 80C deductions are not available.
- Higher Basic Exemption Limit– The minimum income required for filing tax returns has increased from ₹2.5 lakh to ₹3 lakh.
- Enhanced Tax Rebate (Section 87A)– Under the new regime, those earning up to ₹7 lakh can claim a full tax rebate, compared to ₹5 lakh in the old regime.
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Capped Surcharge1on High Incomes– The maximum surcharge rate has been reduced from 37% to 25%, offering tax relief to high-income earners.
1Note: Surcharge is an additional tax levied on income exceeding a specified limit. - Higher Standard Deduction for Salaried Individuals– Under the New Tax Regime, salaried individuals can claim a standard deduction of ₹75,000, whereas the Old Tax Regime offers a deduction of only ₹50,000.
Tax Rates for F.Y. 2024-25
- New tax regime introduces new and concessional tax rates that would be applicable for Individual & HUF following the New Regime (u/s. 115BAC-Default tax Regime) for Income other that Special Income like Capital Gains, etc.
New Income-tax slab rates for FY 2024-25
| Income Tax Slabs (New Regime FY 2024-25) |
Tax Rate (%) |
| ₹0-3 Lakh | Nil |
| ₹3 lakh - 7 lakh | 5% |
| ₹7 lakh - 10 lakh | 10% |
| ₹10 lakh - 12 lakh | 15% |
| ₹12 lakh - 15 lakh | 20% |
| ₹15 lakh & above | 30% |
- There are no changes proposed under the Old Regime of Income Tax.
Old Income-tax slab rates for FY 2024-25
| Income Tax Slabs (Old Regime FY 2024-25) |
Tax Rate (%) |
| ₹0-2.5 Lakh | Nil |
| ₹2.5 lakh - 5 lakh | 5% |
| ₹5 lakh - 10 lakh | 20% |
| ₹10 lakh & above | 30% |
- Under the Old Tax Regime, the basic exemption limit is ₹3 lakh for senior citizens (aged 60 and above) and ₹5 lakh for super senior citizens (aged 80 and above).
Tax Exemptions and Deductions: Old vs. New Tax Regime
The New Tax Regime removes many common tax exemptions, allowances, and deductions that were available in the Old Tax Regime. This means taxpayers cannot claim benefits like House Rent Allowance (HRA), Leave Travel Allowance (LTA), or Section 80C deductions for LIC, PF, NSC, and tuition fees.
To make the New Regime more attractive, the government introduced certain relaxations from FY 2024-25. Below is a detailed comparison of exemptions and deductions allowed under both tax regimes:
| Deduction or Exemption | Allowed under Old Regime |
Allowed under New Regime |
| Salary Standard Deduction | Up-to ₹ 50,000/- |
Up-to ₹ 75,000/- |
| Professional tax and Entertainment allowance |
Yes | No |
| House Rent allowance (HRA) | Yes | No |
| Leave Travel (LTA)2 | Yes | No |
| Home Loan Interest for Self-occupied Property |
Yes | No |
| Set-off of House property losses from other heads |
Yes | No |
| Additional depreciation (other than normal depreciation) |
Yes | No |
| Allowances for Minor’s Income | Yes | No |
| Allowance to MP/MLA | Yes | No |
| Deduction for Family Pension | Yes | Yes |
| LIC, PF, NSC, Tuition fees, etc. (Sec. 80C) | Yes | No |
| Employer’s Contribution to NPS (Sec. 80CCD (2)) |
Yes | Yes |
| Contribution to Agni-path Scheme (Sec. 80CCH) | Yes | Yes |
| Health Insurance (Sec. 80D) | Yes | No |
| Dependent disabled (Sec. 80DD) | Yes | No |
| Expenditure on Medical treatment (Sec. 80DDB) | Yes | No |
| Interest on Educational Loan (Sec. 80E) | Yes | No |
| Interest on Savings (Sec 80TTA) For age below 60 |
Yes | No |
| Interest on Savings & Fixed Deposits (Sec. 80TTB) For age above 60 |
Yes | No |
| Income from Collecting and Processing Bio-degradable Waste (Sec. 80JJA) |
Yes | Yes |
| Deduction in respect of Employment of new employees (Sec. 80JJAA) |
Yes | Yes |
2Note: Leave travel allowances are not allowed under the New Tax Regime. However, under special circumstances certain allowances such as Divyang Travel allowance, Tour Travel Allowance, Daily allowance & Conveyance allowance would be allowed.
How Taxable Income & Tax Liability Differ in Old vs. New Tax Regime
One of the most important factors when choosing between the Old Tax Regime and the New Tax Regime is how your total taxable income is calculated. Since the New Tax Regime removes several deductions, your taxable income increases, which directly impacts your final tax liability.
To help you understand the difference, here’s a detailed example comparing taxable income and tax payable under both regimes for F.Y. 2024-25
| Income Component | Old Tax Regime | |||
| Gross Salary | 8,00,000 | 12,00,000 | 18,00,000 | 25,00,000 |
| Standard Deduction | 50,000 | 50,000 | 50,000 | 50,000 |
| House Rent Allowance (HRA) | 1,50,000 | 1,50,000 | 1,50,000 | 1,50,000 |
| Deductions: | ||||
| 80C | 1,50,000 | 1,50,000 | 1,50,000 | 1,50,000 |
| 80D | 25,000 | 25,000 | 25,000 | 25,000 |
| 80E | 40,000 | 40,000 | 40,000 | 40,000 |
| Total Taxable Income | 3,85,000 | 7,85,000 | 13,85,000 | 20,85,000 |
| Tax Payable | - | 69,500 | 2,37,000 | 4,47,500 |
| Income Component | New Tax Regime | |||
| Gross Salary | 8,00,000 | 12,00,000 | 18,00,000 | 25,00,000 |
| Standard Deduction | 75,000 | 75,000 | 75,000 | 75,000 |
| Other Deductions | - | - | - | - |
| Total Taxable Income | 7,25,000 | 11,25,000 | 17,25,000 | 24,25,000 |
| Tax Payable | - | 68,750 | 1,92,500 | 3,81,250 |
| Tax Savings under New Regime | - | 750 | 44,500 | 66,250 |
How to Switch Between the Old and New Tax Regime?
The government allows taxpayers to switch between the old and new tax regimes, but there are some important rules to keep in mind:
- New Tax Regime is the Default –If you don’t make a choice, the new regime will automatically apply to you.
- Business Owners Have Limited Switching Options –If you have business income, you can opt out of the new regime and choose the old one. However, if you later decide to switch back to the new regime, you can do this only once. After that, you cannot go back to the old regime again.
- Salaried Individuals Have More Flexibility –If you are a salaried employee, you can switch between the old and new tax regime every year without any restrictions.
- Form 10-IE is Required –To opt in or opt out, you must file an income-tax form called Form 10-IE before submitting your Income Tax Return (ITR) and before the ITR due date.
- Missed the Deadline? You Have to Stick to Your Last Chosen Regime – If you miss the ITR filing deadline, you will automatically continue with the tax regime you followed last time. You won’t be able to switch for that year.
Make sure you evaluate your tax savings under both regimes each year and file Form 10-IE on time to choose the best option.
Future of the New Tax Regime: FY 2025-26 and Beyond
Key Changes in the New Tax Regime (Budget 2025)
- The government has introduced important updates to the New Tax Regime under the Union budget 2025, making it more attractive for taxpayers. Here’s what’s changing:
New Tax Slabs for FY 2025-26
| Income Tax Slabs (New Regime- FY 2025-26) |
Tax Rate (%) |
| ₹0-4 Lakh | Nil |
| ₹4 lakh - 8 lakh | 5% |
| ₹8 lakh - 12 lakh | 10% |
| ₹12 lakh - 16 lakh | 15% |
| ₹16 lakh - 20 lakh | 20% |
| ₹20 lakh - 24 lakh | 25% |
| ₹24 lakh & above | 30% |
- The Basic exemption income limit has increased from ₹3 lakh to ₹4 lakh under the new tax regime.
- If your income is up to ₹12 lakh, you will not have to pay taxes due to increased tax rebate limits.
Introduction of the New Income-tax Bill, 2025
- The government has introduced the New Income-tax Bill, 2025, which may come into effect from April 1, 2026.
- The bill aims to make tax rules easier to understand for everyone.
- Outdated provisions will be removed to reduce confusion.
- The government plans to make income tax filing more user-friendly and digital.
Read our in-depth blogs for expert insights and tax-saving strategies:
- Union Budget 2025-26: Key Direct Tax Changes, Income Tax Rates & Reliefs Explained!
- Taxation Then & Now: How the New Income Tax Bill 2025 Compares to the 1961 Act
Conclusion
The New Tax Regime has changed a lot over the years, and Budget 2025 has introduced key updates like higher tax exemptions, revised slabs, and better rebates to make it more attractive. While it offers lower tax rates, taxpayers need to decide if giving up deductions from the old regime is worth it. Additionally, the New Income-tax Bill, 2025, coming into effect from April 1, 2026, aims to make tax laws simpler and filing easier. With tax rules constantly evolving, staying updated and choosing the right regime can help you save more on taxes.
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