24 January 2025 6 min read

Old Tax Regime vS New Tax Regime for FY 2024-25

Getting Started

Tax season is upon us, and one of the most important decisions you’ll need to make is which tax regime to choose. In India, the Income Tax Act offers two tax regimes: the Old Tax Regime and the New Tax Regime. Both have their perks and pitfalls, and understanding their key differences can help you make the most informed decision when filing your taxes for Financial Year 2024-25 (Assessment Year 2025-26).

Let’s dive into a comparison of the Old Tax Regime and New Tax Regime so you can choose the one that best fits your financial situation! 😊

1. What Are the Basic Tax Slabs?

Old Tax Regime:

The Old Tax Regime follows the traditional approach, where you can reduce your taxable income by claiming deductions (like 80C, 80D) and exemptions (like HRA, LTA). However, the tax rates are a bit higher. Here’s how the tax slabs look for FY 2024-25:

Income Range	Tax Rate
Up to ₹2.5 lakh	Nil (No tax)
₹2.5 lakh to ₹5 lakh	5%
₹5 lakh to ₹10 lakh	20%
Above ₹10 lakh	30%

Rebate under Section 87A: If your taxable income is up to ₹5 lakh, you can claim a rebate of ₹12,500, which effectively reduces your tax to nil if your income is below ₹5 lakh.
Standard Deduction: Salaried individuals can claim a standard deduction of ₹50,000.

New Tax Regime:

The New Tax Regime comes with lower tax rates but does not offer any deductions or exemptions. So, if you’re someone who doesn’t have many tax-saving investments, this might be attractive! Here are the tax slabs under the New Tax Regime for FY 2024-25:

Income Range	Tax Rate
Up to ₹2.5 lakh	Nil (No tax)
₹2.5 lakh to ₹5 lakh	5%
₹5 lakh to ₹7.5 lakh	10%
₹7.5 lakh to ₹10 lakh	15%
₹10 lakh to ₹12.5 lakh	20%
₹12.5 lakh to ₹15 lakh	25%
Above ₹15 lakh	30%

Rebate under Section 87A: Just like the Old Tax Regime, you can claim a rebate of ₹12,500 if your taxable income is up to ₹5 lakh, reducing your tax liability to nil.

Key Difference:

Old Tax Regime: Higher tax rates but offers deductions and exemptions.
New Tax Regime: Lower tax rates but no deductions or exemptions.

2. Deductions and Exemptions: What’s Available?

Old Tax Regime:

This regime allows you to claim several deductions and exemptions, which can lower your taxable income:

80C: Investments like PPF, ELSS, National Savings Certificate, and Tax-saving Fixed Deposits up to ₹1.5 lakh.
80D: Deductions for health insurance premiums (up to ₹25,000 for self/family, ₹50,000 for senior citizens).
Home Loan: Deduction for home loan interest (up to ₹2 lakh) under Section 24(b).
HRA (House Rent Allowance): If you live in rented accommodation, you can claim HRA exemptions.
LTA (Leave Travel Allowance): Exemption on travel expenses incurred within India.

New Tax Regime:

The New Tax Regime is designed to be simpler, which is why it does not allow any deductions or exemptions. This means you won’t be able to claim tax-saving investments, HRA, or LTA.

Key Difference:

Old Tax Regime: You can claim various deductions and exemptions to reduce your taxable income.
New Tax Regime: No deductions or exemptions; tax is based solely on income.

3. Which One is More Flexible?

Old Tax Regime:

Once you choose the Old Tax Regime for a financial year, you must stick with it for that year. So, you have to actively plan your taxes, track your deductions, and gather the necessary documentation.

New Tax Regime:

The New Tax Regime is more flexible. You can switch between the Old and New Tax Regimes every financial year. So, if one year the Old Tax Regime benefits you due to your deductions, you can switch. The next year, if the New Tax Regime with lower tax rates works better for you, you can switch back!

Key Difference:

Old Tax Regime: You cannot switch once you’ve opted for it in a given year.
New Tax Regime: You can switch between regimes every year based on your tax situation.

4. Ideal for Whom?

Old Tax Regime:

Best for individuals with significant tax-saving investments (like PPF, home loans, insurance premiums) or those who claim exemptions like HRA and LTA.
If you actively plan your taxes and have enough documentation to back up your deductions, the Old Tax Regime could help you save more.

New Tax Regime:

Best for individuals who don’t have many deductions to claim or prefer a simpler filing process.
If you’re looking for lower tax rates without having to worry about deductions, the New Tax Regime could be a great choice.

Key Difference:

Old Tax Regime: Best for those with tax-saving investments.
New Tax Regime: Ideal for those seeking simplicity and lower tax rates.

5. Impact on Salaried Employees

Old Tax Regime:

If you’re a salaried employee and your salary is structured with HRA, LTA, and insurance benefits, the Old Tax Regime can help you save significantly through exemptions.
You can also claim a standard deduction of ₹50,000.

New Tax Regime:

The New Tax Regime will not allow you to claim HRA, LTA, or other exemptions.
No standard deduction available in this regime, but the lower tax rates might still be attractive if you don’t need these exemptions.

Key Difference:

Old Tax Regime: Offers deductions and exemptions for salaried employees, making it ideal if your salary includes such components.
New Tax Regime: Simpler but with no exemptions, so less paperwork.

6. Can I Switch Between the Two Regimes?

Yes! You can switch between the Old Tax Regime and the New Tax Regime every year based on which one suits your financial situation. For instance, if you have large deductions in one year, you might opt for the Old Tax Regime, and in another year, when you don’t have many deductions, you can choose the New Tax Regime.

Key Difference:

Old Tax Regime: Fixed for the financial year.
New Tax Regime: Flexible, you can switch annually!

Which Tax Regime Should You Choose?

Choose the Old Tax Regime if you have substantial tax-saving investments and exemptions. This regime is ideal for those who make use of deductions like 80C, 80D, and exemptions like HRA and LTA.
Choose the New Tax Regime if you prefer a simpler tax process and don’t have many deductions to claim. The lower tax rates make it attractive for middle-income earners who don’t invest in many tax-saving instruments.

Conclusion: Simplify Your Tax Filing Process

Whether you opt for the Old Tax Regime or the New Tax Regime in FY 2024-25, it’s important to assess your financial situation carefully. The Old Tax Regime offers more room for tax-saving deductions, while the New Tax Regime provides lower tax rates and less paperwork.

The flexibility of switching between the two regimes allows you to make the best decision based on your income and investment choices every year!

Happy Tax Filing! 😊

FAQs on the Difference Between OTR & NTR for FY 2024-25

Confused about whether to choose the Old Tax Regime or the New Tax Regime for FY 2024-25? Don’t worry! Here are the most frequently asked questions (FAQs) to help you navigate through the differences between the two tax regimes under the Income Tax Act.

What is the main difference between the Old and New Tax Regimes?

The Old Tax Regime allows you to claim deductions (like 80C, 80D, home loan interest) and exemptions (like HRA, LTA), but comes with higher tax rates. The New Tax Regime, on the other hand, offers lower tax rates but does not allow any deductions or exemptions.

Which tax regime offers lower tax rates?

The New Tax Regime offers lower tax rates compared to the Old Tax Regime. For example, in the New Tax Regime, income between ₹5 lakh to ₹7.5 lakh is taxed at 10%, while in the Old Tax Regime, it would be taxed at 20%.

Can I claim deductions like PPF, insurance premiums, or home loan interest under the New Tax Regime?

No, you cannot claim deductions (like PPF, 80C, 80D, or home loan interest) or any exemptions (like HRA or LTA) under the New Tax Regime. These benefits are only available under the Old Tax Regime.

What are the tax slabs for the Old Tax Regime for FY 2024-25?

The Old Tax Regime has the following income tax slabs:
Up to ₹2.5 lakh: No tax (Nil)
₹2.5 lakh to ₹5 lakh: 5%
₹5 lakh to ₹10 lakh: 20%
Above ₹10 lakh: 30%

What are the tax slabs for the New Tax Regime for FY 2024-25?

The New Tax Regime offers the following income tax slabs:
Up to ₹2.5 lakh: No tax (Nil)
₹2.5 lakh to ₹5 lakh: 5%
₹5 lakh to ₹7.5 lakh: 10%
₹7.5 lakh to ₹10 lakh: 15%
₹10 lakh to ₹12.5 lakh: 20%
₹12.5 lakh to ₹15 lakh: 25%
Above ₹15 lakh: 30%

Can I switch between the Old and New Tax Regimes each year?

Yes! You can switch between the Old and New Tax Regimes every financial year. So, if you find that one regime suits your financial situation better in one year, you can opt for it and change the following year.

Is there any rebate available in both regimes?

Yes, both regimes offer a rebate under Section 87A for income up to ₹5 lakh. If your taxable income is less than ₹5 lakh, you can claim a rebate of ₹12,500, which will effectively make your tax liability nil.

Which regime is better for salaried employees?

It depends on your income structure and deductions.
If you have significant deductions (like HRA, LTA, insurance premiums), the Old Tax Regime could be better.
If you don’t have many deductions and prefer a simpler process with lower tax rates, the New Tax Regime may be more suitable.

Can I claim the standard deduction under the New Tax Regime?

No, the New Tax Regime does not allow you to claim the standard deduction of ₹50,000, which is available under the Old Tax Regime for salaried individuals.

Does the New Tax Regime allow any exemptions like HRA or LTA?

No, the New Tax Regime does not allow any exemptions such as HRA (House Rent Allowance), LTA (Leave Travel Allowance), or children’s tuition fees.

Are there any benefits of choosing the Old Tax Regime for senior citizens?

Yes, senior citizens (aged 60 and above) benefit from a higher basic exemption limit of ₹3 lakh under the Old Tax Regime. However, they still need to track and claim deductions.

Which regime is better for middle-income earners?

The New Tax Regime can be more beneficial for middle-income earners who don’t have many deductions or exemptions to claim. With lower tax rates, they may pay less tax without the hassle of managing investments for deductions.

Which regime is better for high-income earners?

For high-income earners, the decision depends on their investment portfolio:
If they have significant tax-saving investments (like PPF, ELSS, insurance premiums, home loan interest), the Old Tax Regime could be more beneficial.
If they don’t have many deductions or exemptions to claim, they may prefer the New Tax Regime due to the lower tax rates.

Is there any flexibility to adjust tax liability in both regimes?

The New Tax Regime offers more flexibility for taxpayers who have fewer deductions. On the other hand, the Old Tax Regime allows you to adjust your tax liability by making the most of available deductions and exemptions.

Can I benefit from the Old Tax Regime if I am a new taxpayer?

Yes, the Old Tax Regime can benefit new taxpayers who are just starting to file taxes, especially if they have already invested in tax-saving instruments or qualify for exemptions like HRA.