Confused Between Old And New Tax Regimes? Here’s What You Should Know Before Filing

With the new financial year 2025–26 in full flow, salaried individuals and other taxpayers are once again faced with an important choice: which tax regime to file under—the old one or the new?

The Income Tax Department allows taxpayers to opt between the two tax regimes. However, the decision can significantly impact your tax liability depending on your income, deductions, and overall financial profile. Therefore, it is advised to do your own research and consult a professional before making the final choice. 

Let's take a look at some of the basic differences between both the tax systems that can make all the difference in your savings.

Understanding The Key Differences Between The Regimes

The new tax regime, introduced with the intention of simplifying tax filing, offers lower income tax rates across slabs. However, this comes with a trade-off—most traditional tax deductions and exemptions are not available. This includes widely claimed benefits under sections 80C (for investments in PPF, ELSS, etc.), 80D (health insurance), and 80DD (maintenance for a dependent with disability).

Meanwhile, the old tax regime continues to allow these deductions, making it potentially more beneficial for individuals who have structured their finances around tax-saving instruments. For those entitled to house rent allowance (HRA), deductions on investments, or tuition fee claims, sticking with the old regime may lead to more tax savings.

Which Regime Should You Choose? 

There’s no one-size-fits-all answer to the question of which regime is better. If you’re in a higher tax bracket but don’t claim many deductions, the new regime might reduce your overall tax outgo.

On the other hand, if you’ve maximized deductions under various sections and hold eligible investments, the old regime could work more in your favour. 

Don’t Count On Budget 2025 Announcements Just Yet

A common point of confusion relates to the recent budget speech by Finance Minister Nirmala Sitharaman, where she declared that income up to Rs 12 lakh would not be taxable under the new regime. But as clarified, these changes will apply only from April 1, 2025, onward. The no income tax for income up to Rs 12 lakh clause will be applicable for returns filed in 2026 for the 2025-26 financial year.

Also Read : Eversource Capital In Discussion To Acquire BluSmart For Rs 850 Crore, Founders Likely To Step Down: Report

Slab Rates, Standard Deduction, And Form Requirements

One important distinction between the two regimes is the standard deduction: the amount stands at Rs 50,000 in the old tax regime, while in the new regime, it has been increased to Rs 75,000. 

While the new regime excludes most exemptions, a few deductions under sections 80CCD(2), 80CCH, and 80JJAA are still allowed as per Section 115BAC of the Income Tax Act.

If you are filing under the old regime and fall under business or professional income categories (such as ITR-3, ITR-4, or ITR-5 filers), you must file Form 10-IEA before submitting your ITR. For salaried individuals or those filing under ITR-1 or ITR-2, this form is not required; you only need to opt out by selecting the relevant checkbox in the return.

Is Switching Between Regimes Allowed Every Year?

This depends on your income type. If you have non-business income, you can switch between the old and new regimes each year, provided the choice is made before the return filing deadline under Section 139(1).

However, taxpayers with business or professional income are allowed to switch back to the new regime only once, after which the old regime cannot be chosen again.

business