Choosing the most tax-efficient route for the Financial Year 2024–25 requires a good understanding of India’s dual tax system—the Old Tax Regime vs. the New Tax Regime. Introduced to give flexibility to taxpayers, these two systems offer a trade-off: either enjoy lower tax rates with no deductions or opt for a higher tax rate with multiple exemptions and deductions.
In Budget 2023, the Indian Government made the New Tax Regime the default regime from FY 2023–24 onwards, emphasizing simplification and broader adoption. However, the Old Regime is still available, and you can opt for it while filing your Income Tax Return (ITR).
Let’s explore both systems in depth, including the latest tax slabs, deductions, rebates, and practical comparisons.
Understanding Financial Year 2024–25 & Assessment Year 2025–26
- Financial Year (FY): 1 April 2024 to 31 March 2025
- Assessment Year (AY): 2025–26 (You file your returns for income earned during FY 2024–25 in this AY)
The tax rules, including slab rates and exemptions, are applicable for income earned during the financial year and assessed in the following year.
What Are the Two Income Tax Regimes?
Old Tax Regime:
- Offers various deductions and exemptions
- Examples: Section 80C, 80D, HRA, LTA, Home Loan Interest, Education Loan
- Encourages tax-saving investments
- Involves relatively higher tax slabs, but provides relief through exemptions
New Tax Regime:
- Introduced under Section 115BAC
- Offers lower tax rates with no exemptions/deductions (except a few)
- Aimed at simplifying tax compliance
- More favorable to those with fewer tax-saving investments
Latest Income Tax Slabs for FY 2024–25
Old Tax Regime Slabs (FY 2024–25)
| Income Range (₹) | Tax Rate |
| Up to ₹2.5 lakh | Nil |
| ₹2.5 lakh – ₹5 lakh | 5% |
| ₹5 lakh – ₹10 lakh | 20% |
| Above ₹10 lakh | 30% |
- Senior Citizens (60–79 years): Exemption limit = ₹3 lakh
- Super Senior Citizens (80+ years): Exemption limit = ₹5 lakh
- Deductions allowed: 80C, 80D, 80E, 24(b), HRA, etc.
New Tax Regime Slabs (FY 2024–25)
| Income Range (₹) | Tax Rate |
| Up to ₹3 lakh | Nil |
| ₹3 lakh – ₹6 lakh | 5% |
| ₹6 lakh – ₹9 lakh | 10% |
| ₹9 lakh – ₹12 lakh | 15% |
| ₹12 lakh – ₹15 lakh | 20% |
| Above ₹15 lakh | 30% |
- Standard Deduction: ₹50,000 (applicable from FY 2023–24 onwards)
- No deductions like 80C/80D, etc.
- Section 87A rebate up to ₹7 lakh
Key Differences Between Old and New Tax Regime
| Parameter | Old Regime | New Regime |
| Basic Exemption Limit | ₹2.5L (₹3L/₹5L for seniors) | ₹3 lakh |
| Tax Rates | Higher | Lower |
| Deductions & Exemptions | Allowed | Mostly not allowed |
| Standard Deduction | ₹50,000 | ₹50,000 |
| HRA / LTA | Available | Not Available |
| Section 80C/80D/24(b), etc. | Allowed | Not Allowed |
| Section 87A Rebate | Up to ₹5 lakh income | Up to ₹7 lakh income |
| Suitability | High deductions | Simpler, fewer deductions |
| Tax Filing Complexity | High | Low |
Who Should Opt for the Old Regime?
Opt for the Old Regime if:
- You claim substantial deductions (more than ₹3 lakh)
- You invest in PPF, ELSS, NPS, insurance, home loans
- You are eligible for HRA or LTA
- Your income includes exemptions like gratuity, leave encashment
- You prefer customizing your tax savings
Who Should Opt for the New Regime?
Choose the New Regime if:
- You don’t invest much in tax-saving instruments
- You are self-employed or have a simple salary structure
- You want minimal documentation and faster filing
- You don’t claim exemptions like HRA, LTA, or 80C
Detailed List of Allowed Deductions in Each Regime
Old Regime – Deductions Allowed:
- Section 80C – ₹1.5L (PF, LIC, ELSS, tuition fees, etc.)
- Section 80D – ₹25,000 to ₹75,000 (Health Insurance)
- Section 24(b) – ₹2L (Home Loan Interest)
- HRA / LTA – As per eligibility
- Section 80E, 80G, 80TTA/TTB – Education, Donations, Savings Interest
New Regime – Limited Deductions:
- Standard Deduction (₹50,000)
- EPF Employer Contribution under Section 80CCD(2)
- NPS Employer Contribution
- Agnipath Scheme Tax Reliefs (if applicable)
Section 87A Rebate: Save Tax Up to ₹7 Lakh
| Regime | Rebate Eligibility | Rebate Amount | Tax Payable |
| Old Regime | Income ≤ ₹5L | ₹12,500 | Zero |
| New Regime | Income ≤ ₹7L | ₹25,000 | Zero |
The New Regime offers a higher rebate limit, making it attractive to those earning under ₹7 lakh.
Real-Life Tax Calculation Examples
Example A – Salary ₹10 lakh, No Deductions
| Regime | Taxable Income | Tax Payable (Excl. Cess) |
| Old Regime | ₹10 lakh | ₹1,12,500 |
| New Regime | ₹10 lakh | ₹62,500 |
New Regime is more beneficial
Example B – Salary ₹10 lakh, Deductions of ₹3.5 lakh
| Regime | Taxable Income | Tax Payable (Excl. Cess) |
| Old Regime | ₹6.5 lakh | ₹32,500 |
| New Regime | ₹10 lakh | ₹62,500 |
Old Regime is more beneficial
Additional Considerations
Surcharge (on high income):
- 10%: ₹50L – ₹1Cr
- 15%: ₹1Cr – ₹2Cr
- 25%: ₹2Cr – ₹5Cr
- 37%: Above ₹5Cr (capped to 25% under new regime)
Health & Education Cess: 4% on total tax + surcharge
Expert Tips for Choosing the Right Regime
- Use an online Income Tax Calculator to compare both regimes
- Check your investment commitments and lifestyle expenses
- Salaried? Evaluate via Form 16 and speak with your HR
- Business owners: Consult a CA, as switching is limited
Conclusion
India’s two-regime tax structure is designed to offer flexibility and personalization. The New Regime is great for those with straightforward income and no interest in saving through tax exemptions, while the Old Regime rewards disciplined savers and investors.
Always evaluate your tax outflow under both regimes before filing your ITR. For many, the best regime changes as your income or life stage evolves.
Frequently Asked Questions
Q1. Is the New Regime compulsory now?
No, it is the default regime. Taxpayers can still opt for the Old Regime while filing.
Q2. Can I switch between regimes every year?
Yes, salaried individuals can switch annually. Business owners can switch only once (Section 115BAC).
Q3. Can I claim HRA in the New Regime?
No. HRA, LTA, and most deductions are not allowed under the New Regime.
Q4. Do I need to declare regime choice to my employer?
Yes, declare it at the start of the FY to ensure accurate TDS. You can still change it at the time of ITR filing.
Q5. Which regime is better for pensioners or retirees?
Retirees with no tax-saving deductions may find the New Regime simpler and more beneficial.
