Analyzing the Impact of Old Regime vs New Regime After Budget 2025: Which is the Better Option?

The Union Budget 2025 introduced major changes in India’s tax structure, especially with the new tax regime. The biggest highlight is the zero-tax limit up to ₹12.75 lakh for salaried individuals. However, many taxpayers still find the old tax regime beneficial due to its deductions and exemptions.

So, which one should you choose? Let's break it down with detailed comparisons and real-life scenarios.

Key Highlights of Union Budget 2025 for Income Tax

✅ Zero Tax Up to ₹12.75 Lakh (Salaried, New Regime)✅ Higher Basic Exemption Limit: ₹12 lakh (new regime) vs ₹2.5 lakh (old regime)✅ Simplified Tax Slabs in the New Regime✅ Old Regime Still Allows Popular Deductions (80C, 80D, HRA, Home Loan Interest, etc.)✅ Lower Compliance in New Regime (Minimal Documentation Needed)

New Tax Regime vs Old Tax Regime: Income Tax Slabs (FY 2025-26)

New Tax Regime - Income Tax Slabs (FY 2025-26)

Income Range (₹)	Tax Rate
0 – 4 lakh	0%
4 – 8 lakh	5%
8 – 12 lakh	10%
12 – 16 lakh	15%
16 – 20 lakh	20%
20 – 24 lakh	25%
Above 24 lakh	30%

Note: Salaried individuals enjoy an additional ₹75,000 standard deduction, effectively making ₹12.75 lakh tax-free.

Old Tax Regime - Income Tax Slabs (FY 2025-26)

Income Range (₹)	Tax Rate
0 – 2.5 lakh	0%
2.5 – 5 lakh	5%
5 – 10 lakh	20%
Above 10 lakh	30%

Note: The old regime allows deductions like 80C (₹1.5 lakh), 80D (health insurance), HRA, LTA, home loan interest, and others, which can significantly reduce taxable income.

New vs Old Tax Regime: Quick Comparison Table

Criteria	Old Tax Regime	New Tax Regime (Budget 2025)
Basic Exemption Limit	₹2.5 lakh	₹12 lakh (₹12.75 lakh for salaried)
Tax Slabs	5%, 20%, 30%	0%, 5%, 10%, 15%, 20%, 25%, 30%
Deductions & Exemptions	Allowed (HRA, 80C, 80D, etc.)	Minimal (Only ₹75,000 standard deduction for salaried)
Compliance & Documentation	High (investment proofs, rent receipts, etc.)	Low (simpler filing, no deductions to track)
Ideal For	Taxpayers with high deductions & exemptions	Those with limited deductions or wanting simpler slabs

Who Benefits Most from Each Regime?

✅ Choose the Old Regime If You:

✔ Have high deductions (₹5–8 lakh or more)✔ Pay home loan interest (₹2 lakh deduction)✔ Claim HRA, LTA, 80C investments (PPF, ELSS, etc.), 80D (health insurance), 80G (donations)✔ Prefer long-term tax-saving investments

✅ Choose the New Regime If You:

✔ Earn up to ₹12.75 lakh (zero-tax benefit)✔ Don't invest much in tax-saving instruments like PPF, ELSS, insurance✔ Want minimal documentation and a hassle-free process✔ Are a high-income earner (above ₹24 lakh) with low deductions (below ₹8 lakh)

Income-Wise Scenarios: Which Regime Saves More?

Scenario 1: Income ₹13 Lakh (Salaried Individual)

Tax Regime	Tax Liability (₹)
New Regime	₹0 (after ₹75,000 standard deduction)
Old Regime	Can match or beat new regime only if deductions exceed ₹2-3 lakh

✅ Verdict: The New Regime is better unless you have large deductions under the old system.

Scenario 2: Income ₹20 Lakh (Salaried Individual)

Tax Regime	Tax Liability (₹)
New Regime	Lower slabs, fewer deductions (₹75,000 standard deduction)
Old Regime	Can be better if deductions (HRA, 80C, 80D, home loan) exceed ₹5 lakh

✅ Verdict: If total deductions are below ₹5 lakh, go for the New Regime. Otherwise, stick to the Old Regime.

Scenario 3: Income Above ₹24 Lakh

Tax Regime	Tax Liability (₹)
New Regime	Lower slabs but minimal deductions
Old Regime	Better if deductions exceed ₹8 lakh

✅ Verdict: If total deductions (excluding standard deduction) are under ₹8 lakh, the New Regime is better. Otherwise, the Old Regime still wins.

Key Takeaways: Old vs New Tax Regime

🔹 Income up to ₹12.75 lakh: New regime is better (zero tax).🔹 Income ₹12L – ₹24L: If deductions exceed ₹5 lakh, old regime may still be better.🔹 Income ₹24L+: New regime is better unless deductions exceed ₹8 lakh.🔹 Low Documentation? New regime is simpler.🔹 Want to maximize savings? If you can use exemptions, old regime works better.

Best Approach:

Calculate your total deductions under the old regime (80C, 80D, HRA, home loan interest).
Compare the final tax liability in both regimes.
Choose the option that results in the lowest tax outgo.

Final Verdict: Which One Should You Choose?

Taxpayer Profile	Best Regime
Salaried with income up to ₹12.75L	✅ New Regime (Zero Tax Benefit)
Mid-range earners (₹12L – ₹24L) with high deductions	✅ Old Regime
High-income earners (₹24L+) with fewer deductions (<₹8L)	✅ New Regime
Self-employed with business income & tax-saving investments	✅ Old Regime
Those who prefer simple tax filing	✅ New Regime

Conclusion

The New Regime is ideal for taxpayers with lower deductions and those looking for a hassle-free, minimal-documentation tax system. The Old Regime remains beneficial for those who actively use deductions, especially for home loans, investments, and insurance.

Need Help Choosing the Right Regime?

Consult a tax expert to evaluate your specific financial situation before filing your ITR.

Which regime do you find better? Let us know in the comments!