As the Income Tax Return (ITR) filing season for Assessment Year 2025–26 begins, many taxpayers are unsure whether to opt for the old or new tax regime. While the new regime offers lower tax rates, it does not allow common exemptions and deductions. The old tax regime, however, provides a wide range of benefits under sections like 80C, 80D, 80G, and Section 24(b), helping reduce taxable income.
This blog will guide you through the key exemptions and deductions available under the old tax regime and offer a clear comparison with the new tax regime for FY 2024–25. Understanding these differences can help you make a well-informed decision and minimise your tax burden effectively.
Understanding the two tax regimes
Taxpayers in India can choose between two tax regimes—old and new—while filing their tax returns.
The old tax regime follows the traditional approach, allowing taxpayers to reduce their taxable income through various deductions and exemptions. These include claims under Section 80C for investments, Section 80D for health insurance premiums, and exemptions like House Rent Allowance (HRA) and Leave Travel Allowance (LTA).
On the other hand, the new tax regime, introduced in FY 2020–21, offers lower tax rates across income slabs but removes most deductions and exemptions. It aims to simplify tax filing, especially for those who do not use many tax-saving options. Choosing the right regime depends on your financial habits and eligible deductions.
Income tax slabs for FY 2024-25 (AY 2025-26)
Understanding the tax slabs under both regimes is essential for selecting the one that suits your financial profile. The new tax regime has been made the default system as per the Finance Act 2023. It offers lower tax rates but fewer deductions, while the old tax regime continues to provide a range of exemptions and deductions.
New tax regime (Default)
The Union Budget 2024 introduced significant changes to the new tax regime, making it the default option for taxpayers. Key updates include revised tax slabs, an increased standard deduction, and an enhanced rebate under Section 87A.
Annual income (Rs.) |
Tax rate |
Up to 3,00,000 |
0% |
3,00,001 – 7,00,000 |
5% |
7,00,001 – 10,00,000 |
10% |
10,00,001 – 12,00,000 |
15% |
12,00,001 – 15,00,000 |
20% |
Above 15,00,000 |
30% |
- Standard Deduction: Rs. 75,000 (available to salaried individuals and pensioners).
- Rebate under Section 87A: Applicable if total income is up to Rs. 7,00,000 (up to Rs. 25,000) – resulting in zero tax liability.
Old tax regime
Annual income (Rs.) |
Tax rate |
Up to Rs. 2,50,000 |
0% |
Rs. 2,50,001 – Rs. 5,00,000 |
5% |
Rs. 5,00,001 – Rs. 10,00,000 |
20% |
Above Rs. 10,00,000 |
30% |
- Standard Deduction: Rs. 50,000 (for salaried individuals and pensioners).
- Rebate under Section 87A: Available for income up to Rs. 5,00,000 (maximum of Rs. 12,500).
- Additional benefits: Multiple deductions available under Sections 80C, 80D, HRA, LTA, and more.
Comparison of deductions: Old regime vs new regime (FY 2024-25)
When choosing between the old and new tax regimes for FY 2024–25 (AY 2025–26), it's essential to understand which deductions and exemptions are available under each. The old tax regime offers a broad range of deductions that can significantly lower your taxable income, while the new regime provides lower tax rates but restricts most deductions.
Particulars |
Old tax regime |
New tax regime (Default) |
Standard Deduction (Salary/Pension) |
Rs. 50,000 |
Rs. 75,000 |
HRA (House Rent Allowance) |
Allowed (subject to conditions) |
Not allowed |
LTA (Leave Travel Allowance) |
Allowed |
Not allowed |
Section 80C (LIC, PPF, ELSS, etc.) |
Up to Rs. 1.5 lakh |
Not allowed |
Section 80D (Health insurance premium) |
Up to Rs. 25,000 / Rs. 50,000 (for senior citizens) |
Not allowed |
Section 80TTA / 80TTB (Savings interest) |
Rs. 10,000 / Rs. 50,000 (for senior citizens) |
Not allowed |
Section 80E (Education loan interest) |
Allowed |
Not allowed |
Section 24(b) (Home loan interest) |
Up to Rs. 2 lakh (for self-occupied property) |
Not allowed |
NPS (Section 80CCD(1B)) |
Up to Rs. 50,000 |
Not allowed |
Rebate u/s 87A (Income ≤ Rs. 5 lakh) |
Rs. 12,500 rebate |
Rs. 25,000 rebate (for income up to Rs. 7 lakh) |
Rebate u/s 87A (Income Rs. 7–7.5 lakh) |
Rebate phases out |
Effective rebate up to Rs. 7.5 lakh (via slab benefit) |
Family pension deduction (u/s 57(iia)) |
Up to Rs. 15,000 or 1/3rd of pension (whichever is lower) |
Up to Rs. 25,000 |
Professional tax (if paid) |
Allowed |
Not allowed |
Example: Comparing old vs new tax regime in 2025
To better understand how each tax regime affects your income, let’s walk through a simple example. This will help you see which option may work best based on your income and deductions.
Scenario
- Gross salary: Rs. 13,00,000 per annum
- Deductions under the old regime:
- Section 80C (Investments in PPF, ELSS, etc.): Rs. 1,50,000
- Section 80D (Health Insurance Premium): Rs. 30,000
- HRA Exemption: Rs. 1,20,000
- Standard Deduction: Rs. 50,000
Old tax regime calculation
Taxable Income = Rs. 13,00,000 – (Rs. 1,50,000 + Rs. 30,000 + Rs. 1,20,000 + Rs. 50,000)
Net Taxable Income = Rs. 9,50,000
Tax payable (approx., excluding cess):
- Rs. 0 – 2.5 lakh: Nil
- Rs. 2.5 lakh – 5 lakh: 5% = Rs. 12,500
- Rs. 5 lakh – 10 lakh: 20% on Rs. 4.5 lakh = Rs. 90,000
Total tax = Rs. 1,02,500
New tax regime calculation
Standard Deduction (as per FY 2024–25) = Rs. 75,000
Taxable Income = Rs. 13,00,000 – Rs. 75,000 = Rs. 12,25,000
Tax payable (approx., excluding cess):
- Rs. 0 - 3 lakh: Nil
- Rs. 3 lakh – 7 lakh: 5% of 4 lakh = Rs. 20,000
- Rs. 7 lakh – 10 lakh: 10% of 3 lakh = Rs. 30,000
- Rs. 10 lakh – 12 lakh: 15% of 2 lakh = Rs. 30,000
- Rs. 12 lakh – 12.5 lakh: 20% of 0.5 lakh = Rs. 10,000
Total tax = Rs. 90,000
Thus, with the new tax regime, you save up to Rs. 12,500 (approximately). However, the optimal choice between the two regimes depends on individual financial situations, including eligible deductions and exemptions.
What are old tax regime deductions?
The old tax regime allows taxpayers to claim numerous deductions and exemptions that can substantially reduce their taxable income. These deductions cover a wide range of expenses, investments, and contributions, making them a vital tool for effective tax planning.
Who benefits most from the old tax regime?
The old tax regime continues to be advantageous for certain groups of taxpayers, especially those who actively claim deductions and exemptions.
1. Individuals with substantial deductions
If your eligible deductions, such as under Sections 80C, 80D, home loan interest (Section 24), and HRA exemptions, add up to Rs. 4 lakh or more, the old regime can significantly lower your taxable income. This makes it especially attractive for salaried individuals with housing loans, insurance premiums, and investments in tax-saving instruments.
2. Salaried taxpayers in the Rs. 12–22 lakh range
For individuals earning between Rs. 12 lakh and Rs. 22 lakh annually, the decision often hinges on the total amount of deductions they can claim. If you regularly invest in tax-saving schemes and receive exemptions like HRA and LTA, the old regime could result in lower tax liability despite higher slab rates.
In short, if you make full use of deductions, the old regime remains a strong option.
Who should consider the old regime?
The old tax regime is best suited for individuals who can fully utilise a range of deductions and exemptions to lower their taxable income. If you are a mid to high-income earner with tax-saving investments and eligible expenses, the old regime may still offer better savings.
1. Salaried individuals in metro cities
If you receive a large House Rent Allowance (HRA) component in your salary and live in a metro city with high rent, the HRA exemption alone can reduce your taxable income considerably, making the old regime beneficial.
2. Home loan borrowers
If you are paying significant interest on a home loan, you can claim up to Rs. 2 lakh under Section 24(b), which is not allowed in the new regime. This, along with deductions under Section 80C for principal repayment, makes the old regime more appealing.
3. Taxpayers with total deductions above Rs. 4–5 lakh
Those who invest regularly in instruments like PPF, ELSS, life insurance, NPS, and pay for health insurance premiums, may see total deductions exceed Rs. 5 lakh. In such cases, the higher slab rates of the old regime may be offset by significant reductions in taxable income.
If you fall into one of these categories, it is worth comparing both regimes carefully before filing your return.
Key benefits of old tax regime deductions
Lower taxable income: The primary advantage of claiming deductions under the old tax regime is the reduction in taxable income. By leveraging these deductions, you can bring down your total income, thus lowering your tax liability.
- Increased savings: Reduced taxable income translates to lower taxes, allowing you to save more. These savings can be redirected towards other financial goals, such as investments, retirement planning, or purchasing a home.
- Financial security: Tax deductions encourage savings and investments in various financial products. Contributions to provident funds, insurance policies, and pension schemes not only provide tax benefits but also ensure long-term financial stability.
- Encouragement for investments: The tax benefits associated with certain investments motivate individuals to invest in financial products like mutual funds, insurance policies, and National Savings Certificates (NSCs), fostering a habit of saving and investing.
Major old tax regime deductions
1. Section 80C deductions
Under Section 80C of the Income Tax Act, you can claim deductions up to Rs. 1.5 lakh for investments in specified financial products. These include:
- Public Provident Fund (PPF): A long-term savings scheme with attractive interest rates and tax-free returns.
- Employees’ Provident Fund (EPF): A retirement savings scheme for salaried employees.
- National Savings Certificates (NSCs): A government savings bond with a fixed interest rate and tax benefits.
- Life insurance premiums: Premiums paid for life insurance policies qualify for tax deductions.
- Equity-Linked Savings Scheme (ELSS): A mutual fund scheme with potential for high returns and tax benefits.
- Tuition fees for children’s education: Tuition fees paid for up to two children are eligible for deductions.
- Principal repayment of a home loan: The principal portion of your home loan EMI can be claimed as a deduction.
2. Section 80D deductions
Section 80D provides deductions for premiums paid towards health insurance for self, spouse, children, and parents. The maximum deduction limit is Rs. 25,000 for individuals and an additional Rs. 25,000 for parents. For senior citizens, the limit is Rs. 50,000.
3. Section 24(b) deductions
Interest paid on a home loan can be claimed as a deduction under Section 24(b). The maximum deduction limit for a self-occupied property is Rs. 2 lakh per annum. For a rented property, there is no upper limit on the deduction, but the overall loss that can be set off under the head 'Income from house property' is restricted to Rs. 2 lakh.
4. House Rent Allowance (HRA)
House Rent Allowance (HRA) is a component of your salary that can be claimed as an exemption if you live in a rented house. The amount of HRA exemption is the least of the following
- Actual HRA received
- 50% of salary (for metro cities) or 40% of salary (for non-metro cities)
- Rent paid minus 10% of salary
5. Leave Travel Allowance (LTA)
Leave Travel Allowance (LTA) can be claimed for expenses incurred on travel within India while on leave. The exemption is available for travel expenses only and does not cover food or lodging expenses.
6. Section 80E deductions
Interest paid on an education loan for higher studies can be claimed as a deduction under Section 80E. There is no upper limit for this deduction, and it is available for a maximum of 8 years or until the interest is fully paid, whichever is earlier.
7. Section 80G deductions
Donations made to specified charitable institutions and funds qualify for deductions under Section 80G. The extent of the deduction varies depending on the type of institution and the donation amount.
Guidelines for claiming old tax regime deductions
- Maintain proper documentation: Ensure that you maintain all necessary documents, such as rent receipts, medical bills, investment proofs, and loan certificates, to substantiate your claims.
- Plan your investments: To maximise your tax benefits, plan your investments at the beginning of the financial year. Spread your investments across various tax-saving instruments to diversify your portfolio and minimise risk.
- Keep track of deadlines: Be aware of the deadlines for making tax-saving investments and submitting proofs to your employer. Missing these deadlines can result in losing out on potential tax benefits.
- Stay updated: Tax laws are subject to change, and staying informed about the latest amendments can help you take advantage of new benefits and avoid any compliance issues.
- Consult a tax advisor: If you find it challenging to navigate the complexities of tax deductions, consider consulting a tax advisor. A professional can provide personalised advice and ensure that you make the most of the available deductions.
Can I switch to the old income tax regime while filing ITR?
Yes, most individual taxpayers can switch to the old income tax regime while filing their Income Tax Return (ITR), even if they opted for the new regime during the financial year. For salaried individuals and pensioners, the choice of tax regime is not permanent and can be changed every year at the time of filing the return. This allows flexibility based on your annual income and eligible deductions.
If you have received your Form 16 under the new regime but later find that the old regime offers better tax savings—perhaps due to investments or exemptions—you can select the old regime in your ITR form before submission.
However, if you have income from a business or profession, you can switch between regimes only once. After moving to the new regime, switching back to the old regime in a future year will not be permitted unless the business or professional income ceases.
To make the switch, ensure you select the appropriate option in the ITR form and compute your tax liability accordingly. No separate form is required for salaried individuals to notify of the change; it can be done directly during ITR filing.
Pros and cons of each tax regime
Choosing between the old and new tax regimes depends on your income structure, spending habits, and financial goals.
Old tax regime
Pros:
- Offers higher tax savings through deductions under sections like 80C, 80D, HRA, and home loan interest.
- Ideal for salaried individuals with housing loans, rent payments, and insurance premiums.
- Suitable for families claiming multiple exemptions, such as education loans or children’s tuition.
Cons:
- Involves complex documentation and record-keeping.
- Requires consistent investment in tax-saving instruments to maximise benefits.
New tax regime
Pros:
- Simplifies tax filing by eliminating most deductions and exemptions.
- No need to maintain proof of investments or expenses.
- Offers flexibility for those who prefer liquidity over tax-saving commitments.
Cons:
- Lacks incentives to save or invest long-term.
- No relief for common expenses like HRA, LTA, or home loan interest.
- Evaluate your financial profile carefully to decide which regime suits you best.
How to choose between old and new tax regimes?
Selecting the right tax regime requires a clear understanding of your income, expenses, and investment profile. Start by listing all the deductions and exemptions you are eligible for under the old regime, such as those under Sections 80C, 80D, HRA, LTA, and home loan interest. Subtract these from your gross income to arrive at your net taxable income under the old system.
Next, calculate your tax liability under both regimes using the applicable slabs and benefits. The regime with the lower overall tax liability is generally the better choice for you.
If you're a salaried individual, you can inform your employer about your preferred regime at the start of the financial year to ensure correct TDS deduction. If you don't, the new regime will be applied by default.
Also consider other factors, such as losses from house property or business, since these may be treated differently across regimes and could affect your long-term tax outcomes.
Which tax system is best for you
The ideal tax regime depends on your income level, financial goals, and how effectively you use tax-saving options. If you regularly invest in schemes like PPF, ELSS, or NPS, pay insurance premiums, or claim deductions such as HRA or home loan interest, the old tax regime may offer greater savings through exemptions and deductions.
On the other hand, if you prefer a simpler tax structure with minimal paperwork and do not claim many deductions, the new tax regime might be more suitable. It offers lower tax rates and is ideal for those who prioritise liquidity and flexible spending over long-term tax-saving commitments.
Ultimately, you should calculate your expected tax liability under both regimes based on your actual financial data. The better option is the one that helps reduce your tax burden while aligning with your financial strategy and lifestyle.
Conclusion
The old tax regime continues to offer valuable deductions and exemptions that can significantly lower your taxable income, especially if you actively invest in tax-saving instruments and incur eligible expenses. From Section 80C and 80D to HRA and home loan interest, these provisions are ideal for individuals with structured financial planning. While the new regime offers simplicity and lower rates, the old regime rewards disciplined savers.
Choosing the right regime depends on your income profile and ability to claim deductions. Evaluate both options carefully to ensure you make a tax-efficient decision that aligns with your long-term financial goals.
