New Delhi: As the income tax return (ITR) filing season gathers pace, taxpayers once again face a familiar decision—whether to opt for the new tax regime or continue with the old tax regime. While the new regime has become the default option and offers lower tax rates, experts say the old regime may still benefit taxpayers with substantial deductions and exemptions.
According to an analysis by Grant Thornton Bharat, the new tax regime provides significant tax savings for most salaried individuals unless they claim exceptionally high deductions.
New regime offers bigger savings for most taxpayers
Grant Thornton Bharat compared tax liabilities for FY 2025-26 for a salaried resident taxpayer below 60 years of age.
The comparison assumed deductions of Rs 4.25 lakh under the old tax regime, including:
- Rs 1.50 lakh under Section 80C
- Rs 25,000 under Section 80D
- Rs 2 lakh as House Rent Allowance (HRA)
- Rs 50,000 standard deduction
Under the new regime, only the Rs 75,000 standard deduction was considered.
The analysis found that the new regime resulted in considerably lower tax liability across multiple income levels.
At an annual salary of Rs 25 lakh, tax under the old regime worked out to Rs 4,52,400, compared with Rs 3,19,800 under the new regime, resulting in a saving of Rs 1,32,600.
A similar tax saving was observed at an annual income of Rs 50 lakh.
For taxpayers earning Rs 75 lakh and Rs 1 crore, where a 10 per cent surcharge becomes applicable, the new regime still offered tax savings of approximately Rs 1.46 lakh.
When does the old regime become beneficial?
Experts say the old regime is not entirely irrelevant, particularly for taxpayers claiming substantial deductions.
The old tax regime becomes more competitive when taxpayers claim benefits such as:
- Home loan interest deduction of up to Rs 2 lakh under Section 24(b)
- Higher House Rent Allowance (HRA)
- Additional National Pension System (NPS) contribution under Section 80CCD(1B)
- Higher medical insurance premiums under Section 80D for senior citizen parents
According to the analysis, taxpayers generally need around Rs 8 lakh or more in total deductions before the old regime begins to offer a tax advantage over the new regime.
Those with significant home loan interest and HRA claims may benefit from calculating tax under both regimes before filing.
Experts recommend personalised tax calculation
Richa Sawhney, Tax Partner at Grant Thornton Bharat, said the choice depends on each taxpayer’s financial profile.
She said the new regime offers lower tax rates and greater simplicity, while the old regime could remain advantageous for individuals claiming substantial deductions and exemptions.
According to her, taxpayers should calculate their tax liability under both regimes rather than deciding solely on the basis of headline tax rates.
Salaried taxpayers can choose every year
Experts also pointed out that salaried individuals have the flexibility to switch between the old and new tax regimes every financial year.
Even if an employer deducts Tax Deducted at Source (TDS) under one regime, taxpayers can opt for the other regime while filing their income tax return if it results in lower tax liability.
Any excess tax deducted can subsequently be claimed as a refund.
However, taxpayers with business or professional income have limited flexibility. They are generally allowed only one switch back to the old regime after opting for the new regime, subject to prescribed rules and filing the required declaration through Form 10-IEA.
Compare both regimes before filing
Tax experts advise taxpayers to use the Income Tax Department’s online tax calculator before filing returns.
For individuals with limited deductions, the new regime is likely to be more beneficial.
However, those claiming substantial exemptions and deductions should compare tax liability under both regimes to determine the most advantageous option.
As both tax regimes continue to coexist, experts say evaluating the two options each year should become a regular part of the tax filing process.