ITR 2025: New Vs Old Tax Regime – Which One Suits You?

As the Income Tax Return (ITR) filing season for FY 2024-25 begins, millions of taxpayers are facing a key decision: Should you stick with the traditional old tax regime, rich in deductions but higher on tax rates, or shift to the simplified, lower-rate new tax regime introduced in Budget 2025?

In this detailed explainer, we decode the critical differences between the two systems, explore who benefits the most from each, and include expert insights from CA Gaurav Makhijani, Associate Partner and Head of Tax (North India & Gujarat) at Rödl & Partner India.

What’s New in Budget 2025?
Finance Minister Nirmala Sitharaman, in her Budget 2025 announcement, made a major change to the new tax regime. Individuals earning up to Rs 12 lakh annually are now exempt from income tax. Furthermore, salaried individuals get a standard deduction of Rs 75,000, effectively raising the tax-free income threshold to Rs 12.75 lakh.

This move has made the new regime a compelling option for many. But while the numbers look promising, taxpayers must assess their individual tax-saving strategies before making a switch.

New Tax Regime: Simpler Structure, Lower Rates, Fewer Deductions
Under the new regime, the government has opted for a cleaner, deduction-free framework with progressive tax slabs. Here's how the tax rates stack up:
Up to Rs 4 lakh: No tax
Rs 4 lakh to Rs 8 lakh: 5%
Rs 8 lakh to Rs 12 lakh: 10%
Rs 12 lakh to Rs 16 lakh: 15%
Rs 16 lakh to Rs 20 lakh: 20%
Rs 20 lakh to Rs 24 lakh: 25%
Above Rss 24 lakh: 30%

This structure significantly lowers the tax burden for middle- to upper-middle-income individuals. In fact, for taxpayers earning between Rs 12 lakh and Rs 24 lakh, the overall tax liability has decreased by approximately 25-31% compared to the old regime.

However, the catch is that most common exemptions and deductions are not available, except for a few like:
Section 24(b): Deduction on home loan interest (only for rented properties)
Section 80CCD(2): Employer contributions to the National Pension Scheme

“The new tax regime offers lower slab rates but does not provide many exemptions and deductions. It is a trade-off between tax simplicity and the ability to claim exemptions,” explained Gaurav Makhijani.

Old Tax Regime: Higher Rates, But Loaded with Tax-Saving Benefits
The old regime continues to be relevant for individuals who extensively use tax-saving instruments. Here's a snapshot of the slab structure:
Up to Rs 2.5 lakh: No tax
Rs 2.5 lakh to Rs 5 lakh: 5%
Rs 5 lakh to Rs 10 lakh: 20%
Above Rs 10 lakh: 30%

This system offers a wide range of exemptions and deductions, including:
Section 80C: Up to Rs 1.5 lakh for investments in PPF, EPF, ELSS, LIC premiums, tuition fees, and more
Section 80D: Up to Rs 25,000 for health insurance (Rs 50,000 for senior citizen parents)
Section 24(b): Up to Rs 2 lakh for home loan interest (self-occupied homes)
HRA & LTA: For salaried individuals receiving house rent or travel allowances

“These deductions can significantly lower the taxable income for taxpayers, especially those who plan their investments wisely throughout the year,” Makhijani noted.

Case-by-Case Decision: Who Should Choose What?
Opt for the New Tax Regime if:
You do not claim or invest in tax-saving deductions.
You prefer a simpler structure without the hassle of document collection.
Your annual income falls between Rs 12 lakh and Rs 24 lakh.
You want reduced tax rates and fewer compliance requirements.

Stick with the Old Tax Regime if:
You actively claim deductions under 80C, 80D, or 24(b).
You invest in instruments like PPF, NPS, or pay home loan EMIs.
You receive HRA or LTA as part of your salary package.
Your deductions reduce your taxable income significantly, offsetting the impact of higher tax rates.

Real-Life Example: Rs 15 Lakh Annual Income
Let’s consider an individual earning Rs 15 lakh annually. Under the old regime, if they claim:
Rs 1.5 lakh under 80C
Rs 25,000 under 80D
Rs 2 lakh under 24(b)

Their taxable income drops to Rs 11.25 lakh, attracting a lower tax liability despite higher rates. However, under the new regime, with no deductions but a flat slab rate and standard deduction, the same individual could still pay less tax—especially if they haven't invested in tax-saving instruments.

“More the exemption or deduction, better is the old regime. But even with some exemptions, the new regime may be better in many cases. The decision should be made after evaluating total eligible deductions and exemptions,” Makhijani advised.

Key Considerations for Salaried and Business Taxpayers
One of the biggest advantages for salaried individuals is flexibility.

“They can switch between the old and new tax regimes every financial year depending on which regime is more beneficial. It is advisable for salaried individuals to calculate the tax outgo under both regimes before making a decision,” said Makhijani.

He also clarified that the regime selected for TDS by an employer does not lock in the taxpayer. “The final selection of the tax regime has to be made in the Income Tax Return (ITR). Different tax positions regarding TDS and final return are allowed. There may be some queries from tax authorities, but these can easily be explained,” he added.

However, for business or professional taxpayers, the rules are stricter. “They are allowed to switch tax regimes only once in their lifetime. Hence, it is important that such taxpayers strategize the decision after considering the long-term implications,” Makhijani cautioned.

Read More - Income Tax Return Filing 2025: Who Needs to File and What You Should Kno

Bottom Line: Evaluate Before You File
The Union Budget 2025 has clearly tilted in favor of the new regime by raising the tax-free threshold and simplifying the tax system. But this may not necessarily be the best fit for everyone.

The decision ultimately boils down to your income level, investment habits, and financial planning strategy. If you're someone who maximizes deductions, the old regime still holds value. But if simplicity and lower rates appeal to you—and you don’t rely on exemptions—the new regime is likely more rewarding.
 

As Gaurav Makhijani sums it up: “Selecting the tax regime is a critical step when finalizing the ITR. The choice between the two has a direct impact on your net cash in hand. Evaluate carefully—because the right tax regime can help you save significantly.”

Before hitting submit on your ITR, take a few minutes to do the math—or consult a tax advisor to avoid leaving money on the table.