India's New vs Old Income Tax Regime

How India's two income tax regimes differ, why the new regime became the default, and how to decide which suits you.

Since 2020, individual taxpayers in India have been able to choose between two income tax systems: the old regime and the new regime.

The old regime

The old regime has higher tax rates but allows many deductions and exemptions, such as:

Section 80C investments, including PPF, EPF, ELSS mutual funds and life insurance premiums, up to 1.5 lakh rupees.
Health insurance premiums under Section 80D.
House rent allowance.
Home loan interest.

The new regime

The new regime has lower rates and more tax slabs, but removes most deductions and exemptions. It was introduced as an option in 2020 and made the default from the 2023 to 2024 financial year, meaning taxpayers are placed in it unless they choose the old regime.

The 2025 Budget made the new regime more generous. For most individuals, income up to 12 lakh rupees became effectively tax-free through a rebate, and salaried taxpayers also get a standard deduction of 75,000 rupees, making income up to 12.75 lakh rupees effectively tax-free for them.

Which is better?

The answer depends on how many deductions you can claim:

People with few deductions usually pay less under the new regime.
People with large deductions, such as big home loan interest, rent and full 80C investments, may still pay less under the old regime.

Many online calculators, including one on the Income Tax Department’s website, help compare.

Policy aims

The government’s aims include simplifying the tax system and reducing reliance on deductions that complicate filing and mainly benefit those who can afford tax-saving investments. Critics note that removing deductions reduces incentives to save in long-term instruments.

Comparing for two workers

A salaried worker earning 10 lakh rupees with no investments or home loan pays no income tax under the new regime after the 2025 changes, because of the rebate. A colleague earning 20 lakh rupees with large home loan interest and rent deductions might calculate that the old regime still costs less. The same law produces different best choices for different people.

Thinking one regime is best for everyone

The better regime depends on each person's income and deductions. Calculating tax under both, or using official calculators, is the reliable way to decide.

Key takeaways

India has an old regime with deductions and a new regime with lower rates and few deductions.
The new regime became the default from 2023 to 2024.
After the 2025 Budget, income up to 12 lakh rupees is effectively tax-free for most under the new regime.
The better choice depends on each taxpayer's deductions.