Is the Old Tax Regime Still Relevant in 2025?
The Dawn of the Dual Tax Regimes: A Personal Reflection
In February 2020, amidst global concerns over the COVID-19 pandemic, I found myself, like many others, eagerly anticipating India's Union Budget. As a software developer, the weight of income tax, GST, and other levies often felt burdensome. The middle-class salaried community hoped for relief, and the introduction of the new tax regime seemed promising. However, the initial excitement waned upon realizing that this regime offered reduced tax rates but eliminated popular deductions and exemptions. The absence of benefits like Section 80C deductions, House Rent Allowance (HRA), and others made the new regime less appealing to those who had structured their finances around these exemptions.
Key Deductions and Exemptions Under the Old Tax Regime
The old tax regime provided various avenues to reduce taxable income:
- Section 80C: Deductions up to ₹1.5 lakh for investments in PPF, EPF, NSC, and life insurance premiums.
- Section 80D: Deductions for health insurance premiums, up to ₹25,000 for individuals and ₹50,000 for senior citizens.
- House Rent Allowance (HRA): Exemption for those paying rent, subject to conditions.
- Standard Deduction: A flat deduction of ₹50,000 from salary income.
- Interest on Home Loan: Deduction up to ₹2 lakh on interest paid for a self-occupied property.
Evolution of the New Tax Regime: 2021 to 2025
The new tax regime, introduced in 2020, underwent several modifications to make it more attractive:
- 2021: No significant changes were made, likely due to the economic impact of the pandemic.
- 2022: The regime remained largely unchanged, with the government focusing on economic recovery.
- 2023-24: A pivotal year where the standard deduction of ₹50,000 was extended to the new tax regime. Additionally, employer contributions to the National Pension System (NPS) became exempt, making the regime more appealing.
- 2024-25: The standard deduction was increased to ₹75,000, and tax slabs were adjusted to reduce liabilities for middle-income earners.
Tax Slabs for FY 2024-25
| Income Range (₹) | Tax Rate (%) |
|---|---|
| Up to 3,00,000 | Nil |
| 3,00,001 – 6,00,000 | 5% |
| 6,00,001 – 9,00,000 | 10% |
| 9,00,001 – 12,00,000 | 15% |
| 12,00,001 – 15,00,000 | 20% |
| Above 15,00,000 | 30% |
The Landmark Shift: FY 2025-26
The Union Budget of 2025 marked a significant shift in India's taxation landscape:
- Basic Exemption Limit: Increased from ₹3 lakh to ₹4 lakh.
- Standard Deduction: Enhanced to ₹75,000.
- Tax Rebate (Section 87A): Raised to ₹60,000, effectively making income up to ₹12 lakh tax-free.
- Introduction of a 25% Tax Slab: For income between ₹20 lakh to ₹24 lakh.
Tax Slabs for FY 2025-26
| Income Range (₹) | Tax Rate (%) |
|---|---|
| Up to 4,00,000 | Nil |
| 4,00,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| Above 24,00,000 | 30% |
A Comparative Analysis: Old vs. New Tax Regime
Consider a hypothetical individual with an annual income of ₹25 lakh in FY 2025-26:
Under the Old Tax Regime
| Gross Income | ₹25,00,000 |
| Section 80C | ₹1,50,000 |
| Section 80D | ₹25,000 |
| Standard Deduction | ₹50,000 |
| Home Loan Interest | ₹2,00,000 |
| Total Deductions | ₹4,25,000 |
| Taxable Income | ₹20,75,000 |
| Tax Liability | ₹4,57,500 (excluding cess) |
Under the New Tax Regime (FY 2025-26)
| Gross Income | ₹25,00,000 |
| Standard Deduction | ₹75,000 |
| Taxable Income | ₹24,25,000 |
Tax Calculation (As per new tax slabs)
- ₹4,00,000 - 0% = ₹0
- ₹4,00,001 - ₹8,00,000 (5%) = ₹20,000
- ₹8,00,001 - ₹12,00,000 (10%) = ₹40,000
- ₹12,00,001 - ₹16,00,000 (15%) = ₹60,000
- ₹16,00,001 - ₹20,00,000 (20%) = ₹80,000
- ₹20,00,001 - ₹24,00,000 (25%) = ₹1,00,000
- ₹24,00,001 - ₹25,00,000 (30%) = ₹30,000
Total Tax Liability = ₹3,30,000 (excluding cess)
Comparing the Two
| Old Tax Regime | ₹4,57,500 |
| New Tax Regime | ₹3,30,000 |
| Savings | ₹1,27,500 |
Clearly, the new tax regime offers better savings for this individual, and this trend holds true for many salaried professionals in the ₹12-25 lakh range.
Which Tax Regime is Better for Different Income Brackets?
The best tax regime depends on income level and available deductions. Below is a general guideline:
| Income Bracket | Suggested Tax Regime |
|---|---|
| 0 - 8 lakhs | New Tax Regime (No tax due to rebate, simpler filing) |
| 8 - 15 lakhs | New Tax Regime (Tax-free up to ₹12L, minimal tax liability) |
| 15 - 30 lakhs | New Tax Regime (Higher standard deduction, simple filing) |
| 30 - 50 lakhs | Mostly New Tax Regime (Old may work if deductions exceed ₹5-6L) |
| 50+ lakhs | Mostly New Tax Regime (Old tax regime is better only if deductions exceed ₹10L) |
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How the Government Phased Out the Old Tax Regime
The shift from the old to the new tax regime was a gradual but clear move.
- No major changes in the old tax regime post-2020.
- Incremental enhancements to the new regime (e.g., Standard Deduction inclusion, higher rebate limits, and better slabs).
- Reduced paperwork and compliance requirements in the new tax regime.
- The final blow came in Budget 2025, with ₹12L income tax-free, simplified slabs, and reduced tax burden for middle-class professionals. The old tax regime, though still available, is fading into irrelevance.
Could the Old Tax Regime Have Been Improved Instead?
One major criticism of the government’s approach was its reluctance to update the old tax regime with inflation-adjusted slabs and exemptions. For instance:
- Section 80C (₹1.5 lakh limit) remained unchanged for over a decade while living costs skyrocketed.
- Home loan interest deduction (₹2 lakh) wasn’t updated despite housing prices increasing significantly.
- Standard deduction was stagnant at ₹50,000 until the new regime changes.
Had the government updated these benefits in line with inflation, there wouldn’t have been a need for a new tax regime. Instead, they pushed a "clean slate" approach, making tax calculations simpler while reducing tax savings from deductions.
Will the Old Tax Regime Survive?
With each passing budget, it’s evident that the government wants more taxpayers under the new tax regime.
- Fewer people are opting for it each year.
- The new tax regime now offers tax-free income up to ₹12 lakhs, removing the incentive for most individuals to claim deductions.
- It’s likely that in the next 2-3 years, the old tax regime may be discontinued completely.
Final Thoughts & Tips for Choosing the Right Regime
- If you have significant deductions (home loan, EPF, insurance, HRA, etc.), the old tax regime still works for you.
- If you prefer a hassle-free tax process with minimal paperwork, the new tax regime is better.
- If your income is below ₹12 lakh, the new tax regime is the clear winner.
- If you earn above ₹30 lakh and have multiple investments, evaluate carefully. You might still benefit from the old tax regime.
Conclusion: Is the Old Tax Regime Still Relevant in 2025?
The short answer? Barely.
For most salaried individuals, the new tax regime now offers greater tax savings, fewer compliance hassles, and a clearer tax structure. With ₹12 lakh income now tax-free, even the biggest supporters of the old regime (like me) have switched to the new tax system.
Unless the government revives the old tax regime with inflation-linked deductions, it's only a matter of time before it becomes a thing of the past.
The future of taxation is simpler, and for once, that’s a good thing.
Fun Fact About Taxes in India
Did you know that India's first-ever income tax law was introduced in 1860 by the British to recover costs from the Revolt of 1857? Since then, the tax system has evolved significantly, yet, ironically, middle-class taxpayers still feel the burden 165 years later!
Income Tax FAQs
The old tax regime allows various deductions and exemptions like 80C, HRA, and home loan interest, whereas the new tax regime offers lower tax rates but removes most deductions. In 2025, the new regime is more attractive with tax-free income up to ₹12 lakh and simplified slabs.
For most salaried individuals, the new tax regime in 2025 is more beneficial due to higher tax-free limits, reduced tax rates, and no documentation hassle. However, if you have significant deductions like home loan interest, EPF, and NPS, the old tax regime might still be preferable.
For FY 2025-26, the new tax regime slabs are: - Up to ₹4,00,000: 0% - ₹4,00,001 – ₹8,00,000: 5% - ₹8,00,001 – ₹12,00,000: 10% - ₹12,00,001 – ₹16,00,000: 15% - ₹16,00,001 – ₹20,00,000: 20% - ₹20,00,001 – ₹24,00,000: 25% - Above ₹24,00,000: 30%
The old tax regime is gradually losing relevance as the government is promoting the new tax regime with higher tax-free income and fewer compliance requirements. However, for individuals with high deductions, the old tax regime may still provide better savings.
Under the new tax regime for FY 2025-26, income up to ₹12 lakh is effectively tax-free due to the standard deduction and enhanced rebate under Section 87A.
The old tax regime allows deductions such as: - Section 80C: ₹1.5 lakh for EPF, PPF, NSC, LIC, ELSS, etc. - Section 80D: ₹25,000-₹50,000 for health insurance premiums. - Home Loan Interest: ₹2 lakh deduction on self-occupied property. - Standard Deduction: ₹50,000 from salary income.
The government aims to simplify taxation by reducing exemptions and deductions, lowering tax rates, and minimizing paperwork. The new tax regime aligns with global tax practices and ensures easier compliance for taxpayers.
While the old tax regime is still available, the government has made no major updates to it post-2020. If this trend continues, it is likely that the old tax regime may be phased out in the coming years.
For individuals earning between ₹10-₹30 lakh, the new tax regime is generally better as it offers lower tax rates and fewer compliance requirements. However, if you claim high deductions like home loan interest and EPF contributions, the old tax regime may still be beneficial.