Which One is Better: Old or New Tax Regime?
Choosing between the old and new tax regimes can be a bit confusing, especially when exemptions like HRA are at stake. So, how do you decide which one is right for you?
Let’s break it down.
Old Tax Regime: Ideal for Tax-Savers:
The old tax regime is great if you're someone who:
Lives in rented accommodation and claims HRA exemption
Invests in tax-saving instruments like PPF, ELSS, and life insurance
Pays home loan interest
Buys health insurance policies
Claims other deductions like the standard deduction, LTA, and Section 126 (previously known as Section 80D)
Here, your gross income might look high, but your taxable income can drop significantly thanks to these deductions and exemptions. If you’re actively using these benefits, sticking to the old regime is likely more tax-efficient.
New Tax Regime: Simpler but No Exemptions:
The new regime offers lower tax slab rates but eliminates most deductions and exemptions, including HRA. It suits those who:
Don’t invest much in Section 123 (previously known as Section 80C) instruments
Don’t pay rent or can’t claim HRA
Have a relatively simpler salary structure
Prefer a hassle-free filing process without documentation
It’s also beneficial for young professionals, freelancers, or people in higher salary brackets who don’t have many deductions to claim
Let’s say your annual salary is ₹10 lakh, and you pay rent, invest in PPF, and buy health insurance.
Under the old regime, you might claim HRA (₹1.5 lakh), 123 (₹1.5 lakh), 126 (₹25,000), and standard deduction (₹50,000). Your taxable income would be reduced significantly.
Under the new regime, you get lower rates but no deductions, so your entire salary is taxed.
Depending on how much you're able to claim under deductions, the old regime can often result in less tax paid overall.
