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New Tax Regime vs Old Tax Regime – Comparison scenario with calculation
Many assessee and young earners get confused when they hear terms like deductions, exemptions, tax slabs. So let me explain this topic as simply as possible, just like I explain to my CA students and first-time taxpayers.
Let’s Understand in Simple Words
🔹 Old Tax Regime
- You save tax by investing money
- More paperwork, but lower tax if planned well
- Good for people who already save or invest
🔹 New Tax Regime
- You pay tax at lower rates
- No need to invest just to save tax
- Very simple and clean system
E.g. 1: Salaried Employee with Tax Savings
📌 Details of Income
- Annual Salary: ₹8,00,000
- Employee invests and claims deductions
🔹 Tax Calculation under Old Tax Regime
Deductions Claimed: Maximum subject to own actual investment details
- Standard Deduction: ₹50,000
- Section 80C (PF, LIC, ELSS): ₹1,50,000
- Section 80D (Health Insurance): ₹25,000 self and up to 50,000 for parents
Total Deductions = ₹2,25,000
Taxable Income
₹8,00,000 – ₹2,75,000 = ₹5,25,000
Tax (Approximate):
- Up to ₹2.5L → Nil
- ₹2.5L to ₹5L → Tax applies
- Rebate under section 87A available
✅ Final Tax Payable: As per above mentioned slab rate + EC after enjoying basic exemption limit – 10,000/-
🔹 Tax Calculation under New Tax Regime
Deductions Allowed:
- Only Standard Deduction: ₹70,000
Taxable Income
₹8,00,000 – ₹75,000 = ₹7,25,000
Tax (Approximate):
- Lower slab rates apply
- Rebate benefit reduces tax but only if Total income for AY 25-26 below 12 lakh
❌ Final Tax Payable: NIL in our case
📌 Conclusion from Example 1
👉 New Tax regime is clear winner here
Example 2: Young Professional and working as a professional with No Investments
📌 Details of Income
- Annual Salary: ₹8,00,000
- No LIC, no ELSS, no health insurance
- No home loan or rent claim
🔹 Old Tax Regime
Deductions Claimed:
- Only Standard Deduction: ₹50,000 not available because its allowed only to salaried person
Taxable Income:
₹8,00,000 Can opt for presumptive taxation and resultantly 50% ad hoc income will be offered to tax and again No Tax Payable
Tax Payable:
❌ No tax payable with Rebate u/s. 87 as total income is not more than 5 lakh rupees in our case
🔹 New Tax Regime
Deductions: NIL
Taxable Income:
₹7,50,000
Tax Payable:
✅ As Income below 7 lakh – No tax payable
📌 Conclusion from Example 2
👉 New Tax Regime is more preferred even if you have higher income flow.
Example 3: Higher Income with Heavy Planning
📌 Details
- Annual Income: ₹12,00,000
- Home loan interest
- Full tax-saving investments
Old Tax Regime (With Planning)
- Deductions + exemptions reduce taxable income sharply
- Tax saved through:
- Home loan interest
- 80C, 80D, HRA
- Lower final tax
New Tax Regime
- No benefit of deductions
- Tax calculated on higher income
- Higher tax compared to old regime
👉 Old Tax Regime wins clearly subject to one below given HACK exclusively for The CA Desk reader.
Even in New Tax regime you can opt for Employer contribution to NPS u/s. 80CCD(2) limited to 14% of your salary, Employer contribution to EPF allowed up to 12% of Basic salary + DA, Interest paid on Home loan beneficial shelter can be claimed if the property is let-out in nature.
Few other exemption like Leave encashment, gratuity and VRS compensation is also allowed subject to prescribed limit.
New tax regime can be clear winner if your salary is more than 12 lakh in AY 2025-26 too.
Simple Thumb Rules (Student Friendly)
✔ Choose Old Tax Regime if:
- You invest regularly
- You have home loan / insurance
- You want to build long-term savings and falling under high earner salaried i.e. above 22-25 lakh
✔ Choose New Tax Regime if:
- You are new to job
- You don’t invest yet
- You want simple tax filing
- You prefer higher monthly salary
Calculator link for your kind reference: https://eportal.incometax.gov.in/iec/foservices/#/TaxCalc/calculator
Important Points Students Must Remember
- Salaried persons can change regime every year
- Business or professional income → switching is limited
- Always calculate tax under both regimes
- Never invest blindly only to save tax
Must follow The CA Desk Perspective
Tax saving should not harm your cash flow or force unnecessary investments.
Choose the regime that fits your current life stage, not what others suggest.
👉 Lower tax + peace of mind = right tax regime
“Tax Planning is not illegal but its a continuous process and must not rush to do in last minutes instead its round the year slow procedure to do it effectively.”
Still confused which regime is beneficial for your Tax return, You may write us at info@thecadesk.com along with all supportive evidence and documents. Would love to assist you further.