Old vs New Tax Regime as per Income Tax Act,1961
Introduction
The Indian Income Tax Act, 1961, as of FY 2024‑25 onwards, offers two distinct tax computation frameworks: the Old Tax Regime (Normal Regime) and the New Tax Regime (Default Regime).
From AY 2024‑25, the New Regime is the default structure, though taxpayers may opt for the Old Regime under specified conditions.
It is advisable to compare working under both schemes before filling ITR.
1. Tax Slabs & Rates
Old Tax Regime:
Tax rates begin at Nil for income up to ₹2.5 lakh, then 5% for ₹2.5–5 lakh, 20% for ₹5–10 lakh, and 30% beyond ₹10 lakh.
New Tax Regime (Budget 2025 Revised):
Income up to ₹4 lakh: Nil
₹4–8 lakh: 5%
₹8–12 lakh: 10%
₹12–16 lakh: 15%
₹16–20 lakh: 20%
₹20–24 lakh: 25%
Above ₹24 lakh: 30%
The juxtaposition shows broader, more graduated slabs in the new regime, potentially yielding lower taxes for those with moderate incomes.
2. Deductions & Exemptions
Old Tax Regime:
Taxpayers can claim numerous exemptions — HRA, LTA, standard deduction (₹50,000), Section 80C, 80D, and other Chapter‑VIA deductions (~70 in total).
New Tax Regime:
Offers limited deductions: standard deduction (raised to ₹75,000 per Budget 2025), employer’s NPS contribution under section 80CCD(2), etc. Most Chapter‑VIA deductions are disallowed.
3. Rebate under Section 87A
Old Regime:
Individuals with income up to ₹5 lakh receive a rebate up to ₹12,500 (100% tax).
New Regime:
Rebate increased to ₹25,000 for incomes up to ₹7 lakh; Budget 2025 effectively brings zero-tax liability up to ₹12 lakh (₹12.75 lakh after standard deduction).
4. Default Regime & Opt-Out Procedure
The New Tax Regime is default from AY 2024‑25 onward. Taxpayers with non‑business income may switch annually via ITR form before due date (Section 139(1)). Those with business/professional income must file Form 10‑IEA to opt for the Old Regime; withdrawal and switching rules are more restrictive (one‑time switch back).
Additionally, the Income Tax Department provides an Income and Tax Calculator on its e‑Filing portal to compare both regimes.
Form 10EA
If opting for the old regime and having business or professional income, Form 10‑IEA must also be filed by the due date at Income Tax Department.
No additional document requirements are available from that source. Hence, taxpayers should compile these essential documents in advance to ensure accurate reporting and compliance under the old tax framework.
Conclusion & Recommendation
The optimal choice depends on personal specifics:
Old Regime suits those with significant exemptions—like HRA, 80C, 80D, LTA—where deduction benefits outweigh lower slab rates.
New Regime is beneficial for those who prefer simplicity and have fewer deductions, especially with enhanced rebate and broader zero‑tax thresholds.
Under the old tax regime, taxpayers must retain key documents for accurate ITR filing, even though originals aren’t submitted. According to the Income Tax Department FAQs, retain Form 16, Form 26AS, AIS, bank statements, interest certificates, and investment proofs to substantiate income and deductions Income Tax Department. corroborates this checklist, adding salary slips and reiterating the need for Form 16, Form 26AS, AIS, bank statements, and TDS certificates.