Ever since the Union Budget on February 1, 2025, tweaked the new tax regime slabs, many taxpayers have been wondering whether to stick with the old tax regime or switch to the new one. The government’s adjustments in the new tax regime include exempting up to Rs 4 lakh from basic tax and offering tax relaxations for higher-income earners, with the top tax rate of 30% now applicable only for those earning above Rs 24 lakh per annum. After the latest changes to slabs and rebate advantage, now individuals earning up to Rs 12.75 lakh will not be paying any taxes.
While the old tax regime remains unchanged, it still offers numerous deductions and exemptions that can significantly lower taxable income for individuals under mid to high-income brackets. If fully utilised, these deductions can make the old tax regime more beneficial for certain income brackets, particularly those who have planned their investments effectively.
Old Vs. New Tax Regime: Why the old regime can still be better for some taxpayers
To maximise benefits under the old tax regime, taxpayers must have a proper investment strategy that enables them to claim various deductions. However, not everyone makes investments with tax-saving goals in mind, which may limit their ability to take full advantage of the deductions available.
Let’s take a closer look at a taxpayer earning Rs 15 lakh annually and compare their tax liabilities under both regimes.
Tax calculation under the old regime (Salary Rs 15 lakh)
Tax slabs under old regime:
Rs 0 – 2.5 lakh: 0%
Rs 2.5 lakh – 5 lakh: 5%
Rs 5 lakh – 10 lakh: 20%
Above Rs 10 lakh: 30%
Deductions and exemptions (Old tax regime)
Standard Deduction: Rs 50,000
Section 80C (Max): Rs 1,50,000
Section 80D (Max): Rs 75,000
Home Loan Interest (Section 24B): Rs 2,00,000
Additional NPS Deduction (80CCD(1B)): Rs 50,000
Total Deductions: Rs 5.25 lakh
HRA Exemption: Rs 3 lakh (Assumed for a salaried individual receiving Rs 50,000 as basic salary with an HRA component of Rs 25,000 per month)
Taxable income calculation:
Gross salary: Rs 15,00,000
Less total deductions (Rs 5.25 lakh + Rs 3 lakh HRA): Rs 8.25 lakh
Net taxable income: Rs 6.75 lakh
Tax payable under old regime:
Rs 0 – 2.5 lakh: Rs 0
Rs 2.5 lakh – 5 lakh at 5%: Rs 12,500
Rs 5 lakh – 6.75 lakh at 20%: Rs 35,000
Total Tax: Rs 47,500
Cess (4%): Rs 1,900
Final tax liability: Rs 49,400
Tax calculation under the new regime (Salary Rs 15 lakh)
Tax slabs under the new regime:
Rs 0 – 4 lakh: 0%
Rs 4 lakh – 8 lakh: 5%
Rs 8 lakh – 12 lakh: 10%
Rs 12 lakh – 16 lakh: 15%
Rs 16 lakh – 20 lakh: 20%
Rs 20 lakh – 24 lakh: 25%
Above Rs 24 lakh – 30%
Deductions and exemptions (New regime)
Standard Deduction: Rs 75,000 (Only deduction allowed)
Taxable income calculation:
Gross salary: Rs 15,00,000
Less standard deduction: Rs 75,000
Net taxable income: Rs 14,25,000
Tax payable under new regime:
Rs 0 – 4 lakh: Rs 0
Rs 4 lakh – 8 lakh at 5%: Rs 20,000
Rs 8 lakh – 12 lakh at 10%: Rs 40,000
Rs 12 lakh – 14.25 lakh at 15%: Rs 33,750
Total Tax: Rs 93,750
Cess (4%): Rs 3,750
Final tax liability: Rs 97,500
Key takeaways:
This comparison clearly shows that for an individual earning Rs 15 lakh per annum, the old tax regime offers a tax saving of Rs 48,100 compared to the new tax regime — provided they make sufficient investments to utilise all available deductions and claim HRA exemptions.
However, not all taxpayers will be able to claim these benefits. For instance, HRA benefits under Section 10(13A) come with specific conditions, especially for those claiming home loan interest deductions under Section 24B.
Who should choose which regime?
Opt for the old regime if you have substantial tax-saving investments (PPF, EPF, ELSS, NPS, home loan, insurance premiums) and can claim HRA benefits.
Opt for the new regime if you do not have many deductions to claim and prefer a simplified tax structure without investment commitments.
The role of HRA in tax savings
HRA is a major component that can tilt the balance in favour of the old tax regime. The income tax rules specify certain conditions for claiming HRA, especially when also availing of home loan interest benefits. Taxpayers should carefully evaluate whether they meet these conditions before deciding on their tax regime for the financial year.
There is also confusion among taxpayers about whether they can availof HRA exemption benefits if they are availing of the home loan deduction benefits under Section 24B.
Parveen Kumar, Partner – Direct Tax, Dewan P N Chopra & Co., clears the air and says that one can claim both House Rent Allowance (HRA) and home loan benefits together in most cases.
“Many taxpayers wonder whether they can claim both House Rent Allowance (HRA) and home loan benefits under the old tax regime. The answer is yes, provided certain conditions are met,” he said.
Eligibility for HRA and home loan benefits:
1. House Rent Allowance (HRA) Exemption
If you live in a rented house and receive HRA as part of your salary, you can claim an exemption under Section 10(13A), subject to specified limits.
2. Home Loan Interest Deduction
A deduction of up to Rs 2 lakh per year can be claimed under Section 24(b) on home loan interest, provided:
- The house is self-occupied or vacant.
- If the house is rented out, there is no upper limit on the interest deduction.
3. Home Loan Principal Deduction
A deduction of up to Rs 1.5 lakh per year is available under Section 80C on the principal repayment of the home loan.
Conditions to Claim Both HRA and Home Loan Benefits
You can claim both HRA and home loan benefits if: You live in a rented house while owning another house elsewhere.
- The owned house is under construction or located in a different city.
- You have rented out your owned house and are residing in a different rented property.
Situations where you cannot claim both:
Owning and living in your property – If you own the house you live in and are paying home loan interest but do not pay rent, you cannot claim the HRA deduction.
Owning property in the same city – If you own a house in the same city where you also rent accommodation, you cannot claim HRA unless you can prove that your job requires you to live away from your owned property.