Choosing between old and new tax regimes: Why the old system may still be better

Multiple taxpayers find the old tax rule more adaptable, especially regarding deductions and exemptions.

Since the introduction of the new tax regime in 2020, Indian taxpayers now have the flexibility to choose between two systems:

• The old regime, which offers a host of deductions and exemptions
• The new regime, which offers lower tax rates but eliminates most deductions.

While the new structure was designed to simplify taxation, it may not be ideal for everyone—especially for those who actively utilize tax-saving instruments under the Income Tax Act.

1. If You Maximize Deductions and Exemptions, Stick with the Old Regime

One of the strongest advantages of the old tax regime is its rich landscape of tax-saving options. Under Section 80C, you can claim deductions up to ₹1.5 lakh by investing in:

• Employee Provident Fund (EPF)
• Public Provident Fund (PPF)
• Life insurance premiums
• Equity-Linked Savings Schemes (ELSS)
• Repayment of home loan principal

In addition, other sections such as 80D (health insurance) and 24(b) (home loan interest) can significantly reduce your taxable income. You can also claim House Rent Allowance (HRA) exemptions, which are essential for salaried individuals living in rented homes.

If you’re already utilizing these deductions to their full potential, opting for the new tax regime—despite lower tax rates—may increase your tax liability.

2. Home Loan or Rent Payments? The Old Regime Offers More Relief

For those who own a home with an active loan or live in rented accommodation, the old regime provides significant relief:

• Up to ₹2 lakh can be claimed on interest payments under Section 24(b)
• Principal repayments qualify under Section 80C
• Salaried individuals renting homes can claim HRA exemptions

In contrast, the new regime does not permit any of these deductions. So, if you’re a homeowner or renter in an urban center, sticking with the old tax regime may result in substantial savings.

Final Word

While the new tax regime is simpler, it’s not necessarily cheaper for everyone. If your financial planning includes heavy use of deductions and exemptions, the old regime will likely offer a better net tax benefit. Assess your income, deductions, and lifestyle before making a switch—choosing the right tax regime can make a big difference in your annual tax outgo.