Old Tax Regime
The old tax regime keeps all the standard deductions and exemptions like 80C, 80D, HRA, and LTA, but uses higher slab rates. It works best for employees with significant investments, rent, and home loan interest.
What is Old Tax Regime?
Under the old regime, slabs for FY 2025-26 are: nil up to ₹2.5 lakh, 5% from ₹2.5L to ₹5L, 20% from ₹5L to ₹10L, and 30% above ₹10L. A rebate under Section 87A makes income up to ₹5 lakh tax-free. The big draw is deductions. You can claim 80C (₹1.5L), 80D (health insurance), 80CCD(1B) (₹50K NPS), HRA exemption, LTA, home loan interest under Section 24(b), standard deduction of ₹50,000, and many more. For someone paying rent in a metro, repaying a home loan, and maxing out 80C and 80D, the old regime can comfortably beat the new one. From FY 2023-24, the new regime is the default. To stay on the old regime, salaried taxpayers must explicitly opt in each year through Form 10-IEA (or by declaring it to the employer at the start of the year).
Example
Suresh earns ₹15 lakh CTC. Old regime: ₹1.5L 80C + ₹50K 80D + ₹2L home loan interest + ₹1.8L HRA + ₹50K standard deduction = ₹6.3L deductions. Taxable income ₹8.7L. Tax (before cess): ₹87,000. New regime tax on ₹15L (after ₹75K standard deduction): around ₹1,30,000. He saves with old regime.
How Old Tax Regime is used
Payroll software asks each employee in April which regime they want, applies the right slabs and deductions, and recalculates if they switch in January. The choice locks in for the financial year (with limited exceptions).
Old Tax Regime FAQs
Can I switch between old and new regime every year?
Yes, salaried taxpayers can switch each year. Business owners with professional income can usually switch only once.
What is the standard deduction in the old regime?
₹50,000 for FY 2025-26. The new regime offers ₹75,000 instead.
Is HRA allowed under the old regime?
Yes. HRA exemption under Section 10(13A) is fully available in the old regime, but not in the new one.