Tax, GST and company law glossary

Old Tax Regime

The income tax system with higher slab rates that allows deductions such as HRA, 80C, 80D and home loan interest.

In short

You must choose it actively. Salaried people can pick it each year while filing; people with business income can switch only once.

What it means

The old tax regime is the earlier income tax system with higher slab rates but a long list of deductions and exemptions, such as HRA, LTA, section 80C investments, 80D health insurance, 80CCD(1B) NPS and interest on a home loan. Since the new regime is the default, you must actively opt for the old regime if you want these benefits.

How it works

Slab rates for individuals below 60 years:

  • Up to ₹2,50,000: nil (₹3,00,000 for seniors aged 60 to 79, ₹5,00,000 for those 80 and above)

  • ₹2,50,001 to ₹5,00,000: 5%

  • ₹5,00,001 to ₹10,00,000: 20%

  • Above ₹10,00,000: 30%

Cess of 4% is added. The section 87A rebate is up to ₹12,500 if taxable income does not exceed ₹5 lakh. Salaried people get a standard deduction of ₹50,000.

  • Salaried people with no business income can choose either regime every year while filing the return.

  • People with business or professional income must file the option form before the return due date. They can switch back to the new regime only once in their lifetime after opting out.

Example

Rohan earns a salary of ₹20,00,000. He claims HRA exemption ₹3,00,000, 80C ₹1,50,000, 80D ₹25,000, home loan interest ₹2,00,000 and NPS under 80CCD(1B) ₹50,000.

  1. Old regime: ₹20,00,000 minus standard deduction ₹50,000 and deductions ₹7,25,000 = ₹12,25,000 taxable.

  2. Tax: ₹12,500 (2.5 to 5 lakh) + ₹1,00,000 (5 to 10 lakh) + ₹67,500 (30% of ₹2,25,000) = ₹1,80,000. Add cess ₹7,200. Total ₹1,87,200.

  3. New regime: ₹20,00,000 minus ₹75,000 = ₹19,25,000 taxable. Tax: ₹20,000 + ₹40,000 + ₹60,000 + ₹65,000 = ₹1,85,000. Add cess ₹7,400. Total ₹1,92,400.

  4. The old regime saves Rohan ₹5,200 because his deductions are large.

Key points to remember

  • The old regime usually helps only when total deductions are large, often above ₹4 to 5 lakh.

  • Keep proofs for every deduction; your employer collects them in Form 124 (earlier Form 12BB).

  • A business owner who misses the option deadline is taxed under the new regime for that year.

  • Recheck the comparison every year as your salary and deductions change.

Income Tax

Try the Old vs New Regime →All glossary terms

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