Should You File Income Tax Return Under the New Tax Regime? A Complete Guide
Introduction
The Indian income tax system offers taxpayers a choice between two regimes: the old tax regime (with deductions and exemptions) and the new tax regime (with lower tax rates but fewer benefits). Since its introduction in Budget 2020, the new regime has undergone changes, making it more attractive for many taxpayers.
But should you switch to the new tax regime while filing your ITR? This detailed guide will help you decide by comparing both regimes, analyzing key changes, and providing expert recommendations.
Key Differences Between Old vs. New Tax Regime
| Feature | Old Tax Regime | New Tax Regime (FY 2023-24 Onwards) |
|---|---|---|
| Basic Exemption Limit | ₹2.5 Lakh | ₹3 Lakh |
| Tax Slabs | Higher rates | Lower rates (see table below) |
| Deductions (80C, 80D, HRA, etc.) | Allowed | Mostly not allowed (except standard deduction for salaried) |
| Rebate (87A) | Up to ₹12,500 (income ≤ ₹5 Lakh) | Up to ₹25,000 (income ≤ ₹7 Lakh) |
| Surcharge | Applicable as per income | Reduced for income above ₹5 crore |
New Tax Regime Slabs (FY 2023-24 Onwards)
| Income Range (₹) | Tax Rate |
|---|---|
| Up to 3 lakh | 0% |
| 3-6 lakh | 5% |
| 6-9 lakh | 10% |
| 9-12 lakh | 15% |
| 12-15 lakh | 20% |
| Above 15 lakh | 30% |
Who Should Opt for the New Tax Regime?
1. Salaried Individuals with Minimal Deductions
If you don’t invest much in tax-saving instruments (like PPF, ELSS, or insurance), the new regime may be better due to lower tax rates.
2. Taxpayers with Income Below ₹7.5 Lakh
Due to the enhanced rebate (87A), those earning up to ₹7.5 lakh can pay zero tax under the new regime (after standard deduction).
3. Those Who Prefer Simplicity
The new regime eliminates complex deductions, making tax filing easier and faster.
4. Freelancers & Business Owners with Lower Expenses
If you don’t claim many business expense deductions, the new regime’s flat rates may be beneficial.
Who Should Stick to the Old Tax Regime?
1. Taxpayers with High Deductions (₹2-3 Lakh+)
If you invest heavily in:
80C (PPF, ELSS, NSC, etc.)
80D (Health Insurance)
HRA, LTA, Home Loan Interest (24(b))
The old regime could save you more.
2. Home Loan Borrowers
The interest deduction (up to ₹2 lakh under 24(b)) is not available in the new regime.
3. High-Income Earners (Above ₹15 Lakh)
If your deductions exceed ₹3-4 lakh, the old regime may still be better despite higher slab rates.
How to Decide Between Old vs. New Regime?
Step 1: Calculate Taxable Income Under Both Regimes
Old Regime: Gross Income – Deductions (80C, 80D, HRA, etc.)
New Regime: Gross Income – Standard Deduction (₹50,000 for salaried)
Step 2: Compare Tax Liability
Use an online tax calculator or consult a CA to see which regime offers lower tax outgo.
Step 3: Consider Future Financial Plans
If you plan to buy a house or increase investments, the old regime may be better long-term.
If you prefer minimal tax planning, the new regime is hassle-free.
How to File ITR Under the New Tax Regime?
Choose the Correct ITR Form (ITR-1, ITR-2, or ITR-4 based on income sources).
Select ‘New Tax Regime’ while filing.
Enter Income Details (Salary, Business, Capital Gains, etc.).
Claim Standard Deduction (if applicable).
Verify and Submit.
Common Mistakes to Avoid
❌ Not Comparing Both Regimes – Always check which one saves more tax.
❌ Assuming New Regime is Always Better – It depends on deductions.
❌ Missing Deadlines – File ITR before July 31 (unless extended).
Final Verdict: Which Regime is Better?
| Scenario | Recommended Regime |
|---|---|
| Income < ₹7.5 Lakh, Few Deductions | New Regime (Zero Tax Benefit!) |
| Income ₹7.5-15 Lakh, High Deductions | Old Regime |
| Income > ₹15 Lakh, Major Home Loan/Investments | Old Regime |
| Freelancers/Businesses with Low Expenses | New Regime |
Pro Tip: If unsure, consult a CA for personalized advice.
Conclusion
The new tax regime offers simplicity and lower rates, but the old regime may still be better for taxpayers with high deductions. Before filing your ITR, compare both options carefully to maximize savings.