Old vs. New Tax Regime Simplified: Which One Should You Pick?

Over 8 crore Indians filed income tax returns in FY 2023–24. Yet, when it comes to choosing between the old and new tax regimes, confusion still lingers. One wrong decision and you're handing over more tax than necessary.

If you're new to the workforce or earning from different sources, the impact is even bigger. Expenses pile up. EMIs don't wait. An instant personal loan online can ease short-term stress.

But before borrowing, what if the smarter move is reducing your tax outgo? Making a better tax decision today can alleviate your financial worries tomorrow.

Let's walk through how to get it right.

Understanding the Two Tax Regimes

India introduced the new tax regime in the Budget 2024-25 to simplify personal taxation.

Let's break down how to evaluate which is better for you.

7 Smart Steps to Choose the Right Tax Regime

Don't guess your way through tax season. These seven steps will help you pick the regime that saves you the most.

Step 1- Calculate Your Gross Income

Start with your total annual income-

• Salary
• Freelance/consulting income
• Rental income
• Business income
• Interest or capital gains

If you're applying for a personal loan or instant loan, this is the same figure lenders will look at to assess your personal loan eligibility.

Step 2- List All Possible Deductions and Exemptions

The old regime offers tax benefits for investments or expenditures in specific areas. List out the amounts you're claiming under-

• Section 80C- Investments (LIC, PPF, ELSS, etc.) (up to ₹1.5 lakh)
• Section 24(b)- Home loan interest (up to ₹2 lakh)
• Section 80D- Health insurance premiums (up to ₹25,000 for self and ₹50,000 for seniors)
• HRA (House Rent Allowance)
• Education loan interest
• NPS contributions

Also, consider your EMI obligations if you've used a personal loan app recently to meet financial goals.

Step 3- Compare Tax Outgo under Both Regimes

Use the official Income Tax Department calculator or a trusted personal loan calculator to check tax liability under both systems.

Let's say-

• Gross Income- ₹13 lakh
• Deductions- ₹2.5 lakh

Old Regime Taxable Income- ₹8.5 lakh
New Regime Taxable Income- ₹12.25 lakh

Approximate Tax (including cess)-

• Old Regime- ₹85,800
• New Regime- ₹88,400

Takeaway: In this case, the old regime is more beneficial.

However, if your deductions are less than ₹1.75 lakh, the new regime usually offers greater savings.

Step 4- Think Beyond the Numbers

Tax isn't just about numbers; it's about financial behaviour.

Stick with the old regime if-

• You invest regularly (ELSS, PPF, LIC)
• You have a home loan or a low-interest rate personal loan
• You claim HRA or health insurance
• You want to build long-term wealth through tax-saving schemes

Choose the new regime if-

• You don't claim deductions
• Your income is straightforward with fewer expenses
• You prefer hassle-free filing

Step 5- Consider Financial Goals and Life Stage

Your age, income stability, and long-term plans matter.

For salaried employees in their 20s or 30s

• Start with the old regime to build disciplined savings habits.
• Use tools like a personal loan EMI calculator to budget better.

For mid-career professionals

• Evaluate annually. A home loan or children's education can tilt the balance.
• Consider applying for a low-interest personal loan if liquidity is a concern.

For senior citizens

• Choose the regime with a lesser tax burden.
• Factor in pension income, health expenses, and Section 80D deductions.

Step 6- Use Digital Tools to Make Smart Decisions

Use these tools to calculate and compare-

• Income Tax Calculator (official govt. tool)
• Personal Loan Calculator apps
• EMI Planning apps

If your cash flow is tight, consider an instant loan online to bridge gaps, especially during tax payment season.

An instant loan app can help you apply for an online personal loan within minutes.

Step 7- Switch Year-on-Year Based on Benefit

The Income Tax Department allows salaried individuals to switch between regimes every year.

Self-employed professionals can choose only once unless they forgo business deductions.

Hence, keep reviewing your-

• Investment capacity
• New obligations like rent or an online loan application
• Life changes like marriage, education, and health emergencies

Key Points to Remember While Choosing Between Old and New Tax Regime

Here's a snapshot to simplify your decision-making:

Latest Taxpayer Behaviour Stats

Plan Your Tax Smarter and Save More

Choosing between the old and new tax regime isn't a one-time decision. It's a financial habit. Evaluate your deductions, use smart tools, and make a call based on savings potential. The right decision could reduce stress and your tax bill.

Tax season often comes with unexpected expenses. Whether you're paying advance tax, making last-minute investments, or managing tuition fees, a personal loan might be a smart move.

With Hero Fincorp, you can apply for a personal loan online and get approvals in minutes. Once approved, enjoy fast disbursals, affordable interest rates, and EMIs that fit your budget.

Need help managing your cash while optimising taxes?

Try Hero Fincorp's Quick Loan App for fast approvals, flexible tenures, and personal loans with low interest rates. From salaried employees to small business owners, Hero Fincorp helps you stay on top of your goals with hassle-free digital finance options.

Frequently Asked Questions

1. Can I switch between tax regimes every year?

Yes, salaried individuals can switch yearly. However, if you earn business income, you're allowed to switch regimes only once in your lifetime, so choose carefully.

2. Is the new tax regime better for people with no investments?

Yes, the new regime offers lower tax rates. If you don't claim deductions like 80C or HRA, it's likely the better option for maximising your post-tax income.

3. What if I already have a personal loan?

Having a personal loan doesn't impact your tax regime choice. However, if it's a home loan, interest deductions are available only under the old regime, not the new.