Maximizing Your Savings: A Guide to Navigating the New Tax Regime for Salaried Professionals

Sakshi Gupta
Sep 30, 2025
4 min read

Understanding taxes can be tough, especially for salaried professionals in India. With the introduction of the new tax regime, many people are left asking which option will maximize their savings. This guide aims to clarify the differences between the old and new tax systems, giving you the tools to make informed decisions about your financial future.

Understanding the Tax Regimes

The Indian tax system offers two main options for salaried professionals: the old tax regime and the new tax regime.

The old tax regime allows taxpayers to claim various deductions and exemptions, such as those under Section 80C, 80D, and HRA. This approach is beneficial for individuals who have considerable deductions, as it can lower taxable income significantly. For instance, if you invest the maximum amount of ₹1.5 lakh under Section 80C, you can reduce your taxable income by that same amount.

Conversely, the new tax regime, introduced in the 2020 budget, provides lower tax rates but eliminates most deductions and exemptions. This regime simplifies the tax process, making it attractive for those without many deductions to claim.

Understanding these two regimes is important for smart tax planning in India.

Key Differences Between the Old and New Tax Regime

Tax Slabs

A major difference between the two regimes is the tax slabs. For the financial year 2025-26, the income tax slabs under the new tax regime are as follows:

Income up to ₹2.5 lakh: Nil
Income from ₹2.5 lakh to ₹5 lakh: 5%
Income from ₹5 lakh to ₹7.5 lakh: 10%
Income from ₹7.5 lakh to ₹10 lakh: 15%
Income from ₹10 lakh to ₹12.5 lakh: 20%
Income from ₹12.5 lakh to ₹15 lakh: 25%
Income above ₹15 lakh: 30%

As a comparison, the old tax regime has higher tax rates but allows for numerous deductions that can significantly reduce your taxable income, which can take a lot of the financial burden off your shoulders.

Deductions and Exemptions

The old tax regime permits several deductions as seen in these examples:

Section 80C: You can claim deductions for investments in specific instruments, such as Life Insurance Premiums, Public Provident Fund (PPF), or Equity Linked Savings Schemes (up to ₹1.5 lakh).
Section 80D: You can claim deductions for health insurance premiums up to ₹25,000, or ₹50,000 for insuring senior citizens.
House Rent Allowance (HRA): If you're paying rent, you may qualify for an exemption based on specific criteria.

In contrast, the new tax regime limits these deductions, offering only a standard deduction of ₹50,000 for salaried individuals under Section 115BAC.

This distinction means that individuals with substantial deductions might gain more from the old regime, while others might find the new regime more beneficial, particularly if they do not regularly claim deductions.

Who Should Opt for the New Tax Regime?

The new tax regime is generally more suitable for:

Young Professionals: Many young workers might not have substantial deductions, making the lower tax rates in the new regime more appealing.
Individuals with Simple Financial Profiles: If your financial situation is straightforward, the new regime can make tax filing easier by removing the need to track multiple deductions.
Those Seeking Immediate Savings: For individuals looking for immediate tax relief through lower rates, the new regime can help enhance take-home pay.

Who Should Stick to the Old Tax Regime?

On the other hand, the old tax regime may be preferable for:

Individuals with High Deductions: If you have significant investments or claim HRA, the old regime may yield better savings.
Homeowners: Those paying home loan EMIs can benefit from deductions on interest payments, offering substantial savings through effective tax planning.
Families with High Health Expenses: If you have substantial medical bills and health expenses, the old regime can provide important tax relief through relevant deductions.

Making the Right Choice: A Practical Approach

To choose the best tax regime for your situation, consider these steps:

Calculate Your Taxable Income: Add up your total income and identify any deductions you can claim under the old regime. For example, if your total income is ₹10 lakh and you can claim ₹2 lakh in deductions, your taxable income becomes ₹8 lakh.
Compare Tax Liabilities: Use an online tax calculator to estimate your tax liabilities under both regimes. This will help you see which option is more advantageous in terms of your overall financial situation.
Consider Future Goals: Think about your long-term financial goals. If you aim to invest in specific tax-saving instruments, the old regime may be a better fit for the future.
Review Annually: Given that both tax laws and personal financial situations can change, reviewing your choice each year is important to ensure you maximize potential savings.

Final Thoughts

Choosing between the old and new tax regimes can have a big impact on your financial well-being as a salaried professional. By understanding the differences in tax slabs, deductions, and exemptions, you can make better choices that align with your financial goals.

Whether you select the old regime with its helpful deductions or the new regime with lower rates, you should evaluate your situation carefully. With good planning, you can maximize your savings and make the most of your income.