First Salary? Here's How To Pick The Right Tax Regime In India; Explained With Real-Life Salary Scenarios

The deadline for filing income tax returns (ITRs) for the fiscal year 2024-2025 and the assessment year 2025-2026 has been extended by the Central Board of Direct Taxes (CBDT) from July 31, 2025, to September 15. The decision between the new and old tax regimes has a big influence on long-term financial planning, even while the extension makes it easier for taxpayers to prepare and file their ITR. Here are the key differences between the new and old tax regimes and how a salaried individual should decide which one is better suited for them as per the responses taken from Rakshith H D CFP, Head Digital Sales, GoalTeller.

What are the key differences between the new and old tax regimes, and how should a salaried individual decide which one is better suited for them?

The core difference between the two regimes lies in their approach to taxation.

• The old regime allows you to claim a wide range of exemptions and deductions, such as HRA, 80C (PF, ELSS, tuition fees, etc.), 80D (health insurance), and home loan interest.
• The new regime offers lower tax slab rates but removes most of these deductions, except a few like the employer's NPS contribution and standard deduction (as of FY 2023-24 onward).

A salaried individual should start by assessing their annual deductions. If you are availing benefits like home loan, HRA, insurance, and regularly investing under 80C, the old regime might be more tax-efficient. If not, the new regime simplifies compliance and reduces paperwork, making it attractive for those who prefer a straightforward system.

Examples where the old regime is clearly more beneficial than the new one - and vice versa?

Certainly, and these are scenarios we encounter regularly with our users:

Old Regime Wins:

Let's take an individual earning Rs 18 lakh annually, living in rented accommodation (claiming HRA), paying home loan interest, investing Rs 1.5 lakh in ELSS and Rs 50,000 in NPS, with a Rs 25,000 health insurance premium. Total deductions could easily exceed Rs 3.5-Rs 4 lakh. In this case, the old regime will result in significantly lower taxable income.

New Regime Wins:

A 27-year-old earning Rs 12 lakh, staying with family, with no loans or significant investments. With limited or no deductions, they benefit more from the lower slab rates and clean structure of the new regime.

The choice often comes down to life stage, lifestyle, and financial planning behaviour. There is no one-size-fits-all, which is why tools and advice are critical.

Many taxpayers are confused due to frequent changes. If someone is earning between Rs 10-20 lakh annually-should he or she opt for the new regime in FY 2024-25?

For those earning between Rs 10-20 lakh, the new regime appears attractive, especially with the rebate on income up to Rs 7 lakh, and a simplified slab system that removes the complexity of tracking deductions and exemptions. However, if you're someone who:

• Has a home loan and claims interest under Section 24(b),
• Claims full 80C benefits (EPF, ELSS, PPF, children's tuition fees, etc.),
• Pays health insurance premiums under Section 80D,
• Receives House Rent Allowance (HRA),
• Contributes regularly to the National Pension System (NPS).

Then the old regime could offer better net tax savings despite the higher slabs.
Also, if you're someone who typically maximizes employer-provided benefits like food coupons, LTA (Leave Travel Allowance), and provident fund contributions, the old regime allows you to optimize your salary structure more efficiently for tax planning.

Ultimately, the decision should be based on a personalised calculation of your income, deductions, and exemptions. A quick comparison using an income tax calculator or consulting a tax expert can help you choose the most tax-efficient regime.

How does the choice between new and old tax regimes affect long-term financial planning, especially in terms of retirement and wealth-building strategies?

The choice between the new and old tax regimes has a significant impact on long-term financial planning, particularly in areas like retirement and wealth creation. The old regime encourages disciplined saving and investment by offering tax deductions on contributions to instruments like Public Provident Fund (PPF), National Pension System (NPS), ELSS mutual funds, life insurance premiums, and home loan repayments. These incentives align naturally with long-term financial goals, helping individuals build a robust financial foundation.

On the other hand, the new regime offers lower tax rates but eliminates most deductions, placing the onus of financial discipline on the individual. While it offers flexibility, it may inadvertently lead to under-investment unless one proactively channels the tax savings into long-term instruments.

Thus, those who need structured nudges to save may benefit more from the old regime, whereas financially aware individuals with a solid investment plan may prefer the new regime for its simplicity and liquidity.

For first-time earners or Gen Z professionals entering the workforce, is the simplicity of the new regime an advantage, or should they still consider the old regime for developing a savings habit?

For Gen Z professionals, the simplicity and clarity of the new regime are attractive, especially when managing finances independently for the first time.

However, we encourage young earners to consider the old regime initially, not just for tax savings but to cultivate disciplined financial behaviour. Investing in ELSS or PPF under Section 80C, buying health insurance, or contributing to NPS early on not only saves tax but creates a foundational savings habit that compounds over time.

That said, if an individual's annual salary is below Rs 12-12.5 lakhs and they are not claiming many deductions, the new tax regime may prove more beneficial due to its lower effective tax rate. However, for those earning above this threshold, especially if they make use of deductions and exemptions strategically, the old regime often results in greater tax savings.

Ultimately, the right choice depends on one's income level, investment discipline, and long-term financial goals.

What are some common mistakes people make while choosing between the two regimes, and how can they avoid them?

Several avoidable mistakes recur every year:

Not calculating deductions properly - Many assume they don't save enough to benefit from the old regime, but forget about PF, insurance, and HRA, which add up.

Assuming the new regime is always better because of lower rates - It's not, especially for salaried individuals with structured benefits.

Failing to review annually - Regime choice can be changed every year (for salaried individuals), but people stick to one without re-evaluation.

Not aligning tax planning with financial goals - Tax-saving investments shouldn't be last-minute decisions; they should fit within your larger wealth-building strategy.

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