Tax

Old Tax Regime vs New Tax Regime: Which Should Beginners Choose? (2026)

📅 January 05, 2026 ⏱ 10 min read

You're filing your first ITR. Old regime or new regime? What's the difference? Which saves more tax? Here's the truth: there's no universal answer - but for most beginners earning ₹5-8 lakh, new regime wins.

What Are Tax Regimes?

In 2020, government introduced a second income tax system (new regime) alongside the existing one (old regime).

Why?

Old regime was complex. Too many deductions and exemptions. People needed CAs just to calculate tax.

New regime simplified it: Lower tax rates, no deductions.

Think of it like phone plans:

Neither is universally better. Depends on your usage.

Old Tax Regime (Conceptual Overview)

How It Works

Higher tax rates BUT lots of deductions to reduce taxable income.

Common deductions:

Learn more about specific tax deductions and how to use them effectively.

The game: Invest strategically to claim deductions. Lower taxable income. Pay less tax.

Who It Suits

People who:

Example: ₹12 lakh salary, invests ₹1.5 lakh, pays ₹30,000/month rent, has home loan.

For this person, old regime likely saves more.

New Tax Regime (Conceptual Overview)

How It Works

Lower tax rates BUT almost no deductions.

What you CAN claim:

What you CANNOT claim:

Philosophy: Keep it simple. Calculate tax on income directly. No optimization games.

Who It Suits

People who:

Example: ₹6 lakh salary, lives with parents, invests ₹20,000/year.

For this person, new regime is easier and cheaper.

Key Differences Between Old and New Regime

Deductions

Meaning: Old regime rewards investments. New regime doesn't care.

Complexity

Old regime:

New regime:

For beginners overwhelmed by finance, new regime removes stress.

Flexibility

Trade-off: Control vs simplicity.

How Should Beginners Choose?

Question 1: What's Your Income?

Question 2: Do You Have Actual Deductions?

Be honest.

Old regime only makes sense IF you're already:

Brutal truth: Most beginners earning ₹5-7 lakh don't invest ₹1.5 lakh yearly. They barely save ₹50,000. Old regime's benefits are theoretical for them.

Question 3: Simplicity or Optimization?

Simplicity (New Regime):

Optimization (Old Regime):

For first-timers, simplicity > saving ₹5,000.

Common Myths About Tax Regimes

Myth 1: "New regime is always better"

Wrong.

High earners (₹15 lakh+) with multiple deductions save ₹30,000-50,000 with old regime.

Myth 2: "Old regime saves more for everyone"

Also wrong.

Low earners (₹5-7 lakh) with minimal investments save ₹10,000-20,000 with new regime.

Myth 3: "Once you choose, you're stuck"

Wrong.

Salaried employees can switch regimes every year.

Business income has restrictions. But most beginners are salaried.

Can You Switch Between Regimes?

For Salaried Employees

Yes. Every year.

Freedom to choose based on that year's situation.

For Business Income

More restrictions. Once you choose new regime, switching back is harder.

Good news: Most beginners are salaried. This doesn't apply.

Mistakes Beginners Make

Mistake 1: Copying Others

Friend earns ₹15 lakh, invests heavily, uses old regime.

You earn ₹6 lakh, live with parents, copy friend's choice.

Problem: His situation ≠ your situation. His best ≠ your best.

Mistake 2: Not Reviewing Annually

Your life changes. Optimal regime changes.

Review annually.

Mistake 3: Overcomplicating First Year

You'll spend 5 hours confused, save ₹3,000 at most.

Better: Pick new regime for simplicity. Learn the system. Optimize from Year 2.

You're not losing lakhs. You're "losing" a few thousand while gaining clarity.

Fair trade for beginners.

Bottom Line

No universal best regime exists.

Quick decision guide:

Choose New Regime if:

Choose Old Regime if:

For first-time filers: Start with new regime. Learn without complexity. Switch to old in Year 2-3 if justified.

Remember: Saving ₹5,000 tax is pointless if you spend 10 hours stressed.

Clarity first. Optimization later.

← Back to Blog