Introduction

Understanding how taxes work is important for every Indian taxpayer, whether you are salaried, self-employed, or running a small business. 

Since the government introduced the New Tax Regime, many people are confused about whether to choose the Old Tax Regime or the new one. 

The choice affects how much tax you pay, what deductions you can claim, and which ITR form you should file, like ITR 1, ITR 2, ITR 3, or ITR 4.

The Old Tax Regime offers many deductions under sections like 80C, 80D, HRA, home loan interest, and more. It suits people who actively invest in tax-saving options. 

On the other hand, the New Tax Regime has lower tax rates but removes most deductions and exemptions. It’s simple, but it may not benefit everyone.

We’ll also explore how this choice affects Presumptive Taxation (like ITR 4) and which regime might be better for MSMEs, professionals, and freelancers. 

Let’s begin.

Here’s a detailed and simple explanation of the first question:

1. What is the basic difference between the old tax regime and the new tax regime in India?

The main difference lies in how your taxable income is calculated and what benefits you can claim.

Under the Old Tax Regime, you are allowed to reduce your taxable income by using many deductions and exemptions. 

For example, you can claim benefits under:

• Section 80C (for investments like LIC, PPF, ELSS, etc.),
  
  
• Section 80D (for health insurance),
  
  
• House Rent Allowance (HRA),
  
  
• Home loan interest, education loan interest, and more.
  
  

This means if you plan your finances well, you can reduce your total income on paper and pay less tax.

In contrast, the New Tax Regime offers lower tax rates but does not allow most exemptions or deductions. 

So, you pay tax on your full income, without subtracting your investments or expenses. 

It’s simpler and requires less paperwork, but it may lead to a higher tax bill if you already claim many deductions in the old system.

Here’s a quick example:

Let’s say you earn ₹10 lakhs a year.

• In the Old Regime, if you claimed ₹2.5 lakhs in deductions, you would be taxed on ₹7.5 lakhs.
  
  
• In the New Regime, you cannot claim these deductions, so your taxable income remains ₹10 lakhs, but the tax rates are lower.
  
  

In short:

• Old Tax Regime = More planning, more paperwork, but big savings if you invest wisely.
  
  
• New Tax Regime = Lower tax rates, no deductions, easier to file.
  
  

Choosing the right regime depends on your income, your expenses, and how well you use the exemptions in the old regime.

Here is the detailed answer in easy conversational English:

2. Which ITR forms are applicable for both old and new tax regimes?

No matter which tax regime you choose, old or new, the type of ITR form you use depends on your income source and business structure. 

Let’s break this down clearly.

ITR 1 and ITR 2 – For Salaried People or Those with Passive Income

• If you earn a salary, have some interest income (like from savings accounts or fixed deposits), or receive a pension, then:
  
  
  • You will use ITR 1 (if total income is up to ₹50 lakh and no business income).
    
    
  • Or ITR 2 (if income is above ₹50 lakh or you also have capital gains or rental income from multiple houses).
    
    
• These forms can be used under both old and new tax regimes.
  
  

So, salaried taxpayers can freely choose between the old and new regime and file using ITR 1 or ITR 2.

ITR 3 – For Business Owners or Professionals

• If you’re a doctor, consultant, trader, or run any business without opting for presumptive taxation, you must file ITR 3.
  
  
• This applies whether you’re under the old regime or the new regime.
  
  
• You will also use this form if your income is above ₹75 lakh and you cannot use the presumptive scheme.
  
  

So, business owners and professionals have to use ITR 3 for both regimes if they want to declare actual income and expenses.

ITR 4 – For Presumptive Taxation

• If you choose presumptive taxation under Section 44AD, 44ADA, or 44AE, you will file ITR 4.
  
  
• This form is made for small businesses and professionals who want a simple way to file taxes without maintaining full books.
  
  
• You can choose either the old or the new tax regime with this form.
  
  

This is very useful for Healthcare MSMEs like clinics, labs, and pharmacies who prefer simple tax filing.

ITR 5 – For Partnerships and LLPs

• If your business is a partnership firm or an LLP, then you need to file ITR 5.
  
  
• These entities can also choose between the old and new tax regimes — but the choice is made at the entity level, not by individual partners.
  
  
• Once the partnership chooses a regime for the year, it applies to the entire firm.
  
  

Summary

So, you can use the same ITR forms for both tax regimes; what matters is your income type, not just the regime.

Here is a simple and detailed explanation of how tax slabs and rates compare in the Old vs New Tax Regime for FY 2024–25:

3. How do tax slabs and rates compare in the old vs the new regime?

The main difference between the old and new tax regimes is:

• The old regime allows you to claim deductions and exemptions (like 80C, HRA, health insurance).
  
  
• The new regime offers lower tax rates but does not allow most deductions.
  
  

Let’s look at the tax slabs for both.

Old Tax Regime (With Deductions Allowed)

Note: You can claim popular deductions under this regime:

• ₹1.5 lakh under Section 80C (like LIC, PF, ELSS)
  
  
• ₹25,000 to ₹1 lakh for health insurance under 80D
  
  
• HRA, Standard Deduction, Home Loan Interest under 24(b)
  
  

New Tax Regime (No Deductions, Lower Rates)

Under this regime, you cannot claim most deductions, except:

• Employer NPS Contribution (80CCD(2))
  
  
• EPF contribution by the employer
  
  
• Standard deduction of ₹50,000 (available from AY 2024–25 onwards)
  
  

Which One Saves More Tax?

• If you have many deductions, the old regime might reduce your tax burden more.
  
  
• But if you don’t have many tax-saving investments, the new regime might work better due to lower rates.
  
  

Quick Example

Let’s say you earn ₹10 lakh per year:

• Under Old Regime (with ₹2 lakh deductions): Taxable income = ₹8 lakh
  
  
  • Tax = ₹75,400 (after rebate and cess)
    
    
• Under New Regime (no deductions):
  
  
  • Tax = ₹60,000 (after rebate and cess)
    
    

So, the new regime saves more only if you have few or no deductions.

In summary, the old regime gives more flexibility to reduce tax, while the new regime offers simpler and lower rates for those who don’t want the hassle of tracking deductions.

4. Can business owners or freelancers under presumptive taxation choose the new regime?

Yes, business owners and freelancers using presumptive taxation under Section 44AD or 44ADA can choose the New Tax Regime in India. 

But before doing so, they should understand what they are gaining and what they are losing.

Who Can Use Presumptive Taxation?

• Small business owners under Section 44AD
  
  
• Professionals like doctors, consultants, and architects under Section 44ADA
  
  
• They usually file their tax return using ITR-4
  
  

Can They Opt for the New Regime?

Yes, they can opt for the New Tax Regime. There is no restriction on presumptive taxpayers using ITR-4 from choosing the new regime.

What Do You Lose Under the New Tax Regime?

If you switch to the New Tax Regime, you will:

• Lose all common deductions like:
  
  
  • Section 80C (LIC, ELSS, PF)
    
    
  • 80D (Health insurance)
    
    
  • Interest on housing loan
    
    
• Standard deduction of ₹50,000 is now available (from FY 2023–24 onward), but other benefits are gone
  
  

This means your presumptive income (like 50% of receipts under 44ADA or 8%/6% under 44AD) will be taxed without any additional deductions.

Should You Choose the New Regime?

It depends.

• If you don’t have any major deductions, the new regime might save tax due to lower slab rates.
  
  
• But if you invest regularly in tax-saving options, the old regime will likely give you better tax savings.
  
  

Example

Suppose you are a consultant earning ₹20 lakh a year:

• Under 44ADA, 50% = ₹10 lakh is taxable
  
  
• If you claim deductions under old regime (₹2 lakh total), taxable = ₹8 lakh
  
  
• If you choose a new regime = ₹10 lakh is taxable directly
  
  

Here, even though the tax slab in the new regime is lower, the old regime may offer more savings because you reduce taxable income with deductions.

Final Tip

Always compare both options before filing. 

You can calculate tax under both regimes using any free online tax calculator and then decide which one is better for your situation.

5. What are the pros and cons of switching to the new tax regime for salaried or MSME taxpayers?