Old vs New Tax Regime: Salaried Taxpayers Warned of Costly ₹1.5 Lakh Mistake

As the financial year draws to a close, tax experts are cautioning salaried individuals against making a potentially costly error while choosing between India’s old and new income tax regimes. Many taxpayers, they warn, could end up paying as much as ₹1.5 lakh extra if they fail to properly assess which system suits them best.

The concern arises from the fact that the new tax regime has been set as the default option. While it offers lower tax rates and a simplified structure, it eliminates several popular deductions available under the old regime. These include benefits such as House Rent Allowance (HRA), deductions under Section 80C for investments, and health insurance exemptions under Section 80D.

Although the new regime may appear more attractive due to reduced tax rates and a higher zero-tax threshold, experts stress that it is not universally beneficial. Chartered accountant Nitin Kaushik explained that taxpayers must calculate their total eligible deductions before making a decision. According to him, the new regime generally works better for those with limited deductions, while individuals claiming substantial exemptions may benefit more from the old structure.

He highlighted that taxpayers should identify a “break-even point” to compare both regimes effectively. For instance, individuals with deductions below a certain threshold may save more under the new system, whereas those with higher deductions—such as home loan interest, rent payments, and long-term investments—could reduce their tax burden significantly by staying with the old regime.

Recent policy changes, including adjustments to HRA provisions, have further complicated the decision-making process, especially for salaried professionals living in high-rent cities. With the March 31 deadline approaching, experts strongly advise taxpayers to avoid relying on default settings and instead carry out detailed calculations. A well-informed choice, they say, is essential to maximise savings and prevent unnecessary financial loss.