Old vs New Tax Regime: Which Option Should Employees Choose While Submitting Investment Proofs?

As companies begin collecting investment proofs for FY 2025-26, salaried employees are once again facing a familiar dilemma — should they stay with the old tax regime or switch to the new one? The choice is not just a formality. It directly impacts your monthly TDS deduction, take-home salary, and overall tax savings.

Understanding the difference between the two regimes is crucial before making a decision, because once selected for the year, your employer will calculate tax deductions based on that choice.

Why This Choice Matters

When you inform your employer about your selected tax regime, the finance team calculates your Tax Deducted at Source (TDS) accordingly. If you opt for the old regime, your declared investments and expenses are considered. If you choose the new regime, deductions and exemptions are mostly ignored, and tax is calculated at lower slab rates.

A wrong decision can mean higher tax outgo or missed savings opportunities.

Understanding the Old Tax Regime

The old regime is preferred by employees who make regular investments and incur eligible expenses. It offers a wide range of exemptions and deductions, including:

• Section 80C (up to ₹1.5 lakh): PF, PPF, ELSS, life insurance, tuition fees

• Section 80D: Health insurance premiums

• Home loan benefits: Principal under 80C and interest under Section 24(b)

• HRA exemption

• LTA benefits

• Education loan interest (Section 80E)

• Donations under Section 80G

However, tax slab rates in the old regime are higher. According to tax experts, for a salaried individual earning around ₹25 lakh annually, the old regime becomes beneficial only if total deductions are close to ₹8 lakh.

What the New Tax Regime Offers

The new tax regime is designed for simplicity. It offers:

• Zero tax on income up to ₹12 lakh

• Standard deduction of ₹75,000

• Lower tax slab rates

• Tax benefits on employer’s contribution to PF and NPS (Section 80CCD(2))

However, most deductions and exemptions are not allowed under the new regime. This includes 80C, 80D, HRA, LTA, and home loan interest on self-occupied property.

This regime is ideal for employees who do not invest heavily or do not want the hassle of maintaining proof documents.

Who Should Choose the Old Regime?

The old regime is suitable for employees who:

• Pay house rent and claim HRA

• Have home loans

• Invest regularly in tax-saving instruments

• Pay health insurance premiums

• Have children’s tuition fees

• Claim LTA and education loan interest

For such individuals, higher tax rates are balanced by significant deductions.

Who Should Choose the New Regime?

The new regime works better for employees who:

• Have minimal or no investments

• Do not claim HRA or LTA

• Want higher take-home salary every month

• Prefer simple tax calculation without paperwork

As CA Mrinal Mehta from Bombay Accountants Society explains, employees who do not use deductions benefit from the lower slab rates of the new regime.

Documents Required Under the Old Regime

If you choose the old regime, your company may ask for:

HRA Proof

• Rent receipts

• Rent agreement

• Landlord’s PAN (if annual rent exceeds ₹1 lakh)

Section 80C Proofs

• PF statements

• Life insurance premium receipts

• ELSS investment proofs

• PPF deposit slips

• Children’s tuition fee receipts

Health Insurance (80D)

• Premium payment receipts

Home Loan

• Interest certificate

• Principal repayment certificate

LTA

• Travel tickets

• Boarding passes

Other Deductions

• Education loan interest certificate

• Donation receipts (80G)

No Proof Needed in New Regime

One major advantage of the new tax regime is that no investment proofs are required. The employer calculates TDS without considering deductions and exemptions, making the process smooth and hassle-free.

Key Exceptions in New Regime

Even under the new regime, you can still claim:

• Employer’s NPS contribution (Section 80CCD(2))

• Home loan interest on rented property

Final Verdict: Which Should You Pick?

There is no one-size-fits-all answer. The right choice depends on:

• Your salary level

• Your investments

• Your expenses

• Your financial goals

If you actively save and invest, the old regime can offer higher tax savings. If you prefer simplicity and fewer compliances, the new regime may be the better choice.

Before submitting your investment declaration, do a side-by-side tax calculation. A few minutes of planning can save you thousands of rupees over the year.