New Tax Regime vs Old Tax Regime — Which is Better for Business Owners?

Since the introduction of the new tax regime and its subsequent revamping in the Union Budget 2023, business owners in India have been asking: should I opt for the new regime or stick with the old one? The answer depends on your income level, available deductions and specific circumstances. This guide gives you a clear comparison for FY 2025-26.

New Tax Regime — Slabs for FY 2025-26

The new tax regime (Section 115BAC) has the following slabs for individuals:

• Up to ₹3 lakh: Nil
• ₹3 lakh to ₹7 lakh: 5%
• ₹7 lakh to ₹10 lakh: 10%
• ₹10 lakh to ₹12 lakh: 15%
• ₹12 lakh to ₹15 lakh: 20%
• Above ₹15 lakh: 30%

Rebate under Section 87A: Tax is fully rebated up to ₹7 lakh of income in the new regime (effectively zero tax up to ₹7 lakh).

Old Tax Regime — Slabs for FY 2025-26

• Up to ₹2.5 lakh: Nil
• ₹2.5 lakh to ₹5 lakh: 5%
• ₹5 lakh to ₹10 lakh: 20%
• Above ₹10 lakh: 30%

Rebate under Section 87A: Tax is fully rebated up to ₹5 lakh of income in the old regime.

Deductions Available in Old Regime (Not Available in New Regime)

• Section 80C — ₹1.5 lakh (LIC, PPF, ELSS, home loan principal, etc.)
• Section 80D — Health insurance premium (₹25,000 self + ₹25,000 parents)
• Section 24(b) — Home loan interest on self-occupied property (₹2 lakh)
• HRA exemption
• Standard deduction for salaried persons (₹50,000)
• Section 80TTA/80TTB — Interest from savings/deposits
• Section 80G — Donations to eligible charitable organisations

Which Regime is Better for Business Owners?

High deduction scenario (old regime may be better): If you have significant investments under 80C (₹1.5 lakh), pay home loan interest, have health insurance and other deductions totalling ₹3.5 to 5 lakh, the old regime typically saves more tax at income levels of ₹10 to 20 lakh.

Low deduction scenario (new regime is better): If you have minimal deductions and investments, the new regime's lower rates save more tax — especially at higher income brackets above ₹15 lakh.

Business income consideration: Business owners who opt for the new regime lose the ability to claim most deductions but can still claim business expenses under Sections 30-44. Choosing between regimes for business income is more complex and requires year-specific calculation.

Switching Between Regimes

Salaried individuals can switch between the old and new regime every year when filing their ITR. Business owners (with business income) can switch from new to old only once in their lifetime — once you switch back to old, you cannot switch to new again (except by exiting business income).

Conclusion

There is no universal answer to old vs new regime — it is a calculation that must be done fresh each year based on your actual income and deductions. SPOTON's income tax team does this analysis for all clients and recommends the optimal regime. Contact us for expert ITR planning and filing services in Kerala.