New Tax Regime vs Old Tax Regime: Complete Comparison Guide FY 2025-26
Should you choose the new tax regime or stick with the old one? This guide compares both regimes with real examples so you can decide confidently.
What changed in the new tax regime for FY 2025-26?
The Union Budget 2025 made the new tax regime far more attractive. The basic exemption rose to ₹4 lakh, the slabs were widened, and the Section 87A rebate was raised to ₹60,000 — so there is no tax on taxable income up to ₹12 lakh (₹12.75 lakh for salaried taxpayers after the ₹75,000 standard deduction). The new regime is the default; you must explicitly opt for the old regime. Old-regime rates below are for individuals under 60.
| Income Slab | New Regime Rate | Old Regime Rate |
|---|---|---|
| Up to ₹4,00,000 | Nil | Nil up to ₹2.5L; 5% from ₹2.5L |
| ₹4,00,001 – ₹8,00,000 | 5% | 5% up to ₹5L; 20% above ₹5L |
| ₹8,00,001 – ₹12,00,000 | 10% | 20% up to ₹10L; 30% above ₹10L |
| ₹12,00,001 – ₹16,00,000 | 15% | 30% |
| ₹16,00,001 – ₹20,00,000 | 20% | 30% |
| ₹20,00,001 – ₹24,00,000 | 25% | 30% |
| Above ₹24,00,000 | 30% | 30% |
Key deductions available in old regime but not new regime
The old regime allows over 70 deductions and exemptions. The most commonly used are:
- Section 80C — up to ₹1.5L (LIC, ELSS, PPF, EPF, home loan principal, school fees)
- Section 80D — health insurance premium up to ₹25,000 (₹50,000 for senior citizens)
- HRA exemption — calculated based on salary, HRA received and rent paid
- LTA — Leave Travel Allowance twice in 4 years
- Section 80E — interest on education loan
- Section 80TTA/80TTB — interest on savings accounts and FDs for seniors
- Standard deduction of ₹50,000 (also ₹75,000 in new regime from FY 2025-26)
- Interest on home loan (Section 24b) — up to ₹2L for self-occupied
When is the new regime better?
After Budget 2025 the new regime wins for most taxpayers. Salaried employees with gross income up to ₹12.75 lakh pay no tax at all under it, and above that level the old regime only wins with very large deductions.
- Salaried income up to ₹12.75 lakh — tax is nil under the new regime
- Low or no HRA (living with parents or own home)
- Gross deductions (80C + 80D + HRA) below ₹2-2.5 lakh
- No home loan or home loan recently taken (low interest component)
- Salaried employee preferring simplicity over tax optimisation
- Higher incomes with deductions below roughly ₹6–8 lakh a year
When is the old regime better?
The old regime is worth choosing when your deductions are high enough to make total taxable income significantly lower under the old regime than new regime slabs.
- Large 80C investments (₹1.5L EPF + LIC + ELSS + PPF)
- High HRA — especially in metro cities like Mumbai, Delhi, Bengaluru
- Home loan with significant interest component (₹1.5-2L per year)
- Multiple deductions: 80D (family health insurance), education loan, NPS
- Combined deductions of roughly ₹6 lakh or more (at ₹15L income) to ₹8.5 lakh or more (at ₹30L income)
How to calculate which regime saves more tax
Add up everything you can claim only in the old regime — 80C, 80D, HRA exemption, home loan interest and the ₹50,000 standard deduction — and compare the tax both ways. After Budget 2025 the break-even is much higher than before: for a salaried person, the old regime starts to win only when these deductions exceed roughly ₹6 lakh at ₹15 lakh gross income, ₹7.6 lakh at ₹20 lakh and ₹8.5 lakh at ₹30 lakh. Use our tax regime comparator for your exact numbers.
Can you switch between regimes every year?
Salaried employees with no business income can switch between old and new regime every year when filing their ITR. Individuals with business income can switch once from new to old but cannot switch back. Make your decision before the tax year ends, not after.
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