Old vs New Tax Regime FY 2025-26 — Which One Saves You More?
Since the new tax regime was introduced in Budget 2020, taxpayers have had a choice between two systems. For FY 2025-26 (AY 2026-27), both regimes remain available — and choosing the right one can save you thousands.
Quick answer: The new regime is better if you have few investments and deductions. The old regime wins if you claim significant deductions (80C, 80D, HRA, home loan).
Tax Slab Comparison: Old vs New Regime FY 2025-26
| Income Slab | Old Regime Rate | New Regime Rate |
|---|---|---|
| Up to Rs 2,50,000 | Nil | Nil |
| Rs 2,50,001 – Rs 3,00,000 | 5% | Nil |
| Rs 3,00,001 – Rs 5,00,000 | 5% | 5% |
| Rs 5,00,001 – Rs 6,00,000 | 20% | 5% |
| Rs 6,00,001 – Rs 7,50,000 | 20% | 10% |
| Rs 7,50,001 – Rs 9,00,000 | 20% | 10% |
| Rs 9,00,001 – Rs 10,00,000 | 20% | 15% |
| Rs 10,00,001 – Rs 12,00,000 | 30% | 15% |
| Rs 12,00,001 – Rs 12,50,000 | 30% | 20% |
| Rs 12,50,001 – Rs 15,00,000 | 30% | 20% |
| Above Rs 15,00,000 | 30% | 30% |
Note: Under the new regime, income up to Rs 7 lakh is effectively tax-free after the rebate under Section 87A.
Key Differences Between Old and New Regime
What You Lose in the New Regime
The new tax regime comes with lower rates but you cannot claim most deductions and exemptions. Here is what you cannot claim under the new regime:
- Section 80C deductions (up to Rs 1.5 lakh) — PPF, ELSS, life insurance, EPF, tuition fees
- Section 80D health insurance premium
- House Rent Allowance (HRA) exemption
- Standard deduction of Rs 75,000 for salaried employees (allowed in new regime from FY 2025-26)
- Leave Travel Allowance (LTA)
- Interest on home loan under Section 24(b)
- Section 80E education loan interest
- Section 80G donations
- Section 80TTA/TTB savings account interest
Update for FY 2025-26: The standard deduction of Rs 75,000 for salaried employees is now available in both regimes. Family pension deduction of Rs 25,000 also applies to both.
What You Keep in the New Regime
- Standard deduction of Rs 75,000
- Employer contribution to NPS under Section 80CCD(2)
- Family pension deduction under Section 57(iia)
- Aggregated deductions for specified social security contributions
How to Decide: Old vs New Regime
Use this decision framework:
Choose the New Regime If:
- You have few or no tax-saving investments (80C, 80D)
- You do not claim HRA or have a home loan
- Your total deductions are less than Rs 3-4 lakh per year
- Your income is between Rs 7-15 lakh (the new regime rates are significantly lower in this bracket)
Choose the Old Regime If:
- You maximise 80C (Rs 1.5 lakh), 80D (Rs 25,000+), and other deductions
- You claim HRA exemption
- You have a home loan and claim interest deduction under Section 24(b)
- Your total deductions and exemptions exceed Rs 4-5 lakh per year
Tax Calculation Example
| Particulars | Old Regime | New Regime |
|---|---|---|
| Gross Salary | Rs 12,00,000 | Rs 12,00,000 |
| Standard Deduction | Rs 75,000 | Rs 75,000 |
| HRA Exemption | Rs 1,80,000 | Not available |
| Section 80C (PPF/ELSS/EPF) | Rs 1,50,000 | Not available |
| Section 80D (Health Insurance) | Rs 25,000 | Not available |
| Net Taxable Income | Rs 7,70,000 | Rs 11,25,000 |
| Tax Payable (before cess) | Rs 82,500 | Rs 1,12,500 |
In this example, the old regime saves the taxpayer Rs 30,000 in tax. Use our tax calculator to compare both regimes for your specific income.
Can You Switch Regimes?
Yes, you can choose a different regime every year. If you are a salaried employee without business income, you can switch freely between old and new regimes each financial year. However, once you opt out of the new regime, you need to file a specific form to revert.
Frequently Asked Questions
Is the new tax regime mandatory?
No. Both regimes are optional. You can choose whichever benefits you more for FY 2025-26.
Which regime is better for income above Rs 15 lakh?
At higher incomes (Rs 15 lakh+), both regimes have a 30% tax rate. The old regime usually wins if you claim deductions. Use the calculator to be sure.
Can NRIs choose the new tax regime?
Yes, NRIs can also choose between old and new tax regimes. The choice depends on their Indian income sources and eligible deductions.
Do I need to inform my employer about my regime choice?
Yes. Submit your investment declarations to your employer at the start of the financial year so they deduct TDS correctly based on your chosen regime.
Get a CA to review which regime saves you more — starting at Rs 1,800