Old vs New Tax Regime: A Complete Comparison for FY 2025-26
Not a one-size answer — find what works for your income and deductions
Detailed comparison of old vs new tax regime in India for FY 2025-26. Slab rates, deductions, HRA, home loan — find which tax regime saves you more.
- ₹75,000 — Standard deduction for salaried under the new regime
- ₹12 lakh — Taxable income up to which the new-regime rebate makes tax zero (FY 2025-26)
- Every year — Salaried employees can switch regimes annually
Since the introduction of the new tax regime under Section 115BAC and its revisions in Budgets 2023 through 2025 — most recently the FY 2025-26 rate cuts that make taxable income up to ₹12 lakh effectively tax-free under the new regime — taxpayers in India face a recurring decision at the start of each financial year: old regime with more deductions, or new regime with lower slab rates and the bigger rebate? The answer is not the same for everyone — it depends on your income level, the size of your 80C investments, HRA claim, home loan interest, NPS contributions, and other deductions. This page breaks down both regimes with real numbers so you can make an informed choice before filing.
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Tax Slab Comparison: Old vs New Regime
| Income Slab | Old Regime | New Regime |
|---|---|---|
| Income up to ₹2.5 lakh | Nil | Nil |
| ₹2.5L – ₹4L | 5% | Nil |
| ₹4L – ₹5L | 5% | 5% |
| ₹5L – ₹8L | 20% | 5% |
| ₹8L – ₹10L | 20% | 10% |
| ₹10L – ₹12L | 30% | 10% |
| ₹12L – ₹16L | 30% | 15% |
| ₹16L – ₹20L | 30% | 20% |
| ₹20L – ₹24L | 30% | 25% |
| Above ₹24L | 30% | 30% |
Key Points to Understand
- New Regime: Better for Simple Income Profiles: If you have limited deductions — no HRA (or very small), no home loan, and 80C barely utilised — the new regime's lower slabs typically result in lower tax. This often applies to younger earners or those who rent cheaply in smaller cities.
- Old Regime: Better for High-Deduction Earners: If you claim HRA on a significant rent amount, have a large outstanding home loan (Section 24 deduction), maximise 80C (₹1.5 lakh), contribute to NPS (additional ₹50,000 under 80CCD(1B)), and have mediclaim (80D) — the old regime often results in meaningfully lower tax.
- Standard Deduction is Available in Both: Salaried employees and pensioners get a standard deduction in both regimes — ₹50,000 under the old regime and ₹75,000 under the new regime from FY 2024-25 (raised in Budget 2024). This removed one advantage the old regime used to hold exclusively.
- New Regime is Now the Default: From FY 2023-24, the new tax regime is the default. If you want to opt for the old regime, you must explicitly declare this — in your employer's investment declaration (for TDS) and in your ITR filing. Missing this election can cost you significant deductions.
- HRA is the Biggest Old Regime Advantage: For professionals paying significant rent in metro cities like Bangalore, Mumbai, or Delhi — HRA exemption is the single largest deduction that swings the calculation toward the old regime. Someone paying ₹30,000/month rent in Bengaluru can claim substantial HRA exemption.
- You Can Switch Regimes Every Year (Salaried): Salaried employees can switch between old and new regime every financial year. Business owners who opt out of the new regime cannot re-enter easily. This gives salaried employees flexibility to choose the best option each year.
How It Works
- List Your Income and Likely Deductions: Gross salary or business income, plus everything you could claim — HRA, 80C investments, NPS, mediclaim, home loan interest, education loan interest.
- Compute Tax Under the Old Regime: All eligible deductions and exemptions are applied, then the old slab rates — this is your old-regime tax liability.
- Compute Tax Under the New Regime: Only the ₹75,000 standard deduction and employer NPS apply, but the lower slab rates and higher 87A rebate often compensate.
- Compare and Lock In the Recommendation: You see both tax numbers side by side with the exact saving. For business income, we also flag the one-time switching restriction before you commit.
- Declare and File Correctly: The choice is reflected in your employer TDS declaration and your ITR — including Form 10-IEA where business income owners opt for the old regime.
Who This Is For
- Salaried Professionals Deciding Before April: Employees who need to declare their regime choice at the start of the financial year for correct TDS computation
- Business Owners and Self-Employed: Individuals with business income making a permanent regime choice — note that switching back is restricted
- Those Filing a Belated or Updated Return: Taxpayers reconsidering their regime choice when filing a belated return or before ITR submission
- NRIs Filing Indian Tax Returns: NRIs who are not eligible for the composition scheme but want to understand applicable slabs on Indian income
Frequently Asked Questions
Which tax regime is better for a salary of ₹12 lakh?
For FY 2025-26, the new regime — and it isn't close. The ₹75,000 standard deduction brings a ₹12 lakh salary down to ₹11.25 lakh taxable income, and the enhanced Section 87A rebate (Budget 2025) makes tax zero on taxable income up to ₹12 lakh. The old regime cannot beat zero tax, no matter how large your deductions. The comparison only becomes meaningful above roughly ₹12.75 lakh of salary, where heavy old-regime deductions — big HRA, home loan interest, full 80C and NPS — can start to compete with the new regime's lower slabs.
Can I choose a different regime for TDS and for ITR filing?
Yes. Your employer computes TDS based on the regime you declare in your investment declaration. When you file your ITR, you can choose a different regime — the difference in TDS and actual tax will result in either a refund or additional payment. The final regime choice is made at ITR filing.
What deductions are not available in the new tax regime?
The new regime does not allow: HRA exemption (Section 10(13A)), Leave Travel Allowance (LTA), house rent paid deduction (Section 80GG), home loan interest under Section 24(b), Section 80C investments (ELSS, LIC, PPF, ELSS), 80D mediclaim, 80E education loan interest, and most other deductions under Chapter VIA.
If I'm a business owner, can I switch back to the old regime?
Business owners and self-employed individuals who opt out of the new regime can re-enter it, but they cannot switch back to the old regime again — except in specific circumstances. This makes the regime choice permanent in most cases for business income. Salaried employees don't face this restriction.
Is there a rebate under Section 87A in both regimes?
Yes, but the amounts differ sharply. Under the old regime, the rebate is up to ₹12,500 if taxable income is below ₹5 lakh. Under the new regime, Budget 2025 raised it to ₹60,000 from FY 2025-26 — making tax zero for taxable income up to ₹12 lakh, with marginal relief if you're slightly above that threshold. Two caveats: the rebate is available only to resident individuals, and it does not apply to income taxed at special rates, such as capital gains.
How do I calculate which regime saves me more?
List your total gross income, then calculate your likely deductions: Standard deduction (₹50K old / ₹75K new), HRA exemption, 80C, 80D, NPS, home loan interest. Deduct from income under old regime, apply old slabs. Under new regime, deduct only standard deduction and apply new slabs. Compare the final tax. We offer free computation as part of our ITR filing engagement.
Is employer NPS contribution deductible in the new regime?
Yes. Employer contribution to NPS under Section 80CCD(2) is one of the few deductions that survives in the new regime — up to 14% of basic salary. For private sector employees, the 14% limit applies under the new regime from FY 2024-25; under the old regime their limit remains 10% (government employees get 14% in both). If your employer offers NPS as part of CTC restructuring, it reduces taxable income under either regime, within the respective limit.
Can I claim home loan interest in the new regime?
For a self-occupied house — no, the Section 24(b) deduction is not available in the new regime. For a let-out (rented) property, interest remains deductible against the rental income, but any resulting loss from house property cannot be set off against salary or other income in the new regime, nor carried forward in the same way. This distinction often decides the regime for landlords with loans.
You Might Also Find Useful
- ITR Documents Required — Gather these before choosing your regime
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- ITR Filing for Doctors — Doctors often benefit from the old regime
- NRI Income Tax Filing — NRI regime choice is different — read this
We'll Calculate Which Regime Saves You More Our team models both options with your actual income and deductions before filing your return. Book Expert Consultation or call +91 80493 67825.