Old Tax Regime vs New Tax Regime (FY 2025-26): Which One Saves You More?
Income Tax · · Sakshi Yadav & Co.
The government made the new tax regime the default in 2023. But that doesn't mean it's better for everyone. Here's a straightforward comparison with real numbers to help you decide.
Every year, one of the most common questions we get is: "Which tax regime should I choose?" The answer depends on your income level, how many deductions you can claim, and your lifestyle. Let's lay out the facts.
Tax slabs comparison for FY 2025-26
Old Regime: Up to ₹2.5L — Nil | ₹2.5L-₹5L — 5% | ₹5L-₹10L — 20% | Above ₹10L — 30%
New Regime (Default): Up to ₹4L — Nil | ₹4L-₹8L — 5% | ₹8L-₹12L — 10% | ₹12L-₹16L — 15% | ₹16L-₹20L — 20% | ₹20L-₹24L — 25% | Above ₹24L — 30%
Under the new regime, the Section 87A rebate makes tax nil for resident individuals with taxable income up to ₹12 lakh — effectively ₹12.75 lakh for salaried employees after the ₹75,000 standard deduction.
Note: The Income-tax Act, 2025 replaces the 1961 Act from 1 April 2026. Section references here are to the 1961 Act, which governs returns for FY 2025-26.
Who benefits from the old regime?
The old regime is better if you have significant deductions: HRA (House Rent Allowance) for rent-paying employees, ₹1.5 lakh under Section 80C (LIC, PPF, ELSS, home loan principal), home loan interest (up to ₹2 lakh under Section 24b), health insurance under Section 80D, and NPS contribution under Section 80CCD.
A quick example: Salaried employee earning ₹12 lakh, claiming ₹1.5L (80C) + ₹1.8L (HRA) + ₹2L (home loan interest) + ₹25K (80D) = total deductions of ₹5.55L. Taxable income in old regime = ₹6.45L, tax ≈ ₹43,000. In new regime, taxable income = ₹12L, tax ≈ ₹90,000. The old regime saves ₹47,000 here.
Who benefits from the new regime?
If you have minimal deductions, are renting informally (no formal HRA), have no home loan, or your investments are small — the new regime's simpler slabs often work out better. For someone earning ₹7 lakh with no major deductions, the tax is literally ₹0 under the new regime thanks to the 87A rebate.
The default trap: From FY 2023-24, the new regime became the default. If you don't explicitly choose the old regime, you'll automatically be put in the new one. To choose the old regime, you must file Form 10-IE (for business income) or select it when filing your ITR.
Our advice: Do a rough calculation both ways before filing. For most salaried people with home loans and HRA, the old regime often wins if income is between ₹10-20 lakh. For simpler earners without big deductions, the new regime is usually better. When in doubt, consult a qualified professional — the right choice can save you tens of thousands of rupees.