Quick Answer
Which Tax Regime is Better in FY 2025-26?
✓
Income up to ₹12.75 lakh (salaried)
→ New regime always wins. You pay zero tax due to ₹87A rebate + standard deduction. No need to calculate.
⚖
Income ₹12.75L to ₹20L
→ Depends on your deductions. New regime better if deductions are below ₹3.75–5.5 lakh. Old regime if deductions are above that. See the decision table below.
📊
Income above ₹20 lakh
→ Old regime is likely better if you have HRA + 80C + home loan deductions exceeding ₹5.5–8 lakh. New regime wins if deductions are small.
What Changed in Budget 2025 — Why This Decision Matters More Than Ever
Finance Minister Nirmala Sitharaman's Budget 2025 (presented February 1, 2025) made the most significant changes to the new tax regime since it was introduced in 2020:
🎯
Tax-free limit raised to ₹12 lakh
Section 87A rebate increased from ₹25,000 to ₹60,000. Effective tax-free income for the new regime is now ₹12 lakh (₹12.75 lakh for salaried employees who get the ₹75,000 standard deduction).
📊
New slabs — smoother progression
7 slabs now starting at ₹4 lakh instead of ₹3 lakh. The 30% rate kicks in at ₹24 lakh instead of ₹15 lakh under the old regime. This is a massive benefit for those earning ₹15–24 lakh.
💼
Higher standard deduction
Standard deduction raised to ₹75,000 for salaried employees under the new regime (was ₹50,000). The old regime retains ₹50,000 standard deduction.
⚡
New regime is now the default
From FY 2025-26, if you do not explicitly opt for the old regime, you are automatically on the new regime. You must actively opt out to use the old regime.
ITR Filing Deadline: You have until July 31, 2026 to file your ITR for FY 2025-26 and decide which regime to use. Salaried employees should also inform their employer at the start of the year (April 2025) to ensure correct TDS deduction.
Income Tax Slabs FY 2025-26 — Side by Side
🆕 New Tax Regime (Default)
Section 115BAC · FY 2025-26
| Income Slab | Tax Rate |
|---|---|
| Up to ₹4,00,000 | 0% |
| ₹4L – ₹8,00,000 | 5% |
| ₹8L – ₹12,00,000 | 10% |
| ₹12L – ₹16,00,000 | 15% |
| ₹16L – ₹20,00,000 | 20% |
| ₹20L – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
+ Standard deduction: ₹75,000
+ 87A Rebate: Up to ₹60,000 (income ≤ ₹12L)
Effective tax-free: ₹12.75L (salaried)
📋 Old Tax Regime (Opt-in)
Must opt for this while filing ITR
| Income Slab | Tax Rate |
|---|---|
| Up to ₹2,50,000 | 0% |
| ₹2.5L – ₹5,00,000 | 5% |
| ₹5L – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
+ Standard deduction: ₹50,000
+ 87A Rebate: Up to ₹12,500 (income ≤ ₹5L)
Effective tax-free: ₹5L (with rebate)
* Add 4% Health & Education Cess on all tax amounts. Surcharge applies for income above ₹50 lakh.
Deductions and Exemptions — What You Can and Cannot Claim
This is the most important section. The new regime's lower tax rates come at a cost — you give up most deductions. Whether the trade-off is worth it depends on how many deductions you can claim.
| Deduction / Exemption | 🆕 New Regime | 📋 Old Regime |
|---|---|---|
| Standard deduction (salaried) | ✅ ₹75,000 | ✅ ₹50,000 |
| HRA exemption (Section 10(13A)) | ❌ Not allowed | ✅ Up to 50% of basic |
| Section 80C (PPF, ELSS, LIC, EPF, tuition) | ❌ Not allowed | ✅ Up to ₹1.5 lakh |
| Section 80D (health insurance premium) | ❌ Not allowed | ✅ Up to ₹25K–₹1L |
| Home loan interest — self-occupied (Section 24b) | ❌ Not allowed | ✅ Up to ₹2 lakh |
| Home loan interest — let-out property | ✅ Allowed (no limit) | ✅ Allowed (no limit) |
| Employer NPS contribution (Section 80CCD(2)) | ✅ Up to 14% of salary | ✅ Up to 10% of salary |
| Leave Travel Allowance (LTA) | ❌ Not allowed | ✅ Twice in 4 years |
| Section 80E (education loan interest) | ❌ Not allowed | ✅ No limit |
| Section 80G (donations) | ❌ Not allowed | ✅ 50–100% deduction |
| Section 80TTA (savings interest) | ❌ Not allowed | ✅ Up to ₹10,000 |
| Transport allowance (specially abled) | ✅ Allowed | ✅ Allowed |
| Gratuity exemption (retirement) | ✅ Allowed | ✅ Allowed |
| EPF withdrawal exemption | ✅ Allowed | ✅ Allowed |
| Section 87A rebate | ✅ ₹60,000 (≤ ₹12L) | ✅ ₹12,500 (≤ ₹5L) |
Key insight: The new regime gives up around 70 exemptions and deductions. If you regularly claim HRA + 80C + 80D + home loan interest, you could be giving up ₹3–8 lakh of deductions annually. Compare this to your tax savings from lower slab rates before switching.
The Decision Table — Your Answer in 5 Seconds
Find your gross income on the left. Find your approximate total deductions on the top. The cell shows which regime saves you more tax in FY 2025-26. Deductions = 80C + 80D + HRA + home loan interest + any other Chapter VI-A deductions.
| Gross Income → Total Deductions ↓ | ₹0–₹1L | ₹1L–₹2L | ₹2L–₹3.75L | ₹3.75L–₹5.5L | Above ₹5.5L |
|---|---|---|---|---|---|
| Up to ₹12.75L | 🆕 NEW | 🆕 NEW | 🆕 NEW | 🆕 NEW | 🆕 NEW |
| ₹15 LPA | 🆕 NEW | 🆕 NEW | 🆕 NEW | 📋 OLD | 📋 OLD |
| ₹18 LPA | 🆕 NEW | 🆕 NEW | 🆕 NEW | 📋 OLD | 📋 OLD |
| ₹20 LPA | 🆕 NEW | 🆕 NEW | ⚖️ EVEN | 📋 OLD | 📋 OLD |
| ₹25 LPA | 🆕 NEW | 🆕 NEW | 🆕 NEW | 📋 OLD | 📋 OLD |
| ₹30 LPA | 🆕 NEW | 🆕 NEW | 🆕 NEW | ⚖️ EVEN | 📋 OLD |
| Above ₹30 LPA | 🆕 NEW | 🆕 NEW | 🆕 NEW | 🆕 NEW | 📋 OLD |
🆕 NEW = New regime saves more tax
📋 OLD = Old regime saves more tax
⚖️ EVEN = Both regimes give similar tax
* This table is a simplified guide based on general calculations. Your exact tax depends on income components, city of residence (for HRA), and specific deduction amounts. Always calculate both regimes using a tax calculator before filing.
8 Real Examples — Which Regime Wins at Your Salary?
All examples: salaried individual, below 60 years, FY 2025-26 (AY 2026-27). Tax calculations include 4% cess. Standard deduction of ₹75,000 (new) and ₹50,000 (old) is applied.
Example 1: Fresh graduate, no investments
🆕 New WinsGross Income
₹7,00,000
Deductions
₹0 (no investments)
New Regime Tax
₹0
Old Regime Tax
₹0
✍️ New regime is marginally better — both are zero tax but new regime needs no paperwork.
Show calculation →
New: ₹7L – ₹75K standard = ₹6.25L taxable → tax = ₹0 (income below ₹12L before rebate fully absorbs). Old: ₹7L – ₹50K = ₹6.5L taxable → tax = ₹32,500 → after 87A rebate (max ₹12,500) = ₹20,000 + 4% cess = ₹20,800
Example 2: Mid-level employee, basic investments
🆕 New WinsGross Income
₹10,00,000
Deductions
₹2L (₹1.5L 80C + ₹50K 80D)
New Regime Tax
₹0
Old Regime Tax
₹54,600
✍️ New regime wins by ₹54,600. Even with ₹2L deductions, the new regime's rebate makes income under ₹12L tax-free.
Show calculation →
New: ₹10L – ₹75K = ₹9.25L taxable → tax before rebate = ₹42,500 → after ₹42,500 rebate (under ₹60K limit) = ₹0. Old: ₹10L – ₹50K – ₹2L = ₹7.5L taxable → tax = ₹75,000 – ₹12,500 rebate = ₹62,500 → ₹54,600 with 4% cess.
Example 3: Salaried professional with HRA
🆕 New WinsGross Income
₹15,00,000
Deductions
₹4L (HRA ₹1.5L + 80C ₹1.5L + 80D ₹25K + NPS ₹25K)
New Regime Tax
₹1,04,000
Old Regime Tax
₹1,13,100
✍️ New regime wins by ₹9,100. Even with ₹4L deductions, new regime is better at ₹15L income.
Show calculation →
New: ₹15L – ₹75K = ₹14.25L taxable → tax = ₹4,000+₹8,000+₹10,000+₹18,750 = (calculated on slabs) ≈ ₹1,00,000 + 4% cess ≈ ₹1,04,000. Old: ₹15L – ₹50K – ₹4L = ₹10.5L taxable → tax = ₹12,500+₹20,000+₹15,000 = ₹1,08,750 + 4% cess ≈ ₹1,13,100.
Example 4: Manager with home loan + HRA + 80C
📋 Old WinsGross Income
₹20,00,000
Deductions
₹6L (HRA ₹2L + 80C ₹1.5L + 80D ₹50K + Home loan ₹2L)
New Regime Tax
₹2,60,000
Old Regime Tax
₹2,18,400
✍️ Old regime wins by ₹41,600. With ₹6L deductions at ₹20L income, the old regime saves significantly more.
Show calculation →
New: ₹20L – ₹75K = ₹19.25L taxable → tax ≈ ₹2,50,000 + 4% cess ≈ ₹2,60,000. Old: ₹20L – ₹50K – ₹6L = ₹13.5L taxable → tax = ₹12,500+₹1,00,000+₹1,05,000 = ₹2,10,000 + 4% cess ≈ ₹2,18,400.
Example 5: Senior manager, minimal deductions
🆕 New WinsGross Income
₹25,00,000
Deductions
₹1.5L (only 80C)
New Regime Tax
₹3,64,000
Old Regime Tax
₹5,30,400
✍️ New regime wins by ₹1,66,400. With minimal deductions at ₹25L, new regime is dramatically better.
Show calculation →
New: ₹25L – ₹75K = ₹24.25L → tax on slabs ≈ ₹3,50,000 + 4% cess ≈ ₹3,64,000. Old: ₹25L – ₹50K – ₹1.5L = ₹23L → tax at 30% bracket = ₹5,10,000 + 4% cess ≈ ₹5,30,400.
Example 6: Senior manager, large deductions
📋 Old WinsGross Income
₹25,00,000
Deductions
₹7L (HRA ₹2.5L + 80C ₹1.5L + 80D ₹50K + Home loan ₹2L + NPS ₹50K)
New Regime Tax
₹3,64,000
Old Regime Tax
₹2,76,240
✍️ Old regime wins by ₹87,760. At ₹25L income with ₹7L deductions, old regime is substantially better.
Show calculation →
New: ₹24.25L taxable ≈ ₹3,50,000 + cess = ₹3,64,000. Old: ₹25L – ₹50K – ₹7L = ₹17.5L taxable → tax ≈ ₹2,65,500 + 4% cess ≈ ₹2,76,240.
Example 7: Director level — high income, some investments
🆕 New WinsGross Income
₹50,00,000
Deductions
₹3L
New Regime Tax
₹11,98,200
Old Regime Tax
₹14,06,600
✍️ New regime wins by ₹2,08,400. At very high incomes with modest deductions, new regime is far better because the 30% slab kicks in at ₹24L vs ₹10L in old regime.
Show calculation →
New slabs are significantly lower at high income. Old regime hits 30% at ₹10L whereas new hits 30% only above ₹24L. This difference at ₹50L income creates massive savings even without deductions.
Example 8: Freelancer / business income, no HRA
🆕 New WinsGross Income
₹20,00,000
Deductions
₹2.5L (only 80C + 80D)
New Regime Tax
₹2,60,000
Old Regime Tax
₹3,38,000
✍️ New regime wins by ₹78,000. Without HRA (no employer), the old regime loses its biggest advantage and new regime wins clearly.
Show calculation →
Freelancers and business owners cannot claim HRA exemption since no employer provides HRA. Without that large deduction, the old regime struggles to compete with new regime slab rates for most income levels.
Who Should Choose Which Regime — Clear Guide
🆕 Choose New Tax Regime if...
- ✓Your income is up to ₹12.75 lakh (zero tax guaranteed)
- ✓You have minimal investments — no 80C, no health insurance, no HRA
- ✓You are a freelancer or self-employed without HRA
- ✓You live in your own home (no rent, no HRA exemption)
- ✓Your total deductions are below ₹3.75 lakh at ₹15L income
- ✓Your total deductions are below ₹5.5 lakh at ₹20L income
- ✓You hate investment planning and want simple tax filing
- ✓You earn above ₹30 lakh with deductions below ₹7 lakh
- ✓You are a senior citizen without large deductions
📋 Choose Old Tax Regime if...
- ✓You pay significant rent in a metro (large HRA exemption)
- ✓You maximize 80C investments every year (PPF, ELSS, LIC)
- ✓You have a home loan on self-occupied property (₹2L interest deduction)
- ✓You pay health insurance premiums for family (₹25K–₹50K under 80D)
- ✓Your total deductions exceed ₹3.75 lakh (at ₹15L income)
- ✓Your total deductions exceed ₹5.5 lakh (at ₹20L income)
- ✓Your total deductions exceed ₹7 lakh (at ₹25L income)
- ✓You are a senior citizen (higher basic exemption ₹3L)
- ✓You have education loan interest to claim (Section 80E)
Exact Breakeven Deduction Points (FY 2025-26)
If your deductions exceed the breakeven amount below, the old regime saves more tax. Below it, the new regime wins.
| Gross Income (Salary) | Breakeven Deductions | Above this → Old regime wins |
|---|---|---|
| Up to ₹12.75 lakh | Any amount | New regime always wins — zero tax regardless |
| ₹15 lakh | ₹3,75,000 | HRA ₹1.5L + 80C ₹1.5L + 80D ₹50K + NPS ₹25K |
| ₹18 lakh | ₹4,08,500 | Home loan + HRA + 80C + 80D needed to cross |
| ₹20 lakh | ₹5,44,000 | Large HRA + full 80C + home loan reaches this |
| ₹25 lakh | ₹7,08,500 | Very high HRA + home loan + 80C + 80D needed |
| ₹30 lakh+ | ₹8,00,000+ | Only large home loan + metro HRA crosses this |
Source: Calculated based on Income Tax Act provisions, Budget 2025. Verify with a tax calculator for your exact situation.
Not Sure Which Regime is Better for You?
Use our salary calculator to estimate your in-hand pay and tax liability under both regimes.
Calculate My Tax — Free →How to Switch Between Old and New Tax Regime
👔 For Salaried Employees
1
Start of the financial year (April 2025): Inform your employer in writing which regime you want. Your employer will deduct TDS accordingly throughout the year.
2
During the year: You can change your preference once during the year. At year-end, the employer finalizes TDS calculation based on your declared regime.
3
While filing ITR (before July 31, 2026): You can choose a different regime from what you declared to employer. Any tax difference is settled at filing — either pay the shortfall or claim a refund. Salaried employees can switch every year.
💼 For Business Owners / Self-Employed
Warning: Taxpayers with income from business or profession face stricter switching rules than salaried employees.
- •File Form 10IEA before July 31, 2026 if you want to opt for the old tax regime
- •You can switch from new to old regime only once in your lifetime
- •Once you switch back to old regime, you can re-enter the new regime only once
- •Plan this carefully — consult a CA before switching if you have business income
5 Costly Mistakes Indians Make When Choosing a Tax Regime
01
Choosing old regime without calculating
Many salaried Indians automatically opt for the old regime "because they always have." Budget 2025 changed the math dramatically. At ₹15L income with deductions below ₹3.75L, the new regime is now better. Always calculate both before choosing.
02
Not informing employer about regime choice
If you want the old regime but don't tell your employer, TDS is deducted under the new regime (default). At year end, you may owe additional tax. Inform your employer at the start of each financial year in writing.
03
Counting deductions that do not qualify
Many people include investments like FD interest, equity dividends, or rental income as "deductions" — these are not deductions, they are income. Only actual deductions under Chapter VI-A (80C, 80D, etc.) and exemptions like HRA matter.
04
Forgetting employer NPS is available in both regimes
Employer's contribution to NPS under Section 80CCD(2) is allowed in both old and new regimes. In the new regime, this deduction is up to 14% of salary — significantly higher than the old regime's 10% limit. This is a major advantage many miss.
05
Assuming the same regime is best every year
Your income and deductions change every year. A raise, a new home loan, or stopping SIP investments can shift which regime is better. Recalculate every April when you declare your regime to your employer. The switch is free for salaried employees.
Frequently Asked Questions — Old vs New Tax Regime
Which tax regime is better for ₹10 lakh salary in 2025-26?
New regime is clearly better for ₹10 lakh salary. Under the new regime, with ₹75,000 standard deduction, your taxable income is ₹9.25 lakh. The tax on this is ₹42,500, which is fully covered by the ₹60,000 Section 87A rebate — giving you zero tax. Under the old regime, even with ₹2L in deductions, you would pay ₹54,600 in tax. The new regime wins by ₹54,600.
Which tax regime is better for ₹15 lakh salary?
At ₹15 lakh salary, the new regime is better if your total deductions are below ₹3.75 lakh. If you have HRA + 80C + 80D + NPS crossing ₹3.75 lakh, the old regime wins. For a typical salaried employee paying metro rent (HRA ~₹1.5L), maxing 80C (₹1.5L), and 80D (₹25K), total deductions of ₹3.25L favour the new regime. Add a home loan interest deduction and the old regime becomes better.
Which tax regime is better for ₹20 lakh salary?
At ₹20 lakh, the breakeven deduction is approximately ₹5.44 lakh. If your HRA + 80C + 80D + home loan interest adds up to more than ₹5.44 lakh, the old regime saves more tax. This typically means living in a metro with high HRA (₹2L+), paying home loan interest (₹2L), and maxing 80C (₹1.5L) — a total of ₹5.5L which tips to old regime. Otherwise, new regime wins.
Is the new tax regime better for senior citizens?
It depends. Senior citizens (60–80 years) get a higher basic exemption of ₹3 lakh under the old regime (vs ₹4 lakh for all under new regime), and a ₹50,000 additional deduction under 80TTB for interest income. If a senior citizen has significant pension income, fixed deposit interest, and medical insurance premiums, the old regime may be better. Calculate both for your exact situation — there is no universal answer for seniors.
Can I use both old and new tax regime in the same year?
No. You must choose one regime for the entire financial year. However, you can choose a different regime each year (for salaried individuals) when you file your ITR. The choice is made annually — you are not locked in permanently.
What is the last date to choose old tax regime for FY 2025-26?
The last date to opt for the old tax regime for FY 2025-26 is July 31, 2026 — the ITR filing deadline. However, to ensure correct TDS deduction throughout the year, inform your employer at the beginning of the financial year (April 2025). If you missed declaring to your employer, you can still opt for the old regime while filing your ITR and claim a refund of excess TDS.
Does choosing new regime affect my EPF contribution?
No. Your EPF (Employee Provident Fund) contributions are determined by your salary structure and EPF Act — not by your income tax regime choice. However, under the new labour code, basic salary must be at least 50% of CTC, which increases your EPF contribution base. The tax treatment of EPF withdrawal is the same under both regimes.
Is there any benefit of old regime other than deductions?
Yes. The old regime gives senior citizens (60-80 years) a higher basic exemption of ₹3 lakh and super senior citizens (80+ years) ₹5 lakh, compared to ₹4 lakh for all age groups under the new regime. The old regime also allows deductions for things like education loan interest (Section 80E) with no upper limit, which can be significant for those repaying large education loans.
Summary — Old vs New Tax Regime 2025-26
✓New regime is default from FY 2025-26 — do nothing and you are on new regime
✓Income up to ₹12.75L (salaried) → zero tax under new regime, always choose new
✓New regime has lower rates but removes HRA, 80C, 80D, home loan benefits
✓Old regime better only if total deductions exceed the breakeven (₹3.75L at ₹15L income)
✓Salaried employees can switch regime every year at ITR filing (deadline July 31)
✓Business owners have more restrictions — can switch only once (Form 10IEA required)
✓Employer NPS contribution (80CCD(2)) allowed in both regimes — maximize this
✓Calculate both regimes using a tax calculator before making a decision
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Disclaimer: This article is for informational and educational purposes only. Tax calculations are simplified for illustration. Actual tax liability depends on your exact income components, deductions, residential status, and applicable surcharges. Always verify calculations using the official Income Tax Department calculator or consult a qualified Chartered Accountant before filing your ITR. Sources: Budget 2025 Finance Act, Income Tax Department FAQs, Section 115BAC of Income Tax Act, ClearTax, INDmoney analysis. Updated March 2026.