Choosing between the New Tax Regime and Old Tax Regime is the most important decision a salaried employee makes while filing an ITR. Get it wrong and you could pay thousands of rupees more than necessary. This guide compares both regimes with real numbers.
The Key Difference in One Line
New Regime = Lower tax rates, no deductions. Old Regime = Higher tax rates, all deductions and exemptions allowed.
Tax Slabs Comparison - FY 2025-26
| Income Slab | New Regime Rate | Old Regime Rate |
|---|---|---|
| Up to Rs 2.5 lakh | Nil | Nil |
| Rs 2.5 lakh - Rs 3 lakh | Nil | 5% |
| Rs 3 lakh - Rs 5 lakh | 5% (rebate if income up to Rs 7 lakh) | 5% |
| Rs 5 lakh - Rs 7 lakh | 5% | 20% |
| Rs 7 lakh - Rs 10 lakh | 10% | 20% |
| Rs 10 lakh - Rs 12 lakh | 15% | 30% |
| Rs 12 lakh - Rs 15 lakh | 20% | 30% |
| Above Rs 15 lakh | 30% | 30% |
Standard deduction of Rs 75,000 is available under BOTH regimes for salaried individuals for FY 2025-26 (enhanced from Rs 50,000 in Budget 2024).
Deductions Available in Old Regime (Not in New Regime)
| Section | Deduction | Maximum Amount |
|---|---|---|
| 80C | LIC, PPF, ELSS, home loan principal, tuition fees | Rs 1.5 lakh |
| 80D | Health insurance premium | Rs 25,000 (Rs 50,000 senior citizens) |
| 24(b) | Home loan interest (self-occupied) | Rs 2 lakh |
| HRA | House Rent Allowance exemption | Actual / formula based |
| LTA | Leave Travel Allowance | Actual travel cost |
| 80E | Interest on education loan | No limit (8 years) |
| 80G | Donations to eligible organisations | 50-100% of donation |
| 80TTA / 80TTB | Savings account / senior FD interest | Rs 10,000 / Rs 50,000 |
| 80CCD(1B) | Additional NPS contribution | Rs 50,000 |
Practical Example: Annual Income Rs 12 Lakh
Assumptions: Rs 1.5 lakh 80C, Rs 25,000 health insurance, Rs 2 lakh home loan interest, Rs 1.2 lakh HRA.
| Calculation Step | New Regime | Old Regime |
|---|---|---|
| Gross Salary | Rs 12,00,000 | Rs 12,00,000 |
| Less: Standard Deduction | Rs 75,000 | Rs 75,000 |
| Less: HRA Exemption | Not allowed | Rs 1,20,000 |
| Less: 80C | Not allowed | Rs 1,50,000 |
| Less: 80D | Not allowed | Rs 25,000 |
| Less: Home Loan Interest (24b) | Not allowed | Rs 2,00,000 |
| Taxable Income | Rs 11,25,000 | Rs 6,30,000 |
| Estimated Tax (approx.) | Rs 1,16,250 + cess | Rs 45,500 + cess |
| Verdict | Old Regime saves ~Rs 70,000 |
This shows that for individuals with significant deductions (80C + HRA + home loan), the old regime saves substantially. For those with few deductions, the new regime is usually better.
When New Regime is Better
- You are young, renting (company pays HRA in CTC), with minimal 80C investments
- You do not have a home loan
- Your total deductions are less than Rs 3.75 lakh
- You prefer simplicity over tax planning
When Old Regime is Better
- You are paying home loan EMI with significant interest component
- You are paying rent and claiming HRA
- You have maximised 80C, 80D, and other deductions
- Your total eligible deductions exceed Rs 3.75 lakh
Can You Switch Every Year?
Salaried employees with no business income can switch between regimes every year directly in their ITR. Taxpayers with business income can switch to old regime only once and switch back only once in a lifetime.
Not Sure Which Regime Saves You More?
Regikart's CA team computes your tax under both regimes using your actual income and investment data - and recommends the better option before filing. The difference can run into tens of thousands of rupees.
| Ready to File Your ITR for FY 2025-26? Let Regikart's expert CA team handle it - accurately, on time, and stress-free. File Your ITR with Regikart: https://regikart.com/income-tax-return-filing Call / WhatsApp: +91 945 945 6700 | Email: [email protected] |
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Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Tax laws may change. Please consult a qualified Chartered Accountant for advice specific to your situation.
About the author
Gaurav
Senior Advisor at Regikart. Want to discuss this in the context of your business?
