Every year, salaried employees and business owners face the same question at tax-planning time: should I stick with the old tax regime and its deductions, or switch to the new tax regime with its lower slab rates? For FY 2025-26 (assessment year 2026-27), the choice matters more than ever, because the new regime is now the default and has become increasingly attractive for many taxpayers.
The right answer is not the same for everyone. It depends on your income level, how much you invest, and how many deductions you can genuinely claim. This guide explains the old vs new tax regime clearly - the slabs, the deductions each allows, break-even points, and a simple framework to help you decide which one saves you more tax.
Understanding the two regimes
India offers taxpayers a choice between two income tax structures:
- Old tax regime: Higher slab rates, but you can claim a wide range of exemptions and deductions - such as Section 80C investments, HRA, home loan interest, and more.
- New tax regime: Lower slab rates and a simpler structure, but most deductions and exemptions are not available. It is now the default regime, so you must actively opt for the old regime if you prefer it.
The core trade-off is simple: the old regime rewards those who invest and claim deductions; the new regime rewards those who prefer lower rates without locking money into tax-saving instruments.
New tax regime slabs (FY 2025-26)
The new tax regime features wider slabs and lower rates. The broad structure is as follows:
| Income slab (annual) | Tax rate (new regime) |
|---|---|
| Up to Rs 3,00,000 | Nil |
| Rs 3,00,001 - Rs 7,00,000 | 5% |
| Rs 7,00,001 - Rs 10,00,000 | 10% |
| Rs 10,00,001 - Rs 12,00,000 | 15% |
| Rs 12,00,001 - Rs 15,00,000 | 20% |
| Above Rs 15,00,000 | 30% |
Under the new regime, a standard deduction of Rs 75,000 is available for salaried individuals, and a rebate under Section 87A makes income up to a specified threshold effectively tax-free for eligible resident taxpayers. Because slab structures and rebate limits are periodically revised in the Union Budget, always confirm the latest figures before filing.
Old tax regime slabs
The old regime retains its traditional slab structure:
| Income slab (annual) | Tax rate (old regime) |
|---|---|
| Up to Rs 2,50,000 | Nil |
| Rs 2,50,001 - Rs 5,00,000 | 5% |
| Rs 5,00,001 - Rs 10,00,000 | 20% |
| Above Rs 10,00,000 | 30% |
Senior citizens enjoy a higher basic exemption limit under the old regime. The real advantage here, however, lies in the deductions.
Deductions: where the old regime shines
The old regime lets you reduce your taxable income significantly if you use tax-saving avenues. Key deductions include:
- Section 80C - up to Rs 1.5 lakh for investments like EPF, PPF, ELSS, life insurance premiums, principal on home loan, and children's tuition fees.
- Section 80D - health insurance premiums for self, family, and parents.
- HRA exemption - for salaried employees paying rent.
- Section 24(b) - up to Rs 2 lakh on home loan interest for a self-occupied property.
- Section 80CCD(1B) - additional Rs 50,000 for NPS contributions.
- Standard deduction of Rs 50,000 for salaried individuals.
Under the new regime, most of these are not available - the main relief being the standard deduction and the employer's NPS contribution under Section 80CCD(2).
Old vs new tax regime: head-to-head
| Feature | Old regime | New regime |
|---|---|---|
| Slab rates | Higher | Lower |
| Section 80C, 80D, HRA, etc. | Available | Mostly not available |
| Standard deduction (salaried) | Rs 50,000 | Rs 75,000 |
| Default option | No (must opt in) | Yes |
| Best for | High deduction claimants | Those with few deductions |
| Complexity | Higher (documentation) | Lower (simpler) |
Which regime should you choose?
There is no universal winner. Use this practical framework. The new regime usually works better if you:
- Have few or no tax-saving investments
- Do not pay rent or a home loan (so HRA and 24(b) are irrelevant)
- Prefer higher take-home pay over locking money into 80C instruments
- Want simpler filing with minimal documentation
The old regime usually works better if you:
- Fully utilise Section 80C (Rs 1.5 lakh)
- Claim HRA and/or home loan interest
- Have health insurance and NPS deductions
- Have total deductions large enough to offset the higher slab rates
The break-even principle: The more deductions you can genuinely claim, the more the old regime tends to favour you. If your combined deductions cross a certain threshold relative to your income, the old regime's lower taxable base beats the new regime's lower rates. Since the exact break-even depends on your income and deduction mix, it is worth running both calculations - or letting a professional do it - before you decide.
A simple example approach
Imagine two people earning the same salary. The first invests heavily in PPF and ELSS, pays rent, and services a home loan - they will likely pay less tax under the old regime. The second has no such investments and rents nothing - they will almost certainly pay less under the new regime. Same income, different optimal choice. That is why a personalised comparison beats any rule of thumb.
Important points to remember
- Salaried taxpayers can generally choose between regimes each year; those with business income face more restrictions on switching back and forth.
- The new regime is the default - if you want the old regime, you must actively opt for it and inform your employer for accurate TDS.
- Always compute your liability under both regimes before finalising, especially after any Budget changes to slabs or the rebate limit.
Frequently Asked Questions
Which tax regime is the default for FY 2025-26?
The new tax regime is the default. If you prefer the old regime with its deductions, you must actively opt for it while filing and inform your employer for correct TDS deduction.
Can I claim Section 80C deductions under the new regime?
No. Section 80C and most other popular deductions are not available under the new regime. The main relief is the standard deduction for salaried individuals and the employer's NPS contribution.
Is the standard deduction available in both regimes?
Yes, salaried individuals get a standard deduction under both regimes - Rs 50,000 under the old regime and Rs 75,000 under the new regime for FY 2025-26.
Can I switch between the old and new regimes every year?
Salaried individuals without business income can generally choose the regime each financial year. Taxpayers with business income face restrictions on switching back once they opt out.
How do I know which regime saves me more tax?
Compute your liability under both regimes using your actual income and eligible deductions. If your deductions are substantial, the old regime often wins; if minimal, the new regime usually does. A CA can run this comparison precisely.
Why choose Regikart
Choosing the wrong regime can quietly cost you thousands every year. At Regikart, our in-house Chartered Accountants calculate your tax liability under both the old and new regimes, factor in every deduction you are eligible for, and recommend the option that maximises your savings.
From regime selection and ITR filing to year-round tax planning, our team across Kolkata, Delhi, Gurugram, and Pune serves salaried professionals and business owners pan-India. New to filing? Read our complete guide to filing ITR online first. Talk to us and make sure you never pay more tax than you need to.
About the author
Suresh Iyer
Direct Tax Advisor at Regikart. Want to discuss this in the context of your business?
