Income Tax

New Tax Regime vs Old Regime: Which Is Better in FY 2025-26?

By CA Aman Singhal12 June 20266 min read

Choosing between the new and old tax regimes is the single biggest decision on your income tax return. After Budget 2025, the new regime became dramatically more attractive for most salaried taxpayers — but it is still not the right answer for everyone. Here is how to decide for FY 2025-26 (assessment year 2026-27).

New regime slab rates for FY 2025-26

The default regime now uses these slabs:

Up to ₹4,00,000 — Nil
₹4,00,001 to ₹8,00,000 — 5%
₹8,00,001 to ₹12,00,000 — 10%
₹12,00,001 to ₹16,00,000 — 15%
₹16,00,001 to ₹20,00,000 — 20%
₹20,00,001 to ₹24,00,000 — 25%
Above ₹24,00,000 — 30%

Two features make this powerful: a standard deduction of ₹75,000 for salaried individuals, and a Section 87A rebate that makes total income up to ₹12,00,000 completely tax-free. For a salaried person, adding the standard deduction means income up to roughly ₹12.75 lakh attracts zero tax.

Old regime — higher rates, but deductions

The old regime keeps the familiar slabs (Nil up to ₹2.5L, 5% to ₹5L, 20% to ₹10L, 30% above) but lets you claim a long list of deductions — 80C (₹1.5L), 80D health insurance, the ₹50,000 NPS deduction under 80CCD(1B), HRA, and home-loan interest up to ₹2 lakh.

The real difference

New regime: lower rates, almost no deductions. Simpler, and usually better if you do not have large investments or a home loan.
Old regime: higher rates, but rewarding if you fully use deductions — big 80C, health insurance, NPS, HRA and especially home-loan interest.

So which should you pick?

A useful rule of thumb: the more deductions you genuinely claim, the more the old regime can win. If your combined deductions cross roughly ₹4–4.5 lakh (common when you have a home loan plus HRA plus a full 80C and 80D), the old regime often comes out ahead. Below that, the new regime almost always wins thanks to the ₹12 lakh rebate.

Worked example: A salaried person earning ₹14 lakh with only ₹1.5 lakh of 80C investments is far better off in the new regime. The same person with a home loan (₹2 lakh interest), ₹1.5 lakh 80C, ₹50,000 NPS and ₹25,000 health insurance may save more under the old regime. The only way to be sure is to compute both.

How to be certain

Don't guess — the numbers shift with every deduction. Use our Income Tax Calculator to compare both regimes side by side for your exact income and deductions in seconds, or talk to a CA for a year-round tax-planning strategy.

Try the Income Tax CalculatorFree, CA-verified, runs in your browser.

This article is for general information based on provisions for FY 2025-26 and is not individual tax advice. Rules change and exceptions apply — please confirm with a qualified Chartered Accountant before acting.