Old vs New Tax Regime: Which Should You Choose in FY 2025-26?

Why this decision changed in 2025

For years, the old tax regime was the default choice for most salaried Indians, mainly because of familiar deductions like Section 80C, HRA, and the home loan interest benefit under Section 24(b). The new regime existed but rarely won on pure numbers unless someone had very few deductions to claim.

That changed with Budget 2025. The new regime's slabs were widened significantly, the zero-tax ceiling was pushed up, and the Section 87A rebate now effectively wipes out tax for taxable income up to ₹12 lakh (around ₹12.75 lakh gross for salaried employees, after the standard deduction). For a large share of taxpayers, the calculus has flipped.

The current new-regime slabs

Under the new regime for FY 2025-26, income up to ₹4 lakh is tax-free, then taxed at 5% up to ₹8 lakh, 10% up to ₹12 lakh, 15% up to ₹16 lakh, 20% up to ₹20 lakh, 25% up to ₹24 lakh, and 30% beyond that. A flat ₹75,000 standard deduction applies to salaried income before these slabs kick in.

Critically, if your total taxable income (after the standard deduction) doesn't cross ₹12 lakh, the Section 87A rebate brings your tax liability down to zero under the new regime — not just a lower rate, but no tax at all.

When the old regime still wins

The old regime remains competitive if you have substantial deductions: a home loan with significant interest outgo, HRA in a high-rent city, an 80C investment already maxed at ₹1.5 lakh, health insurance premiums under 80D, and so on. As a rough rule of thumb, if your combined deductions exceed roughly ₹4–4.5 lakh a year, it's worth running both calculations before deciding.

This is exactly the kind of comparison a calculator handles faster than mental math — small changes in HRA or 80C contributions can tip the answer either way.

A worked example

Consider someone with a ₹15 lakh salary and ₹2 lakh in eligible deductions (80C plus 80D). Under the new regime, they'd pay tax on ₹14.25 lakh of taxable income (after the standard deduction) using the slabs above, with no benefit from their ₹2 lakh in deductions since the new regime doesn't allow them. Under the old regime, the same ₹2 lakh deduction directly reduces taxable income, but the old regime's slabs (20% and 30% brackets starting earlier, and a smaller exemption) are less generous to begin with.

In practice, for this income level, the two regimes often land within a similar range of each other — which is exactly why a side-by-side calculation matters more than a general rule.

How to decide

Add up your actual eligible deductions for the year: 80C investments, 80D premiums, HRA exemption if applicable, and home loan interest if you own a house. Run that figure through both regimes using our Income Tax Calculator, and compare the final numbers rather than assuming based on last year's decision — the slabs changed enough that many people's answer changed too.