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

Every year, salaried individuals and professionals in India face the same decision: file under the Old tax regime, with its deductions and exemptions, or the New regime, with its lower slab rates but far fewer deductions. There’s no universal right answer — it depends entirely on your numbers.

How the two regimes differ

The Old regime rewards people who actively invest in tax-saving instruments and have deductible expenses. It lets you claim:

• Section 80C investments (PPF, ELSS, life insurance, etc.) up to ₹1,50,000
• Section 80D health insurance premiums
• HRA if you’re renting
• Home loan interest under Section 24(b)
• A standard deduction of ₹50,000 for salaried employees and pensioners

In exchange, its slab rates are higher, starting at 5% above ₹2,50,000 and reaching 30% above ₹10,00,000.

The New regime (the default since FY 2023-24, and further revised in the FY 2025-26 budget) simplifies things: no need to invest anywhere or produce proof of expenses. Its slabs are wider and its rates lower — nil tax up to ₹4,00,000, rising gradually to 30% only above ₹24,00,000 — and it carries a larger standard deduction of ₹75,000. But almost all the deductions available under the Old regime are gone.

Where each regime tends to win

If you have significant deductions — a home loan, health insurance for your family, a full ₹1.5 lakh in 80C investments — the Old regime often ends up cheaper, sometimes considerably so. If you don’t have many of these, or you’ve been putting off structured tax-saving investments, the New regime’s lower rates usually work out better on their own.

There’s also a rebate to factor in: under Section 87A, the New regime currently gives you zero tax if your taxable income is ₹12,00,000 or less (₹12,75,000 effectively for salaried employees, after the standard deduction). The Old regime’s equivalent threshold is much lower, at ₹5,00,000.

The only way to know for sure

Because the crossover point depends on your specific income and deductions, the only reliable way to decide is to run the actual numbers for your situation — a rough estimate based on someone else’s example can easily lead you the wrong way, especially near the rebate thresholds where small differences matter a lot.