From FY 2023-24 onwards, the New Tax Regime is the default regime in India. But does that mean it is always the better choice? Not necessarily. For FY 2025-26 (AY 2026-27), your decision between the new and old regime can mean a difference of tens of thousands of rupees. This guide breaks down both regimes clearly so you can decide confidently.

What Changed in the New Tax Regime for FY 2025-26?

Budget 2025 brought a landmark change — income up to Rs. 12 lakh is effectively tax-free under the new regime due to the enhanced rebate under Section 87A. The basic exemption limit has also been raised to Rs. 4 lakh under the new regime, making it attractive for a large section of taxpayers.

New Tax Regime: Slab Rates for FY 2025-26

• Up to Rs. 4 lakh — NIL
• Rs. 4 lakh to Rs. 8 lakh — 5%
• Rs. 8 lakh to Rs. 12 lakh — 10%
• Rs. 12 lakh to Rs. 16 lakh — 15%
• Rs. 16 lakh to Rs. 20 lakh — 20%
• Rs. 20 lakh to Rs. 24 lakh — 25%
• Above Rs. 24 lakh — 30%

Old Tax Regime: Slab Rates for FY 2025-26

• Up to Rs. 2.5 lakh — NIL
• Rs. 2.5 lakh to Rs. 5 lakh — 5%
• Rs. 5 lakh to Rs. 10 lakh — 20%
• Above Rs. 10 lakh — 30%

Key Deductions Available ONLY in Old Regime

• Section 80C — up to Rs. 1.5 lakh (PPF, ELSS, LIC, EPF, etc.)
• Section 80D — Health insurance premium (up to Rs. 25,000-50,000)
• HRA Exemption — House Rent Allowance
• LTA — Leave Travel Allowance
• Section 24(b) — Home loan interest up to Rs. 2 lakh
• Section 80TTA — Interest on savings account up to Rs. 10,000
• Standard Deduction — Rs. 50,000 (salary/pension)

When Does the Old Regime Make More Sense?

If your total deductions (80C + 80D + HRA + Home Loan Interest) exceed Rs. 3.75 lakh for someone earning Rs. 15 lakh, the old regime often saves more tax. Use this simple rule: if your eligible deductions exceed the ‘break-even deduction threshold’, stick to the old regime.

When Does the New Regime Make More Sense?

• Your income is below Rs. 12 lakh (zero tax under new regime)
• You have few or no eligible deductions
• You are a first-time earner without PPF/LIC investments
• You are a freelancer or gig worker with limited deduction options

Practical Example: Rs. 15 Lakh Salary

Under the new regime, tax on Rs. 15 lakh would be approximately Rs. 1,17,000 + 4% cess. Under the old regime with deductions of Rs. 3.5 lakh (80C + 80D + Standard), taxable income becomes Rs. 11.5 lakh with tax of approximately Rs. 1,34,400 + cess. In this case, new regime wins. However, add a home loan interest of Rs. 2 lakh and the old regime becomes cheaper.

FAQs

Q: Can I switch regime every year?

A: Salaried employees can switch every year at ITR filing stage. However, if you have business income, switching back from old to new regime has a 5-year lock-in.

Q: Is 80C available in the new regime?

A: No. Deductions under Chapter VI-A including 80C, 80D are not available in the new tax regime.

Q: What is the standard deduction in the new regime?

A: Rs. 75,000 for salaried employees and pensioners under the new regime from FY 2024-25 onwards.

Need help choosing the right tax regime? BMC Associates — CA Firm in Delhi NCR — can analyse your income and deductions and recommend the best regime. Call us at +91-991-084-9998.