The government introduced the New Tax Regime in 2020 and has made it the default regime from FY 2023-24 onwards. For FY 2025-26, Budget 2025 brought significant changes — including a full tax rebate for income up to ₹12 lakh under the new regime.
But does that mean everyone should switch? Not necessarily. This post breaks down the comparison in full detail.
Tax Slabs at a Glance#
New Tax Regime — FY 2025-26#
| Income Slab | Tax Rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4 lakh – ₹8 lakh | 5% |
| ₹8 lakh – ₹12 lakh | 10% |
| ₹12 lakh – ₹16 lakh | 15% |
| ₹16 lakh – ₹20 lakh | 20% |
| ₹20 lakh – ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
Key benefit: Individuals with total income up to ₹12 lakh pay zero tax due to the Section 87A rebate.
Old Tax Regime — FY 2025-26#
| Income Slab | Tax Rate |
|---|---|
| Up to ₹2.5 lakh | Nil |
| ₹2.5 lakh – ₹5 lakh | 5% |
| ₹5 lakh – ₹10 lakh | 20% |
| Above ₹10 lakh | 30% |
Under the old regime, you can claim deductions (80C, 80D, HRA, etc.) to reduce taxable income.
Standard Deduction: ₹75,000 is available under the new regime; ₹50,000 under the old regime (for salaried individuals).
What Deductions Are Available in Each Regime?#
| Deduction | Old Regime | New Regime |
|---|---|---|
| Standard Deduction (Salary) | ₹50,000 | ₹75,000 |
| Section 80C (PPF, ELSS, etc.) | ✅ Up to ₹1,50,000 | ❌ Not available |
| Section 80D (Health Insurance) | ✅ Up to ₹25,000 | ❌ Not available |
| HRA Exemption | ✅ Depends on rent | ❌ Not available |
| Home Loan Interest (Self-occupied) | ✅ Up to ₹2,00,000 | ❌ Not available |
| Leave Travel Allowance | ✅ | ❌ |
| NPS Employer Contribution (80CCD-2) | ✅ | ✅ |
| Gratuity, VRS exemptions | ✅ | ✅ |
Real Example — ₹15 Lakh Salary#
Let's calculate tax for a salaried individual with ₹15 lakh gross salary:
Assumptions:
- 80C investment: ₹1,50,000
- Health insurance: ₹25,000 (80D)
- HRA exempted: ₹1,20,000
- Home loan interest: ₹1,50,000
Old Regime Calculation#
| Item | Amount |
|---|---|
| Gross Salary | ₹15,00,000 |
| Less: Standard Deduction | −₹50,000 |
| Less: HRA | −₹1,20,000 |
| Less: 80C | −₹1,50,000 |
| Less: 80D | −₹25,000 |
| Less: Home Loan Interest | −₹1,50,000 |
| Taxable Income | ₹10,05,000 |
| Tax (old slabs + cess) | ≈ ₹1,17,000 |
New Regime Calculation#
| Item | Amount |
|---|---|
| Gross Salary | ₹15,00,000 |
| Less: Standard Deduction | −₹75,000 |
| Taxable Income | ₹14,25,000 |
| Tax (new slabs + cess) | ≈ ₹1,25,250 |
Winner at ₹15 lakh salary with heavy investments: Old Regime (saves ~₹8,000).
The Break-Even Point#
The break-even depends on your total deductions. If your deductions (beyond the extra ₹25,000 standard deduction) exceed approximately ₹3.75 lakh, the old regime is better.
Calculate your break-even instantly →
Free online calculator
Who Should Choose the New Regime?#
✅ New Regime works best for:
- Individuals with income up to ₹12 lakh (zero tax after rebate)
- Young earners with limited investments
- Those who don't have HRA, home loans, or large 80C deductions
- People who invest in market-linked products outside 80C
- Self-employed with no significant deductions
Who Should Stick with the Old Regime?#
✅ Old Regime works best for:
- Salaried with large HRA (paying high rent in metro cities)
- Home loan borrowers (claiming ₹2 lakh interest deduction)
- Those maximizing 80C (₹1.5 lakh) + 80D (₹25,000+) + NPS
- Individuals with salary above ₹25 lakh and multiple deductions
Important: Your choice is made at the time of filing. Salaried employees can switch every year. However, if you have business income, once you opt out of the new regime you can only switch back once.
Switching Between Regimes#
- Salaried individuals: Declare your regime choice to your employer at the start of the financial year. You can still change at the time of filing.
- Business income: You can opt in/out of the new regime, but restrictions apply on switching back.
Frequently Asked Questions#
Is the new tax regime mandatory from FY 2025-26? It's the default regime. You must explicitly opt for the old regime when filing your ITR or by submitting a declaration to your employer.
Can I change my regime after filing? No. Once the return is submitted, you cannot change the regime for that year (for non-business taxpayers). Salaried employees can change at the time of filing even if they declared differently to the employer.
Does the new regime affect provident fund contributions? No. EPF and VPF contributions are still allowed, but the 80C deduction for them is not available under the new regime.
What about capital gains — is regime relevant? Special rate incomes like LTCG, STCG, and lotteries are taxed at fixed rates and are largely regime-agnostic. The regime primarily affects your slab-rate income.