Confused between new and old tax regimes for FY 2025-26? This guide breaks down tax slabs, deductions, examples, and tips to help you choose the best option for your income.
Introduction: Why Your Tax Choice Matters in FY 2025–26
Many salaried Indians face one question every tax season: Should I stick with the Old Tax Regime or switch to the New?
Thanks to recent changes, especially after Budget 2025, this decision is more important than ever. While the New Tax Regime offers lower rates, it gives up valuable deductions. On the other hand, the Old Tax Regime allows you to save through exemptions like 80C, HRA, and health insurance.
We’ll walk you through 2025’s best option—comparing both regimes, showing who benefits where, and helping you choose based on your income and deductions.
🔹 1. Old vs New Tax Regime — What’s the Difference?
Old Tax Regime
- Higher tax rates but allows popular deductions: Section 80C, 80D (insurance), HRA, home loan interest, etc.
New Tax Regime (115BAC)
- Lower rate structure but few exemptions—mainly just the standard deduction, employer’s NPS contribution, etc.
- As per Budget 2025, salaried taxpayers get ₹75,000 standard deduction (vs ₹50,000 earlier) (GrowwThe Economic Times+5ClearTax+5Policybazaar+5.)
🔹 2. 2025–26 Tax Slabs — Old vs New Regime (For Individuals Below 60)
| Old Regime (FY 2025–26) | New Regime (FY 2025–26) |
|---|---|
| Up to ₹3 lakh: Nil | Up to ₹4 lakh: Nil The Times of India+9Income Tax Department+9Income Tax Department+9The Economic Times |
| ₹3–5 lakh: 5% | ₹4–8 lakh: 5% |
| ₹5–10 lakh: 20% | ₹8–12 lakh: 10% |
| ₹10–15 lakh: 25% | ₹12–16 lakh: 15% |
| ₹15–50 lakh: 30% | ₹16–20 lakh: 20% |
| Above ₹50 lakh: 30% + surcharge | ₹20–24 lakh: 25%; above ₹24 lakh: 30% www.bajajfinserv.inThe Economic Times |
Section 87A rebate: Under the new regime, income up to ₹12 lakh is eligible for full rebate—i.e., zero tax liability GrowwClearTax.
🔹 3. Who Should Prefer the Old Regime in 2025?
Ideal for taxpayers who:
- Claim HRA or live in rented accommodation
- Have home loan deductions (principal + interest)
- Invest heavily via 80C (PF, PPF, ELSS), use 80D, NPS contributions
- Have school fees and medical insurance deductions
📍 Example:
A 35-year-old earning ₹12 lakh, claiming ₹1.5 lakh under 80C, paying health insurance and housing rent—Old Regime may save more tax than New—even with lower slabs.
🔹 4. Who Gets More Benefits from the New Regime?
Best suited for:
- Young professionals with income under ₹12 lakh and few deductions
- Freelancers, gig workers, or consultants without structured salary components
- Those seeking simplified ITR and tax filing
Example:
A 26-year-old earning ₹8 lakh annually and not claiming any 80C or HRA exemption can benefit more from the New Regime’s lower rates and ₹75,000 standard deduction.
🔹 5. Key Budget 2025 Updates That Matter
- New Regime is now default; Old Regime must be opted explicitly Income Tax Department+15Jiraaf+15The Economic Times+15Policybazaar+1Groww+1ClearTax+3Groww+3The Economic Times+3The Economic TimesThe Economic Times+2Income Tax Department+2The Economic Times+2IndiaFilings
- Standard deduction increased to ₹75,000 effective FY 2025–26 IndiaFilings+4The Economic Times+4The Times of India+4
- Section 87A rebate raised so income up to ₹12 lakh is tax-free under new regime Referencer+15Groww+15www.bajajfinserv.in+15
These changes give a clear edge to New Regime for taxpayers with limited deductions and incomes below ₹12 lakh.
🔹 6. Two Taxpayer Case Studies: Old vs New Regime
| Profile | Old Regime Tax | New Regime Tax |
|---|---|---|
| ₹9 lakh with ₹1.2 lakh 80C + HRA | Lower due to deductions | Higher, as no exemptions |
| ₹12 lakh no deductions | Taxable slab higher | Near-zero liability due to rebate |
The right regime depends on your deductions and lifestyle, not blanket statements.
🔹 7. Common Myths—Debunked
- Myth: New Regime is always cheaper → Not true if you claim exemptions.
- Myth: Filing under Old Regime is cumbersome → With apps and digital forms, it’s easy.
- Myth: High-income earners should always stick to Old Regime → Sometimes New is better if deductions are minimal.
🔹 8. How to Decide — A Step-by-Step Guide
- List your taxable income.
- Estimate deductions you can claim under Old Regime (80C, 80D, HRA, loan interest).
- Use an online tax calculator (like Groww or ClearTax) to compute tax under both regimes.
- Compare both. If your taxable income is below ₹12 lakh and deductions are low, New Regime may be better.
- Re-evaluate every year—financial circumstances change.
These online tools already include updated slabs and rebate limits Income Tax IndiaJiraaf+8Groww+8www.bajajfinserv.in+8Reuters+7www.bajajfinserv.in+7The Times of India+7Income Tax Department+1usaindiacfo.com+1Jiraaf.
🔹 9. Final Tip: Consult a Tax Advisor
A wrong choice can cost thousands annually. Before making a final decision:
- Talk to a SEBI-registered financial planner
- Especially important for freelancers, senior citizens, and those with multiple deductions
🔹 Conclusion: No One-Size-Fits-All
- If you have significant deductions and home loan interest, the Old Regime may save more.
- If you earn under ₹12 lakh and don’t claim tax-saving instruments, the New Regime is simpler and cheaper.
Your best option depends on your income, deductions, and financial habits. Always choose after comparison—and update your choice annually as your situation evolves.
Disclaimer
This article is shared for educational purposes only. It does not constitute tax advice. Tax liabilities vary by personal circumstances. Consult a registered tax professional before making decisions.
Useful Links – WhatsApp Business For Shopkeepers , Solopreneur Economy in India , Income Tax Department: New vs Old Regime Slabs , Groww Tax Calculator
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