Old vs New Tax Regime: Which Should You Choose?
A side-by-side look at India's two income tax regimes for FY 2025-26 (AY 2026-27) — slab rates, deductions, the 87A rebate, and how to decide.
Every salaried Indian now faces one recurring choice: file under the old tax regime or the new tax regime. The old regime keeps higher slab rates but lets you claim around 70 deductions and exemptions — Section 80C, HRA, home-loan interest, 80D and more. The new regime offers lower, wider slab rates but strips away almost all of those deductions, keeping only the standard deduction and a handful of others. Since Budget 2020 the gap has narrowed steadily, and as of FY 2025-26 the new regime is the default. This guide compares both so you can pick the one that leaves more money in your pocket. Once you have read it, run your own numbers in the Income Tax Calculator — it is the only reliable way to see which regime is cheaper for your income and deductions.
Quick Comparison: Old vs New Regime
| Factor | Old Regime | New Regime (default) |
|---|---|---|
| Slab rates | Higher (up to 30% from ₹10 lakh) | Lower & wider (30% only above ₹24 lakh) |
| Basic exemption | ₹2.5 lakh | ₹4 lakh |
| Deductions (80C, HRA, home loan, etc.) | Allowed (~70 in total) | Mostly not allowed |
| Standard deduction (salaried) | ₹50,000 | ₹75,000 |
| 87A rebate — tax-free up to | ₹5 lakh taxable income | ₹12 lakh taxable income |
| Health & education cess | 4% | 4% |
| Best for | Heavy deduction users | Simple salaried, few investments |
Figures as of FY 2025-26 (AY 2026-27). Slab rates and rebates are revised in most Union Budgets — verify before filing.
New Regime Slabs — FY 2025-26
| Taxable income | Tax rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Thanks to the enhanced Section 87A rebate, a resident individual pays zero tax on taxable income up to ₹12 lakh here. With the ₹75,000 standard deduction, a salaried person earning up to about ₹12.75 lakh gross can owe nothing.
Old Regime Slabs — FY 2025-26
| Taxable income | Tax rate (below 60 yrs) |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
The old-regime slabs are unchanged for FY 2025-26. The basic exemption is ₹3 lakh for senior citizens (60–80) and ₹5 lakh for super-senior citizens (80+). The 87A rebate here makes tax nil only up to ₹5 lakh taxable income — but you can shrink your taxable income with deductions before that point.
The Break-Even Idea
Both regimes tax the same gross salary — the difference is what you subtract first. The old regime lowers your taxable income through deductions but then taxes the remainder at higher rates; the new regime skips the deductions but taxes at lower rates. So the question is: are your deductions large enough to beat the new regime's lower rates?
Because the new regime now exempts income up to ₹12 lakh, most salaried taxpayers earning below that are better off in the new regime — there is simply no tax to save. As income climbs above roughly ₹13–16 lakh, the old regime starts to compete, but usually only if you actually claim a hefty deduction stack: a full ₹1.5 lakh under Section 80C, up to ₹2 lakh of home-loan interest, HRA, 80D health premiums and NPS. As a rough guide, at higher incomes you typically need total deductions of around ₹4–5 lakh or more for the old regime to pull ahead. The exact tipping point shifts with your salary and rent, so treat this as direction, not gospel — and confirm it in the Income Tax Calculator.
Which Should You Choose?
Old regime suits you if…
- You pay rent and claim significant HRA
- You have a home loan with large interest
- You max out 80C via PPF, ELSS, EPF or insurance
- You claim 80D, NPS and other deductions
- Your total deductions run into several lakhs
New regime suits you if…
- Your taxable income is at or below ₹12 lakh
- You invest little in tax-saving instruments
- You rent-free or have no home loan
- You want simpler filing and higher take-home
- You prefer liquidity over locked-in 80C products
Pros & Cons at a Glance
Old Regime
Pros
- Rewards disciplined tax-saving investment
- ~70 deductions and exemptions available
- Can slash tax sharply at high deduction levels
Cons
- Higher slab rates
- Needs paperwork and proof of investments
- Locks money into 80C products
New Regime
Pros
- Lower, wider slabs and higher rebate
- Tax-free up to ₹12 lakh income
- Simple filing, no investment proofs
Cons
- No 80C, HRA or home-loan interest
- Less incentive to save and invest
- High-deduction earners may pay more
Run the Numbers Before You File
The regimes interact with your rent, home loan and investments in ways no rule of thumb fully captures. Enter your salary and deductions in the Income Tax Calculator to compare the exact tax under both regimes side by side. If you are still building your 80C stack, the PPF Calculator, SIP Calculator, Lumpsum Calculator and RD Calculator can help you plan where that money goes.
This page is for general information only and is not tax or financial advice. Tax rules change with each Union Budget; verify current slabs and rebates or consult a qualified tax professional before filing.