New Tax Regime vs Old Tax Regime — Which is Better?
The Union Budget 2025 made the New Tax Regime the default regime for all taxpayers. However, you can still choose the Old Regime if it results in lower tax. Here's a complete comparison:
New Tax Regime Slabs (FY 2025–26)
| Income Range | 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% |
🎉 Key Benefit: Under the New Regime, income up to ₹12,75,000 is effectively tax-free thanks to the ₹75,000 standard deduction + Section 87A rebate of ₹60,000 (for income up to ₹12L).
Old Tax Regime Slabs (FY 2025–26)
| Income Range | Below 60 | Senior (60–79) | Super Senior (80+) |
|---|
| Up to ₹2,50,000 | NIL | NIL | NIL |
| ₹2,50,001 – ₹3,00,000 | 5% | NIL | NIL |
| ₹3,00,001 – ₹5,00,000 | 5% | 5% | NIL |
| ₹5,00,001 – ₹10,00,000 | 20% | 20% | 20% |
| Above ₹10,00,000 | 30% | 30% | 30% |
Key Differences at a Glance
| Feature | New Regime | Old Regime |
|---|
| Default Regime (FY26) | ✅ Yes | ❌ Must opt-in |
| Standard Deduction | ✅ ₹75,000 | ✅ ₹50,000 |
| Section 80C (₹1.5L) | ❌ Not allowed | ✅ Allowed |
| HRA Exemption | ❌ Not allowed | ✅ Allowed |
| Section 80D (Health) | ❌ Not allowed | ✅ Allowed |
| NPS 80CCD(1B) ₹50K | ❌ Not allowed | ✅ Allowed |
| Home Loan Interest (24b) | ❌ Not allowed | ✅ Up to ₹2L |
| Tax Rebate (87A) | Up to ₹12L income | Up to ₹5L income |
| Lower Tax Rates | ✅ Yes (wider nil slab) | ❌ Higher rates |
Who Should Choose Which Regime?
✅ Choose New Regime if…
- Your annual income is below ₹12,75,000 (zero tax!)
- You have fewer deductions — no home loan, low 80C investments
- You want simplicity — fewer forms, no investment proofs needed
- You are a fresher or young professional starting career
- Your employer does not offer HRA or the HRA is small
✅ Choose Old Regime if…
- You have high HRA exemption (paying high rent in metros)
- You max out 80C (₹1.5L) + NPS (₹50K) + 80D (₹25K) = ₹2.25L+ deductions
- You have a home loan with ₹2L interest deduction (Sec 24b)
- Your income is above ₹15–20 lakh with maximum deductions
- You are a senior citizen with higher basic exemption limit
💡 Rule of Thumb: If your total deductions (80C + HRA + 80D + NPS + Home Loan) exceed ₹3.75 lakh, Old Regime is likely better. Below that, New Regime usually wins.
Important Tax Rules for FY 2025–26
Section 87A Rebate (New Regime)
If your taxable income (after standard deduction) is up to ₹12,00,000, you get a full rebate under Section 87A — meaning zero tax payable. With the ₹75,000 standard deduction, your gross salary can be up to ₹12,75,000 and still be tax-free under the New Regime.
Surcharge Rates
| Income Range | Surcharge (New Regime) | Surcharge (Old Regime) |
|---|
| Up to ₹50 lakh | NIL | NIL |
| ₹50L – ₹1 Crore | 10% | 10% |
| ₹1Cr – ₹2 Crore | 15% | 15% |
| ₹2Cr – ₹5 Crore | 25% | 25% |
| Above ₹5 Crore | 25% | 37% |
Note: New Regime caps surcharge at 25%, making it more beneficial for very high incomes.
⚠️ 4% Health & Education Cess is applicable on income tax + surcharge under both regimes.
Frequently Asked Questions — Income Tax Calculator 2026
Is income up to ₹12 lakh really tax-free in 2026? ⌄
Yes! Under the New Tax Regime for FY 2025-26, if your taxable income (after ₹75,000 standard deduction) is up to ₹12,00,000, Section 87A gives a full rebate — meaning zero tax. So if your gross salary is up to ₹12,75,000, you pay no income tax under the New Regime.
Can I switch between New and Old Regime every year? ⌄
Salaried employees can switch between regimes every financial year by informing their employer at the beginning of the year. However, if you have business income, you can switch to the Old Regime only once, and after that you cannot switch back to New Regime (except if you stop having business income).
What is the standard deduction for salaried employees in FY 2025-26? ⌄
The standard deduction is ₹75,000 under the New Regime (increased from ₹50,000 in Budget 2024) and ₹50,000 under the Old Regime. This is automatically deducted from your gross salary to arrive at taxable income — no proof needed.
Is PF contribution tax-free under both regimes? ⌄
Your employee PF contribution (12%) qualifies for deduction under Section 80C, but this deduction is only available under the Old Regime. Under the New Regime, no 80C deduction is allowed. However, the employer's PF contribution (up to 12% of basic) is exempt from tax under both regimes.
What deductions ARE allowed under the New Regime? ⌄
The New Regime allows very few deductions: (1) Standard Deduction of ₹75,000, (2) Employer's NPS contribution under Sec 80CCD(2) — up to 14% of basic for government employees, 10% for private, (3) Agniveer Corpus Fund deduction, (4) Family pension standard deduction of ₹15,000. Most other popular deductions like 80C, HRA, 80D, LTA, Home Loan are NOT available.
How is TDS calculated by employers? ⌄
Your employer deducts TDS (Tax Deducted at Source) monthly from your salary based on the regime you choose. At the start of the financial year, declare your regime preference and submit investment proofs (for Old Regime) to HR/payroll. TDS is calculated as: Annual Tax Liability ÷ 12 per month. You can submit Form 12BB to your employer with deduction proofs.
What is the last date to file ITR for FY 2025-26? ⌄
The last date to file ITR for FY 2025-26 (AY 2026-27) for salaried individuals is typically July 31, 2026 (subject to government extension). Filing after the deadline attracts a late fee of ₹5,000 (₹1,000 if income is below ₹5 lakh). Always file on time to avoid penalties and interest on tax dues.