Old vs New Tax Regime: Which to Choose for FY 2025-26

The choice between the old and new tax regime is one of the most consequential financial decisions an Indian taxpayer makes every year. Since Budget 2024 made the new regime the default — and offered it without any of the common Chapter VI-A deductions — the choice has become more nuanced. This guide compares both regimes for FY 2025-26 (AY 2026-27) and walks you through a clear decision framework.

What is the "regime"?

A "regime" is essentially a set of tax slab rates. The Income Tax Act offers two parallel regimes: the old regime (with most exemptions and deductions) and the new regime (introduced in 2020, rationalised in Budget 2023, and made the default from AY 2025-26). The government set the new regime's slabs lower in exchange for removing most deductions — the trade-off is lower rates for fewer breaks.

For FY 2025-26, the new regime's standard deduction has been raised to Rs 75,000 (up from Rs 50,000), and the rebate under Section 87A has been extended so that taxpayers with taxable income up to Rs 12 lakh effectively pay zero tax after the standard deduction and rebate combine. This makes the new regime attractive for a much larger group of salaried individuals than it was a year ago.

Tax slabs compared

Income slab	New regime	Old regime
0 – 2.5 lakh	0%	0%
2.5 – 4 lakh	0%	5%
4 – 5 lakh	5%	5%
5 – 6 lakh	5%	20%
6 – 7 lakh	10%	20%
7 – 8 lakh	10%	20%
8 – 9 lakh	10%	30%
9 – 10 lakh	15%	30%
10 – 12 lakh	15%	30%
12 – 15 lakh	15%	30%
15 – 16 lakh	15%	30%
16 – 20 lakh	20%	30%
Above 20 lakh	30%	30%

Both regimes are subject to a 4% Health & Education Cess on the tax computed, and a 10% / 15% / 25% surcharge on incomes above Rs 50 lakh / Rs 1 crore / Rs 2 crore respectively.

Deductions allowed in each regime

The new regime is intentionally sparse on deductions. Outside of Section 80CCD(2) (employer NPS contribution), Section 80CCH (Atal Pension Yojana / new pension scheme), and a few employer-side exemptions, most Chapter VI-A deductions are not available. The old regime, by contrast, allows the full menu.

Common deductions and their availability

• Section 80C (PPF, ELSS, EPF, LIC, home loan principal, tuition fees) — available in old only, up to Rs 1.5 lakh.
• Section 80D (health insurance) — available in old only, up to Rs 25,000 (Rs 50,000 for senior citizens).
• Section 80CCD(1B) (NPS contribution) — available in old only, additional Rs 50,000 over and above 80C.
• Section 80CCD(2) (employer NPS) — available in both regimes, up to 14% of basic (Central / State Govt) or 10% (others).
• Section 80E (education loan interest) — available in old only.
• Section 80G (donations) — available in old only.
• Standard deduction — Rs 75,000 in new, Rs 50,000 in old.
• HRA exemption (Section 10(13A)) — old only.
• Home loan interest (Section 24(b)) — old only, up to Rs 2 lakh for self-occupied.
• LTA (Section 10(5)) — old only.
• Food coupons / meal cards (Section 10(14)) — old only.

Worked examples

Example 1: Salaried, gross income Rs 12 lakh, no major deductions

After standard deduction of Rs 75,000 (new) or Rs 50,000 (old), taxable income is Rs 11.25 lakh (new) / Rs 11.50 lakh (old). Tax in the new regime comes to Rs 60,000 (rebated to zero under 87A since taxable income is below Rs 12 lakh after standard deduction). Tax in the old regime comes to Rs 1,05,000 (after rebate up to Rs 5 lakh taxable income, taxed at 20% on the balance Rs 6.5 lakh).

Winner: new regime by a wide margin.

Example 2: Salaried, gross income Rs 18 lakh, full 80C/80D/HRA claim

Assume total deductions: 80C = Rs 1.5 lakh, 80D = Rs 50,000, 80CCD(1B) = Rs 50,000, HRA exemption = Rs 4.8 lakh, home loan interest = Rs 2 lakh, NPS employer = Rs 50,000, standard deduction Rs 50,000. Total deductions Rs 9.4 lakh.

Taxable income: new regime = Rs 17.25 lakh, tax = Rs 2,45,000 + 4% cess = Rs 2,54,800. Old regime = Rs 8.6 lakh, tax = Rs 56,000 + 4% cess = Rs 58,240.

Winner: old regime by a wide margin (Rs 1.96 lakh saved).

Example 3: Salaried, gross income Rs 7.5 lakh, partial deductions

Total deductions: 80C = Rs 1.5 lakh, 80D = Rs 25,000, HRA = Rs 1.8 lakh, standard = Rs 50,000.

New regime taxable income = Rs 6.75 lakh, tax = Rs 17,500 (rebated to zero under 87A). Old regime taxable income = Rs 3.65 lakh, tax = Rs 3,250 (rebated to zero under 87A).

Winner: tie — both result in zero tax, but the new regime is simpler.

A simple decision framework

1. Add up all your eligible Chapter VI-A deductions and HRA / home loan interest. If the total is below Rs 3.75 lakh, choose the new regime.
2. If the total is between Rs 3.75 and Rs 5 lakh, run both numbers — the answer depends on the marginal slab.
3. If the total is above Rs 5 lakh, the old regime is almost always better, even after considering the higher standard deduction.

For a precise answer with your actual numbers, use our free Income Tax Calculator — it shows both regimes side by side. You can also talk to a CA at ABMCO for a personalised recommendation.

Can I change my regime after filing?

Yes, in two ways. You can file a revised return under Section 139(5) before 31 December. Or, for AY 2025-26 onwards, you can switch the regime once during the year by filing Form 10-IE / 10-IF on the e-filing portal. After that, switching is locked for the assessment year. For salaried individuals who want the old regime benefit on TDS, the choice is exercised at the time of filing — employers no longer collect regime declarations from FY 2023-24 onwards.

FAQ

Is the new regime mandatory?

No. The new regime is the default but you can opt for the old regime every year when filing. There is no lifetime lock-in.

Does the new regime have the 80CCD(1B) deduction?

No. Only 80CCD(2) (employer NPS) is available in the new regime.

What if I have home loan interest?

Under the old regime you can claim up to Rs 2 lakh for a self-occupied property (Section 24(b)). Under the new regime, no such deduction is available.

This article is for educational purposes only. Tax laws are subject to change; verify with the latest income tax department circulars or with a CA. For personalised advice, talk to ABMCO.