Old vs New Tax Regime 2025-26: Which One Should You Choose?

Introduction

The Union Budget 2025 has made significant changes to the new tax regime, making it more attractive for many taxpayers. This guide will help you understand both regimes and make an informed decision.

New Tax Regime Slabs for FY 2025-26

Old Tax Regime Slabs

Key Differences

Standard Deduction

• New Regime: Rs 75,000
• Old Regime: Rs 50,000

Section 87A Rebate

• New Regime: Full rebate for income up to Rs 12 lakh (effective zero tax up to Rs 12.75 lakh)
• Old Regime: Rebate up to Rs 12,500 for income up to Rs 5 lakh

Deductions Available

Only in Old Regime:
• Section 80C investments (up to Rs 1.5 lakh)
• Section 80D health insurance premium
• HRA exemption
• Home loan interest (Section 24)
• LTA exemption
• Professional tax
• Section 80E education loan interest
• Section 80G donations
In New Regime:
• Standard deduction (Rs 75,000)
• Employer's NPS contribution (Section 80CCD(2))
• Gratuity and leave encashment exemptions

When to Choose Old Regime?

The old regime is beneficial if your total deductions exceed approximately Rs 3.75 lakh annually. This includes:

High HRA Component: If you pay substantial rent in a metro city

Maximum 80C Investment: If you invest full Rs 1.5 lakh

Home Loan: If you have a home loan with significant interest component

Health Insurance: If you have family floater with parents

When to Choose New Regime?

The new regime is better when:

You have minimal investments or deductions

You're a young professional without many tax-saving investments

You prefer simplicity without tax planning hassle

Your total deductions are less than Rs 3.75 lakh

Example Calculation

For income of Rs 15,00,000:

Income Range	Tax Rate
Up to Rs 4,00,000	Nil
Rs 4,00,001 - Rs 8,00,000	5%
Rs 8,00,001 - Rs 12,00,000	10%
Rs 12,00,001 - Rs 16,00,000	15%
Rs 16,00,001 - Rs 20,00,000	20%
Rs 20,00,001 - Rs 24,00,000	25%
Above Rs 24,00,000	30%
Income Range	Tax Rate
Up to Rs 2,50,000	Nil
Rs 2,50,001 - Rs 5,00,000	5%
Rs 5,00,001 - Rs 10,00,000	20%
Above Rs 10,00,000	30%
Particulars	Old Regime	New Regime
Gross Income	Rs 15,00,000	Rs 15,00,000
Standard Deduction	Rs 50,000	Rs 75,000
Section 80C	Rs 1,50,000	-
Section 80D	Rs 25,000	-
HRA Exemption	Rs 1,80,000	-
Taxable Income	Rs 11,95,000	Rs 14,25,000
Tax Payable	Rs 1,74,200	Rs 1,27,500
Tax Saved	-	Rs 46,700

Conclusion

For FY 2025-26, the new tax regime has become more attractive due to higher basic exemption limit and increased standard deduction. However, if you have significant deductions (especially HRA, 80C, and home loan interest), the old regime might still save you more tax.

Use our Income Tax Calculator to compare both regimes with your actual income and deductions.