What Changed in FY 2025-26?
In Budget 2025, the new tax regime was further sweetened. The basic exemption limit was raised to ₹4 lakh, with a full tax rebate up to ₹12 lakh income (₹12.75 lakh for salaried individuals after the standard deduction). This makes the new regime genuinely attractive for a much larger segment of taxpayers.
New Regime Slabs (FY 2025-26)
| Income Slab | Tax Rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4 lakh – ₹8 lakh | 5% |
| ₹8 lakh – ₹12 lakh | 10% |
| ₹12 lakh – ₹16 lakh | 15% |
| ₹16 lakh – ₹20 lakh | 20% |
| ₹20 lakh – ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
Key benefit: No tax on income up to ₹12 lakh (for individuals with income up to ₹12 lakh) due to Section 87A rebate. Salaried individuals get an additional ₹75,000 standard deduction, making this effectively ₹12.75 lakh.
Old Regime Slabs (FY 2025-26)
| Income Slab | Tax Rate |
|---|---|
| Up to ₹2.5 lakh | Nil |
| ₹2.5 lakh – ₹5 lakh | 5% |
| ₹5 lakh – ₹10 lakh | 20% |
| Above ₹10 lakh | 30% |
But crucially, the old regime allows deductions: ₹1.5 lakh (80C) + ₹50,000 standard deduction + ₹25,000 health insurance (80D) + HRA + home loan interest + NPS (80CCD) + more.
Break-Even Analysis: When Does Old Regime Win?
The old regime only wins if your total deductions are large enough. Here is a rough guide:
| Annual Income | Deductions Needed to Prefer Old Regime |
|---|---|
| ₹10 lakh | ₹3.75 lakh+ |
| ₹15 lakh | ₹4.08 lakh+ |
| ₹20 lakh | ₹4.08 lakh+ |
| ₹25 lakh | ₹3.75 lakh+ |
| ₹50 lakh+ | ₹4.25 lakh+ |
Common Deductions That Favour the Old Regime
- 80C (₹1.5 lakh) — EPF, PPF, ELSS, home loan principal, LIC premium, children's fees
- 80D (₹25,000–₹50,000) — Health insurance premium for self and parents
- HRA — If you live in a rented home, HRA exemption can be very significant
- Home loan interest (Section 24b — ₹2 lakh) — For self-occupied property
- 80CCD(1B) — ₹50,000 — Additional NPS contribution
- Standard deduction — ₹50,000
If these add up to ₹4+ lakh, the old regime likely saves you more tax at higher income levels.
Who Should Definitely Choose the New Regime?
- Income under ₹12.75 lakh (salaried) — zero tax, no contest
- Freelancers and gig workers with few deductions
- Investors who don't have home loans or HRA claims
- Those who contribute little to 80C investments
- NRIs (who are not eligible for most deductions anyway)
Who Should Consider the Old Regime?
- Salaried individuals with large HRA exemptions (metro city renters)
- Home loan borrowers paying significant interest (₹1.5–2 lakh/year)
- Those with both home loan + HRA + full 80C utilised
- High earners (₹25 lakh+) with aggressive tax planning
The Practical Advice
Run the numbers for your specific situation at the start of every financial year. Ask your HR to calculate tax under both regimes before you lock in a choice. Remember: once you choose old regime as a salaried employee, you switch back to new regime only at the start of the next financial year. Business owners have more flexibility — they can switch every year.
For most salaried Indians earning under ₹12.75 lakh, the new regime wins hands-down in FY 2025-26. For those earning ₹15–25 lakh with a home loan and HRA, run the numbers — old regime often saves ₹30,000–80,000 more.
Related Reading
- ELSS vs PPF: Which 80C Investment Should You Choose? — Once you pick your regime, here's how to optimise your 80C deductions.
- HRA Exemption: Can You Pay Rent to Your Parents? — HRA is one of the largest deductions that can tip the calculation in favour of the old regime.