New vs Old Tax Regime — Which Is Better for You in FY 2025-26?
A data-driven comparison of the new and old tax regimes for FY 2025-26. Worked examples for different income slabs and when to choose each.
Harun Raaj
Chartered Accountant · Harun Raaj & Associates
The Two Tax Regimes
The Finance Act, 2020 introduced an optional new tax regime under Section 115BAC of the Income Tax Act, 1961. The Finance Act, 2023 made the new regime the default from AY 2024-25.
Tax Slabs — FY 2025-26 (AY 2026-27)
New Regime (Section 115BAC)
Rates: s.115BAC(1A)(iii), Income-tax Act, 1961, for AY 2026-27 onwards.
Section 87A rebate: under the new regime, a resident individual whose total income does not exceed ₹12,00,000 gets a rebate equal to the tax, up to ₹60,000, so tax is nil (s.87A first proviso, Income-tax Act, 1961, as amended w.e.f. 1 April 2026). With the ₹75,000 standard deduction, salary up to ₹12,75,000 attracts zero tax.
Old Regime
Old-regime rates for an individual below 60: Finance Act, 2026, First Schedule, Part I, Paragraph A (I) (AY 2026-27).
What You Give Up in the New Regime
Section 80C (₹1.5 lakh), Section 80D (health insurance), Section 80CCD(1B) (₹50,000 NPS), Section 24(b) (interest on a self-occupied home loan, up to ₹2 lakh), HRA exemption under Section 10(13A), and LTA exemption under Section 10(5).
Break-Even Analysis
Example 1 — ₹12 Lakh Salary, No Home Loan
Old regime (standard deduction ₹50,000 + 80C ₹1,50,000 + 80D ₹25,000): taxable ₹9,75,000. Tax ₹12,500 + 20% of ₹4,75,000 = ₹1,07,500; plus 4% cess = ₹1,11,800. New regime (standard deduction ₹75,000 only): taxable ₹11,25,000. Tax ₹52,500, fully rebated under s.87A because total income is below ₹12,00,000 = Nil. Save ₹1,11,800 under the new regime.Example 2 — ₹20 Lakh Salary, Large Home Loan
Old regime (deductions totalling ₹4.75 lakh, including the standard deduction): taxable ₹15,25,000. Tax ₹1,12,500 + 30% of ₹5,25,000 = ₹2,70,000; plus 4% cess = ₹2,80,800. New regime (standard deduction ₹75,000 only): taxable ₹19,25,000. Tax ₹1,85,000; plus 4% cess = ₹1,92,400. Save ₹88,400 under the new regime. At ₹20 lakh, the old regime wins only if total deductions (including the ₹50,000 standard deduction) exceed about ₹7.58 lakh.Surcharge ignored (income below ₹50 lakh). Worked from the rate tables above; check your own figures before choosing.
Surcharge and Cess
4% Health and Education Cess on all income tax. Surcharge: 10% for income ₹50 lakh–₹1 crore; 15% for ₹1–2 crore.When to Switch Regimes
Salaried employees can switch every year at filing. With business or professional income, the option must be exercised by the s.139(1) due date and, once exercised, can be withdrawn only once (proviso to Section 115BAC(6)).
Choose new regime if: limited deductions, young professional just starting out.
Choose old regime if: large home loan, substantial health insurance for parents, maximum 80C investments.
Use our free Income Tax Calculator to see your exact break-even point.
See Also
Frequently Asked Questions
What is the standard deduction amount in new tax regime FY 2025-26?
The standard deduction in the new tax regime for FY 2025-26 is ₹75,000, as introduced by the Finance Act 2024. Combined with Section 87A rebate, salaried employees with salary up to ₹12,75,000 pay zero tax under the new regime (s.87A first proviso: rebate up to ₹60,000 where total income does not exceed ₹12,00,000).
Can I switch from new tax regime to old tax regime every year?
For salaried employees, you can switch between regimes every year at the time of filing. However, with business or professional income the option is exercised by the s.139(1) due date and can be withdrawn only once (proviso to Section 115BAC(6)), making it a critical decision.
Which deductions are not allowed in new tax regime?
The new tax regime under Section 115BAC disallows Section 80C (₹1.5 lakh), Section 80D (health insurance), Section 80CCD(1B) (₹50,000 NPS), Section 24(b) (interest on a self-occupied home loan, up to ₹2 lakh), HRA exemption under Section 10(13A), and LTA exemption under Section 10(5).
How much tax do I pay on 12 lakh income in new vs old regime?
For ₹12 lakh gross income with no home loan: the old regime (standard deduction ₹50,000 + 80C ₹1,50,000 + 80D ₹25,000) results in ₹1,11,800 tax+cess, while the new regime (₹75,000 standard deduction) results in nil tax because of the s.87A rebate, saving ₹1,11,800 under the new regime.
When should I choose old tax regime over new regime FY 2025-26?
Choose the old regime if you have a large home loan with substantial Section 24(b) interest deduction, significant health insurance premiums under Section 80D, or maximum Section 80C investments. At ₹20 lakh salary with ₹4.75 lakh of deductions the new regime is still cheaper by ₹88,400; the old regime wins only if total deductions exceed about ₹7.58 lakh.
What is the surcharge rate for high income earners in FY 2025-26?
Under the surcharge rules, a 10% surcharge applies to income between ₹50 lakh–₹1 crore, and 15% surcharge applies to income between ₹1–2 crore. Additionally, a 4% Health and Education Cess is levied on all income tax liability.
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