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)
Section 87A rebate: Tax is nil for income up to ₹7,00,000. With the ₹75,000 standard deduction (Finance Act 2024), salary up to ₹7,75,000 attracts zero tax.
Old Regime
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) (home loan interest up to ₹2 lakh), HRA exemption under Section 10(13A), and LTA exemption under Section 10(5).
Break-Even Analysis
Example 1 — ₹12 Lakh Gross, No Home Loan
Old regime (with 80C + 80D + standard deduction): Tax + cess = ₹1,17,000 New regime (standard deduction only): Tax + cess = ₹70,200 Save ₹46,800 under new regime.Example 2 — ₹20 Lakh, Large Home Loan
Old regime (full deductions totalling ₹4.75 lakh): Tax + cess = ₹2,73,000 New regime (standard deduction only): Tax + cess = ₹3,51,000 Save ₹78,000 under old regime.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 income, you can switch out of the new regime only once in a lifetime (Section 115BAC(5) proviso).
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.
Frequently Asked Questions
Which is better — old or new tax regime for FY 2025-26?
It depends on your deduction profile. If your total deductions and exemptions (80C, 80D, HRA, home loan interest under Section 24(b), etc.) exceed approximately ₹3.75–4.25 lakh, the old regime typically produces lower tax. The new regime under Section 115BAC is better if your deductions are minimal — its lower slab rates and ₹12 lakh rebate threshold make it advantageous for taxpayers who don't utilise exemptions.
What is the standard deduction under the new regime?
From FY 2024-25, the standard deduction for salaried individuals under the new regime is ₹75,000 (increased from ₹50,000 by the Finance (No. 2) Act, 2024). This is a flat deduction from gross salary — no receipts or proof required.
Can I claim HRA exemption under the new tax regime?
No. HRA exemption under Section 10(13A) is not available under the new regime. If rent is a significant expense (typically in metro cities), this single exemption can make the old regime more beneficial. Calculate the HRA exemption using the three-way minimum formula before deciding.
What is the rebate under Section 87A in the new regime?
For FY 2025-26, individuals with taxable income up to ₹12 lakh (₹12.75 lakh for salaried after standard deduction) pay zero tax under Section 87A in the new regime. The rebate equals the full tax liability, with marginal relief for income slightly above ₹12 lakh to prevent a sudden jump.
How do I switch from the new regime to the old regime?
Salaried individuals without business income can switch freely each year at the time of filing. Submit Form 10-IEA before the ITR due date to opt for the old regime. Those with business income under Sections 44AD/44ADA can opt out of the new regime only once — the choice is then permanent.
I'm CA Harun Raaj, Visakhapatnam. If any of this affects you or your business, reach out — I'd be glad to help.
---
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 income up to ₹7,75,000 can get zero tax liability under Section 115BAC.
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, for business income under Section 115BAC(5) proviso, you can switch out of the new regime only once in a lifetime, making it a critical one-time 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) (home loan interest 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 (with 80C + 80D + standard deduction) results in ₹1,17,000 tax+cess, while the new regime (standard deduction only) results in ₹70,200 tax+cess, saving ₹46,800 under the new regime as per the break-even analysis.
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. The break-even analysis shows the old regime saves ₹78,000 on ₹20 lakh income with large home loan deductions.
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.
Related Services
Based on this article's category and vertical tag, these services are the most relevant next steps.
Need help with this?
Our team handles the paperwork. You focus on your business.