The new tax regime became the default from FY 2023-24 under Section 115BAC. If you do not actively choose the old regime while filing, you are taxed under the new one automatically.

Defaulting is not the same as optimal. For some taxpayers, especially at higher incomes with heavy deductions, the old regime can still produce lower tax — if they actually use the deductions available. For others, the new regime is genuinely better. The answer depends entirely on your specific numbers.

## New regime slabs for FY 2025-26 (AY 2026-27)

| Income Slab | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |

*Rates: s.115BAC(1A)(iii), Income-tax Act, 1961, for AY 2026-27 onwards.*

**Section 87A rebate:** up to ₹60,000 if total income does not exceed ₹12 lakh (s.87A first proviso, as amended w.e.f. 1 April 2026). Effectively zero tax up to ₹12 lakh of total income under the new regime.

**Standard deduction:** ₹75,000 for salaried individuals under the new regime (enhanced in Budget 2024).

## What the old regime offers in return

The old regime has higher effective tax rates but allows deductions that reduce taxable income before tax is applied:

**Section 80C (up to ₹1.5 lakh):** PPF, ELSS, EPF, life insurance premium, home loan principal repayment, children's tuition fees.

**Section 80D (up to ₹25,000–₹75,000):** Health insurance premiums for self, spouse, children, and parents. Senior citizen parents attract a higher limit of ₹50,000.

**HRA exemption under Section 10(13A):** If you pay rent and receive HRA, the exemption can be significant — especially in metros where rent is high relative to income.

**Section 24(b):** Interest on home loan for self-occupied property — up to ₹2 lakh deduction.

**NPS — Section 80CCD(2):** Employer contribution to NPS is deductible up to 14% of salary where the employer is the Central or State Government and 10% for other employers; under the new regime the limit is 14% for all employers. This deduction is available under both regimes.

## The break-even: when does the old regime win?

For a salaried individual earning ₹12 lakh with these deductions:
- 80C: ₹1.5 lakh (ELSS + PPF)
- 80D: ₹25,000 (health insurance)
- HRA exemption: ₹1.2 lakh
- Home loan interest (Section 24b): ₹1.5 lakh

Total deductions: ₹4.45 lakh. Taxable income under old regime: ₹12L – ₹50,000 standard deduction – ₹4.45L = ₹7.05 lakh. Tax ₹12,500 + 20% of ₹2,05,000 = ₹53,500; plus 4% cess = **₹55,640**.

Under new regime with ₹75,000 standard deduction: taxable income ₹11.25 lakh. Tax ₹52,500, fully rebated under s.87A = **Nil**.

**The new regime wins for this taxpayer** even with ₹4.45 lakh of deductions, because total income stays within the ₹12 lakh rebate limit.

*Old-regime rates: Finance Act, 2026, First Schedule, Part I, Paragraph A (I) (AY 2026-27). New-regime rates: s.115BAC(1A)(iii).*

## The one rule that resolves most cases

- Salary up to ₹12.75 lakh (no other income) → new regime is nil-tax; the old regime cannot beat it
- Above that, the old regime needs large deductions: at ₹20 lakh salary, more than about ₹7.58 lakh in total (including the ₹50,000 standard deduction)
- Anywhere in between → run both computations

## Switching between regimes

Salaried individuals can switch between regimes every year at [ITR filing](https://www.harunraaj.com/services/itr-filing) (s.115BAC(6)(ii)). Taxpayers with business or professional income exercise the option by the s.139(1) due date and can withdraw it only once (proviso to s.115BAC(6)).

The choice is made at filing — though informing your employer of your preferred regime affects monthly TDS deduction throughout the year.

## What HRA does for every ITR client

We compute your liability under both regimes as a standard part of the filing process — presenting you with the exact difference in tax before filing, so you choose with complete information, not guesswork.

**[File your ITR with HRA for AY 2026-27](/services/itr-individual-salaried). Due date: 31 July 2026.**

## Frequently Asked Questions

### Is the new tax regime mandatory from FY 2025-26?

No, but it is the default. Under Section 115BAC (as amended by Finance Act, 2023), the new regime applies automatically unless you actively opt for the old regime. Salaried individuals without business income opt out in the return itself (s.115BAC(6)(ii)). Business/profession taxpayers must exercise the option on or before the s.139(1) due date (s.115BAC(6)(i)); it applies to later years and can be withdrawn only once.

### Which deductions are still available under the new tax regime?

The new regime allows: standard deduction of ₹75,000 (from FY 2024-25), employer's NPS contribution under Section 80CCD(2) up to 14% of salary, family pension deduction under s.57(iia) of one-third of the pension up to ₹25,000, and, under Chapter VI-A, only Section 80CCD(2), Section 80CCH(2) (Agniveer Corpus Fund) and Section 80JJAA (s.115BAC(2)(i)). Most other deductions — 80C, 80D, HRA, LTA, home loan interest — are not available.

### At what income level does the old regime save more tax?

For FY 2025-26 the bar is high: up to ₹12.75 lakh salary the new regime is nil-tax, and at ₹20 lakh salary the old regime needs more than about ₹7.58 lakh of total deductions (including the ₹50,000 standard deduction). The exact break-even depends on your income and deduction mix.

### Can I switch between regimes every year?

Salaried individuals without business income can switch between regimes every year at the time of filing. Those with business or professional income exercise the option by the s.139(1) due date; once exercised it can be withdrawn only once (proviso to s.115BAC(6)).

### Does the new regime offer any rebate?

Yes. Under Section 87A, individuals with taxable income up to ₹12 lakh (₹12.75 lakh for salaried after standard deduction) pay zero tax under the new regime from FY 2025-26. This is a full rebate, not an exemption — income above ₹12 lakh is taxed at normal slab rates with marginal relief.

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

- [Your RSUs Are Not Just Salary: The Two Separate Disclosures Required in AY 2026-27 ITR](https://www.harunraaj.com/blog/schedule-fa-rsu-foreign-assets-itr-2-ay-2026-27)
- [ESOP Tax Deferral for Startup Employees: The 48-Month Mechanism Most Tax Advisors Misexplain](https://www.harunraaj.com/blog/esop-tax-deferral-80-iac-startup-employees)
- [Section 80-IAC Tax Holiday: How Startups Actually Get the IMB Certificate](https://www.harunraaj.com/blog/section-80-iac-imb-certificate-startup-tax-holiday)

Canonical: https://www.harunraaj.com/blog/new-vs-old-tax-regime-honest-comparison-fy-2025-26