Since the new tax regime became the default, the single most common question for salaried taxpayers in India is simple: should I stay on the new regime, or opt back into the old one? The honest answer is that it depends on one thing — how much you can genuinely deduct. This guide explains both systems for FY 2025-26 (AY 2026-27) and gives you a clear way to decide.
The core trade-off
The two regimes make opposite bets:
- The new regime gives you lower slab rates across wider bands and makes income up to ₹12 lakh tax-free, but you give up almost every deduction.
- The old regime charges higher rates, but lets you shrink your taxable income with deductions like 80C, 80D, HRA and home-loan interest.
So the new regime rewards people who don’t (or can’t) claim many deductions, and the old regime rewards people who do.
New regime slabs (FY 2025-26)
After Budget 2025, the new-regime slabs are:
| Taxable income | 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% |
A ₹75,000 standard deduction applies to salaried income, and the Section 87A rebate cancels tax up to ₹12 lakh of taxable income. For a salaried person, that means a salary of about ₹12.75 lakh can be entirely tax-free.
Old regime slabs (FY 2025-26)
| Taxable income (below 60) | Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Seniors get a higher exemption (₹3 lakh for 60–79, ₹5 lakh for 80+). The old regime’s standard deduction is ₹50,000, and the 87A rebate covers taxable income up to ₹5 lakh.
What you keep and what you lose
| Benefit | Old regime | New regime |
|---|---|---|
| Standard deduction (salary) | ₹50,000 | ₹75,000 |
| Section 80C (PPF, EPF, ELSS, etc.) | Yes, up to ₹1.5 lakh | No |
| Section 80D (health insurance) | Yes | No |
| HRA exemption | Yes | No |
| Home-loan interest (Sec 24) | Yes | No |
| Employer NPS — 80CCD(2) | Yes | Yes |
| 87A rebate limit | ₹5 lakh taxable | ₹12 lakh taxable |
A simple way to decide
There’s a rough break-even idea worth knowing: add up the deductions you actually claim each year. The more they total, the more the old regime tilts in your favour; if they’re small, the new regime’s lower rates usually win. But the exact crossover shifts with your income level, so a rule of thumb only gets you so far.
The reliable approach is to compute both. Our income tax calculator does exactly this — enter your income and deductions once and it shows the tax under each regime side by side, with the cheaper one marked.
A worked comparison
Take a salaried person below 60 earning ₹15 lakh in FY 2025-26:
- New regime, no deductions: taxable income ₹14.25 lakh → about ₹97,500 tax (including 4% cess).
- Old regime with ₹6.5 lakh of deductions (full 80C, 80D, HRA and home-loan interest): taxable income drops to ₹8 lakh → roughly ₹75,400 tax.
Here the old regime wins because the deductions are large. With few deductions, the same income is cheaper under the new regime. That flip is exactly why you should run your own numbers rather than assume.
Build your deductions before you decide
If you lean toward the old regime, it’s worth making your 80C limit work harder. Instruments like PPF and ELSS funds (which you can plan with a SIP) both reduce taxable income and build long-term wealth, so the deduction does double duty.
Tax rules change with each Budget and individual circumstances vary. This guide is general information, not tax advice. Confirm your specific situation with a qualified chartered accountant or the official Income Tax Department portal before filing.