Old vs New Tax Regime: Which Saves More Tax in FY 2025-26?

From FY 2023-24, the New Tax Regime under Section 115BAC is the default for all taxpayers. It offers lower slab rates but eliminates most deductions and exemptions. The Old Tax Regime has higher slab rates but allows deductions like 80C, 80D, HRA, etc. This guide helps you decide which regime saves more tax based on your income and deductions.

Tax Slab Comparison: FY 2025-26

New Tax Regime (Default) — Section 115BAC

Standard deduction: ₹75,000 for salaried individuals

Old Tax Regime (Optional)

Standard deduction: ₹50,000 for salaried individuals

Senior citizens (60-79): Old regime basic exemption is ₹3,00,000. Super senior citizens (80+): ₹5,00,000.

Deductions & Exemptions: What's Allowed Where?

*Under the New Regime, income up to ₹12,00,000 (₹12,75,000 for salaried after standard deduction) effectively has zero tax due to the enhanced Section 87A rebate.

Break-Even Analysis: When Does Old Regime Win?

The Old Regime saves more tax only if your total deductions and exemptions are high enough to offset the difference in slab rates.

Approximate Break-Even Points

Example Comparison

Scenario: Gross salary ₹15,00,000 per year

Deductions claimed under Old Regime:

• Section 80C: ₹1,50,000
• Section 80D: ₹25,000
• HRA exemption: ₹1,80,000
• Home loan interest (24b): ₹2,00,000
• NPS 80CCD(1B): ₹50,000
• Standard deduction: ₹50,000
• Total: ₹6,55,000

In this case, the Old Regime saves ₹72,540 because total deductions exceed ₹6.5 lakh.

Who Should Choose Which Regime?

Choose NEW Tax Regime If:

• You have few or no deductions (no home loan, no HRA, minimal 80C)
• Your income is below ₹12,75,000 (salaried) — effectively zero tax with rebate
• You prefer simplicity — no need to track investments for tax saving
• You are a fresher or young professional without significant financial commitments

Choose OLD Tax Regime If:

• You claim HRA exemption (living in rented accommodation in a metro)
• You have a home loan with significant interest component
• You invest heavily in 80C instruments (PPF, ELSS, LIC)
• You have health insurance (80D) and NPS (80CCD(1B))
• Your total deductions exceed approximately ₹3.75 lakh or more
• You are a senior citizen with higher basic exemption limit

How to Switch Between Regimes

For Salaried Employees

• You can switch every year while filing your ITR
• Inform your employer at the start of the year for correct TDS deduction
• Final choice is made while filing the return (not employer declaration)

For Business/Professional Income

• You can opt out of New Regime only once
• After opting out, you cannot switch back to New Regime
• This restriction applies only to those with business/professional income

How to Select Regime in ITR

1. Log in to Income Tax e-Filing portal
2. While filing ITR, you'll see the option to choose between Old and New Regime
3. If you want Old Regime, you must explicitly opt out of the default New Regime
4. For business income, file Form 10-IE to opt out of New Regime

Tax Planning Tips

1. Calculate for both regimes before filing — use the Income Tax Calculator on the official portal
2. Don't invest just for tax saving — if New Regime gives lower tax anyway, invest based on financial goals
3. Consider future changes — if you're taking a home loan next year, Old Regime might become better
4. Standard deduction is higher in New Regime — ₹75,000 vs ₹50,000, which partially offsets lost deductions
5. Check the ₹12 lakh rebate — if your income is close to this threshold under New Regime, it could be fully tax-free

Frequently Asked Questions

Is the New Tax Regime compulsory?

No, it is the default regime from FY 2023-24, but you can opt out and choose the Old Regime while filing your ITR.

Can I switch from New to Old Regime every year?

Yes, salaried individuals can switch between regimes every year. Only those with business/professional income face a one-time restriction.

What is the rebate under Section 87A?

Under the New Regime, if your taxable income is up to ₹12,00,000, you get full rebate (zero tax). Under the Old Regime, the rebate applies for income up to ₹5,00,000.

Do I need to file Form 10-IE?

Only if you have business/professional income and want to opt out of the New Regime. Salaried individuals do not need Form 10-IE.

Is NPS employer contribution (80CCD(2)) allowed in both regimes?

Yes, employer's NPS contribution under Section 80CCD(2) is allowed in both Old and New Tax Regimes.

What about income up to ₹12.75 lakh under the New Regime?

For salaried individuals, ₹75,000 standard deduction reduces ₹12,75,000 gross salary to ₹12,00,000 taxable income, which falls within the rebate limit — making it effectively tax-free.

Can I claim 80C in the New Regime?

No. Section 80C deductions are not available under the New Tax Regime. See our Section 80C guide for the complete list of eligible investments.

This guide is for informational purposes only and is not affiliated with the Income Tax Department of India. Verify details on the official Income Tax portal. Tax laws may change — consult a qualified CA for personalized advice.