Old vs New Tax Regime For FY 2025-26: Which Regime is Better for you?

The most beneficial regime highly depends on the nature of the income structure and deduction levels of the assessee. While the old regime offers a variety of deductions, the new regime tax slabs are relaxed with limited deductions. 

Old v/s New Tax Regime - Income Tax Slabs

1. New Regime Income Tax Slabs FY 2025-26 (AY 2026-27)

The income tax slab rates under the new tax regime applicable for FY 2025-2026 are as follows:

2. Old Regime Income Tax Slabs FY 2025-26 (AY 2026-27)

Old v/s New Tax Regime Calculator

Old v/s New Tax Regime - Deductions and Exemptions

The following are the popular deductions and exemptions available under the old and the new tax regimes.

Rebate

While the rebate is available under both the regimes, the new tax regime enjoys ₹60,000 rebate, allowing income up to ₹12 lakhs to be effectively tax free, as compared to ₹12,500 under the old regime. Up to ₹5 lakh income can be tax-free due to rebate under section 87A under the old regime.

Standard Deduction

Standard deduction is available against salary income, without any conditions specified. The standard deductions are as follows:

Old Tax Regime: Rs. 50,000 

New Tax Regime: Rs. 75,000

The new tax regime offers a significantly higher standard deduction. 

3. House Rent Allowance

If you are a salaried employee, and receive HRA as a part of your package, you are eligible to claim HRA under the old regime on satisfaction of certain conditions prescribed. HRA is not available under the new tax regime.

4. Home Loan Interest

While the home loan interest due for the financial year for a let-out property is deductible against the entire house property income irrespective of regime chosen, self-occupied property’s home loan interest can be claimed only under the old tax regime, up to a ceiling limit of ₹2 lakhs.

5. Chapter VI-A Deductions

6. Retirement Benefits

Exemption on retirement benefits can be claimed irrespective of the regime chosen, on satisfaction of certain conditions.

7. Other Deductions

Apart from the deductions as explained above, the following are the miscellaneous exemptions and deductions available under the old and new regime.

New Tax Regime vs Old Tax Regime FY 2025-26 - Which Is Better?

While the old regime can be more beneficial for taxpayers with numerous deductions, new regime often benefits those with limited tax planning strategies and deductions eligibility. 

Example-1

Mr. A, has a salary income of Rs. 10 lakhs. 

Section 80C for Rs.1 lakhs and 

Medical insurance premium Rs. 30,000 

The computation of taxable income and total tax payable under both the regimes is tabulated below:

New regime proved to be beneficial, wholly attributable to increased rebate.

Example-2

Mr. A, has a salary income of Rs. 20 lakhs. He has investment deductions as follows:

Investment deductions under section 80C - Rs.1 lakh

Medical insurance premium paid of Rs. 30,000 for his self and family.

Interest on home loan (self occupied property) - Rs. 2,00,000

Donation to political party - Rs. 2,75,000

The computation of taxable income and total tax payable under both the regimes is as below:

In the current example, the new tax regime proved to be more beneficial in spite of high tax saving deductions, because of the relaxed slab rates.

The Learning: Only a lot of tax saving deductions would make the old regime more beneficial

Breakeven Deductions - When will the Old Tax Regime be Better?

The following table shows the deduction level at which the tax outflow is the same under both the old and the new regime. Taxpayers having more deductions than the break-even level can file their returns under the old regime as it would be more beneficial.

Note: 

1. Any deduction level below the break-even level mentioned above will make the new regime more beneficial, and vice versa.
2. The income level here denotes the income net of standard deduction.
3. Income given here includes only income chargeable under the slab rates.

Which Tax Regime is Better for Investors?

Capital gain tax rates are mostly similar irrespective of the regime chosen. The rates differ depending on the duration of holding, listing status of the shares, level of exposure to equity and so on. However, there are investments specified under section 80C of the act, eligible for deductions only under the old tax regime.

Which Tax Regime is Better for NRIs?

In most cases, non-residents are also eligible for deductions, similar to residents. Except for a few niche cases like section 80TTB, taxation of income like salary, interest, capital gains on indian securities, are similar for both resident and non-residents.