The old tax regime offers taxpayers with a wide range of exemptions & deductions to claim, however, the new tax regime disallows most of these deduction while still offering relaxed income tax slab rates. The question of which tax regime is better depends on the taxpayer's income, exemptions & deductions limit, and the final tax savings that a taxpayer makes. 

Key Highlights of the Old & New Tax Regime

Particulars	Old Tax Regime	New Tax Regime
Applicability	Optional Regime	Default Regime
Basic Exemption Limit	Rs. 2.5 lakhs	Rs. 4 lakhs
Maximum tax rate	30% (exceeding Rs. 10 lakhs)	30% (exceeding Rs. 24 lakhs)
Rebate	Rs. 12,500	Rs. 60,000
Standard Deduction	Rs. 50,000	Rs. 75,000
Tax-free Income	Rs. 5 lakh	Rs. 12 lakh

The old tax regime offers various exemptions & deductions such as HRA, 80C, 80D etc. which are disallowed in the new tax regime.

Old v/s New Tax Regime - Income Tax Slabs

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:

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

The following slab rates are applicable for individuals aged below 60 years and non-residents opting for old tax regime.

The old tax regime offers higher basic exemption limits for senior & super senior citizens as follows:

• For taxpayers aged between 60 to 80 years, the basic exemption limit is Rs. 3 lakh.
• For taxpayers aged above 80 years, the basic exemption limit is Rs. 5 lakh. 

Old v/s New Tax Regime - Deductions and Exemptions

The old tax regime provides various deductions and exemptions to taxpayers to lower their taxable income. However, most of these are not allwed under the new tax regime.

1. Tax Rebate

Rebate under Section 87A is allowed under both the tax regimes. The old tax regime offers a tax rebate of up to Rs. 12,500 whereas the new tax regime offers a tax rebate of up to Rs. 60,000. Thus making incomes up to Rs 5 lakh and Rs. 12 lakh effectively tax-free under old and new tax regime respectively. 

2. Standard Deduction

For salaried individuals, both tax regimes offer a standard deduction against the salary income. 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

HRA is a deduction that every salary individual get and can benefit from if the opt for the old tax regime. But the HRA deduction is disallowed under the new tax regime

Calculate your HRA exemption limit using ClearTax HRA Calculator. 

4. Home Loan Interest

Taxpayers repaying home loans can benefit from a tax deduction against the home loan interest paid. A deduction of up to Rs. 2 lakh is allowed against self-occupied property under old tax regime. 

Taxpayers can claim home loan interest deduction against income from let-out property without any limit under both old and new tax regime. 

5. Chapter VI-A Deductions

The following deductions are allowed under Chapter VI-A of the Income Tax Act 1961: 

6. Retirement Benefits

The following retirement benefit exemptions are available to salaried taxpayers:

7. Other Deductions

The other deductions are as follows:

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

Choosing between the Old and New Tax Regimes depends on your income level, deductions, and exemptions. 

For salaried individuals with minimal deductions, the New Regime is likely more beneficial due to relaxed tax slabs and a rebate up to Rs. 12 lakh income. However, if you claim substantial deductions under Sections 80C, 80D, HRA, or home loan interest, the Old Regime may offer greater tax savings.

Use ClearTax Income Tax Calculator to know which tax regime is better for you!

Let us understand the most beneficial regime using the following examples:

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 to 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 Old Tax Regime Will Be Better?

The following table summarises the level of deduction required where the old tax regime will be more benficial. If the taxpayer has total deductions & exemptions exceeding the amount mentioned against their income level, the old tax regime would be beneficial than the new tax regime. 

Note: 

1. Deduction amount more than the amount specified on column 2 is required to make the old regime the most beneficial. If the deduction amount is less than what is shown in column 2, new regime is the most beneficial.
2. The income level here denotes the income net of standard deduction.
3. Income given here does not include any special tax income. 

Which Tax Regime is Better for Investors?

Equity investors pay capital gains tax when they transfer their shares. The capital gains tax under both the regime is the same. However, investing in certain tax saving schemes is allowed as deductions under the old tax regime. 

Which Tax Regime is Better for NRIs?

Most of the tax saving deductions are available for NRIs also, except a few deductions like section 80TTB. Therefore even though you are an NRI, you can avail the tax saving deductions under the old regime. The choice of the most beneficial regime depends on your income and deduction level, similar to residents.

Conclusion

The new tax regime benefits individuals with minimal deductions or those who prefer a simpler filing process. On the other hand, the old tax regime is ideal for those who can claim significant deductions and exemptions. Senior citizens, in particular, may benefit more under the old regime through Section 80TTB, which allows a ₹50,000 deduction on interest income.

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