Old vs new tax regime (FY 2025-26): which saves you more?
Quick answer: The new regime is the default and suits most people who don't claim big deductions — it has lower slabs and a rebate that makes taxable income up to ₹12 lakh tax-free. The old regime can still win if you claim large deductions (80C, HRA, home loan interest). The only way to be sure is to compute both on your numbers.
The core difference
The two regimes are a trade-off:
- New regime — lower tax rates and a bigger rebate, but you give up almost all deductions and exemptions.
- Old regime — higher rates, but you can subtract deductions like 80C, 80D, HRA and home loan interest first.
So the new regime rewards simplicity; the old regime rewards people who invest and spend in tax-deductible ways.
New regime slabs (FY 2025-26)
| 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% |
On top of this: a ₹75,000 standard deduction for salaried people, a Section 87A rebate that makes taxable income up to ₹12 lakh pay zero tax, and 4% cess on the tax. For a salaried person, the standard deduction lifts the tax-free break-even to roughly ₹12.75 lakh of gross salary.
Old regime — rates & what you can claim
The old regime keeps the familiar slabs (0% up to ₹2.5 lakh, 5% to ₹5 lakh, 20% to ₹10 lakh, 30% above), a ₹50,000 standard deduction, and an 87A rebate up to ₹5 lakh taxable. Its advantage is the long list of deductions:
- 80C — up to ₹1.5 lakh (EPF, PPF, ELSS, life insurance, home loan principal, tuition fees…)
- 80CCD(1B) — extra ₹50,000 for NPS
- 80D — health insurance premiums
- Section 24(b) — up to ₹2 lakh home loan interest
- HRA under Section 10(13A), and more
So which one wins?
A rough rule of thumb: the more deductions you genuinely claim, the more likely the old regime wins. If your total deductions are small, the new regime's lower rates usually come out ahead. But "rough rule" isn't good enough when real money is involved — the break-even depends on your exact income and exact deductions.
If you go with the old regime, claim everything
The old regime only pays off if you actually use its deductions. Two quick checks:
- Are you using your full ₹1.5 lakh under 80C? See the gap with the 80C calculator.
- Renting? Work out your tax-free HRA with the HRA calculator, and keep rent receipts as proof.
Frequently asked questions
Is income up to Rs 12 lakh tax-free in the new regime?
For FY 2025-26, the Section 87A rebate makes a taxable income up to ₹12 lakh effectively tax-free under the new regime. For a salaried person, the ₹75,000 standard deduction pushes the break-even gross to about ₹12.75 lakh.
Which tax regime is better, old or new?
The new regime suits most people who don't claim large deductions, thanks to lower slabs and the bigger rebate. The old regime can still win if your deductions — 80C, 80D, HRA, home loan interest — are large. The only sure way is to compute both on your own numbers.
Can I claim 80C and HRA in the new regime?
No. Most deductions like 80C, 80D and HRA are only available in the old regime. The new regime gives lower rates and a standard deduction instead. Employer NPS under 80CCD(2) is one of the few allowed in both.
Which is the default regime?
The new regime is the default. You have to actively choose the old regime if it works out cheaper for you.
This is a general explainer for FY 2025-26 (AY 2026-27), not tax advice. Slabs and rules can change at each Budget — verify before filing, and consult a tax professional for your specific situation.