Old vs New Tax Regime for FY 2025 to 2026

Why India has two parallel tax regimes

For most of independent India's history, taxpayers navigated a single tax structure built around a wide range of exemptions, deductions, and allowances. The new regime, introduced in 2020 and substantially revised in the 2023 and 2024 Union Budgets, simplifies the slabs and lowers headline rates in exchange for surrendering most of those deductions. Both regimes now run in parallel, and salaried individuals can choose whichever produces a lower tax liability for them in any given financial year.

This article compares the FY 2025 to 2026 slabs of both regimes, walks through worked examples at several income levels, and offers a practical method to decide which one to pick.

New regime slabs for FY 2025 to 2026

Under the new regime, income up to ₹4 Lakh is taxed at zero percent. From ₹4 to 8 Lakh, the rate is 5 percent. From ₹8 to 12 Lakh, it is 10 percent. From ₹12 to 16 Lakh, it is 15 percent. From ₹16 to 20 Lakh, 20 percent. From ₹20 to 24 Lakh, 25 percent. Anything beyond ₹24 Lakh is taxed at 30 percent.

A standard deduction of ₹75,000 is available for salaried taxpayers and pensioners under the new regime. The section 87A rebate fully covers tax on taxable income up to ₹12 Lakh. Since the standard deduction reduces gross salary before this rebate is applied, a salaried individual earning up to ₹12.75 Lakh gross effectively pays zero income tax under the new regime.

Deductions available under the new regime are limited. Employer NPS contributions under section 80CCD(2) up to 10 percent of basic plus DA (14 percent for central government employees) are allowed. The agniveer corpus fund deduction, family pension standard deduction, and a few specific allowances for differently abled employees are permitted. But the long list of popular deductions, including section 80C, 80D, HRA exemption, home loan interest under 24(b), and LTA, are all unavailable.

Old regime slabs for FY 2025 to 2026

The old regime retains its established structure with age based differentiation.

For taxpayers below 60, income up to ₹2.5 Lakh is exempt. From ₹2.5 to 5 Lakh the rate is 5 percent. From ₹5 to 10 Lakh it is 20 percent. Beyond ₹10 Lakh the rate is 30 percent.

Senior citizens between 60 and 80 enjoy a higher basic exemption of ₹3 Lakh. The 5 percent slab runs from ₹3 to 5 Lakh. The rest of the structure is identical.

Very senior citizens above 80 get a basic exemption of ₹5 Lakh. Since their first taxable rupee starts at ₹5 Lakh, the 5 percent slab effectively disappears for them.

A standard deduction of ₹50,000 applies to salaried and pension income under the old regime. Section 87A grants full rebate on tax for taxable income up to ₹5 Lakh, capped at ₹12,500 of tax relief.

The old regime continues to allow most traditional deductions: section 80C investments up to ₹1.5 Lakh (PPF, ELSS, NSC, home loan principal, life insurance, children's tuition fees, ULIP), section 80CCD(1B) for additional NPS contributions up to ₹50,000, section 80D for health insurance premiums, HRA exemption under section 10(13A), home loan interest under section 24(b) up to ₹2 Lakh for self occupied property, LTA, section 80G donations, section 80E education loan interest, and several others.

The four percent cess and surcharge

A 4 percent health and education cess applies on the income tax computed under either regime, after the rebate is applied. This cess funds central health and education schemes and is identical in both regimes.

Surcharge applies to high income earners. Income above ₹50 Lakh but up to ₹1 Crore attracts 10 percent surcharge. Above ₹1 Crore but up to ₹2 Crore, 15 percent. Above ₹2 Crore but up to ₹5 Crore, 25 percent.

Under the new regime, the highest surcharge rate is capped at 25 percent. Under the old regime, incomes above ₹5 Crore historically faced 37 percent surcharge, which was a significant additional burden and has since been addressed for many categories of income.

Worked comparison at ₹10 Lakh income

Consider a salaried employee earning a gross salary of ₹10 Lakh with ₹1.5 Lakh in section 80C investments, ₹25,000 in health insurance under 80D, and ₹1 Lakh in HRA exemption.

Under the new regime, the ₹75,000 standard deduction reduces taxable income to ₹9.25 Lakh. Tax on the first ₹4 Lakh is zero, on the next ₹4 Lakh at 5 percent is ₹20,000, and on the remaining ₹1.25 Lakh at 10 percent is ₹12,500. Total tax before cess is ₹32,500. But since taxable income of ₹9.25 Lakh exceeds ₹8 Lakh, the section 87A rebate is not available in full. Wait, actually at ₹9.25 Lakh the rebate does not apply (the rebate covers up to ₹12 Lakh gross income with the standard deduction applied). Actually the rebate covers taxable income (after standard deduction) up to ₹12 Lakh. So taxable income of ₹9.25 Lakh is within the rebate limit. Tax is fully zeroed under the new regime at this income level.

Under the old regime, the ₹50,000 standard deduction plus ₹1.5 Lakh of 80C plus ₹25,000 of 80D plus ₹1 Lakh of HRA exemption reduce taxable income to ₹6.75 Lakh. Tax on the first ₹2.5 Lakh is zero, on the next ₹2.5 Lakh at 5 percent is ₹12,500, and on the remaining ₹1.75 Lakh at 20 percent is ₹35,000. Total before cess is ₹47,500. The 87A rebate under the old regime applies only up to ₹5 Lakh taxable income, so it does not apply here. Adding 4 percent cess of ₹1,900, the final tax is ₹49,400.

At ₹10 Lakh, the new regime clearly wins. Zero tax versus about ₹49,400.

Worked comparison at ₹15 Lakh income

Take a salaried employee earning ₹15 Lakh gross with ₹1.5 Lakh in 80C, ₹25,000 in 80D, and ₹2 Lakh in HRA exemption.

Under the new regime, after ₹75,000 standard deduction, taxable income is ₹14.25 Lakh. Tax: zero on ₹4 Lakh, ₹20,000 on the next ₹4 Lakh at 5 percent, ₹40,000 on the next ₹4 Lakh at 10 percent, and ₹33,750 on the remaining ₹2.25 Lakh at 15 percent. Total before cess is ₹93,750. Adding 4 percent cess (₹3,750), final tax is ₹97,500.

Under the old regime, after ₹50,000 standard deduction, ₹1.5 Lakh of 80C, ₹25,000 of 80D, and ₹2 Lakh of HRA, taxable income is ₹10.75 Lakh. Tax: zero on ₹2.5 Lakh, ₹12,500 on ₹2.5 to 5 Lakh at 5 percent, ₹1,00,000 on ₹5 to 10 Lakh at 20 percent, and ₹22,500 on ₹75,000 at 30 percent. Total before cess is ₹1,35,000. Adding 4 percent cess (₹5,400), final tax is ₹1,40,400.

At ₹15 Lakh with these deductions, the new regime saves ₹42,900.

Worked comparison at ₹20 Lakh with heavy deductions

Take a salaried employee earning ₹20 Lakh gross who maximises deductions: ₹1.5 Lakh in 80C, ₹50,000 in additional NPS under 80CCD(1B), ₹25,000 in 80D, ₹2 Lakh in HRA, and ₹2 Lakh in home loan interest under 24(b). Total deductions excluding standard deduction are ₹6.25 Lakh.

Under the new regime, after ₹75,000 standard deduction, taxable income is ₹19.25 Lakh. Tax: ₹20,000 on the 5 percent slab, ₹40,000 on the 10 percent slab, ₹60,000 on the 15 percent slab, ₹60,000 on the 20 percent slab, and ₹56,250 on the remaining ₹2.25 Lakh at 25 percent. Total before cess is ₹2,36,250. Adding 4 percent cess (₹9,450), final tax is ₹2,45,700.

Under the old regime, after ₹50,000 standard deduction plus ₹6.25 Lakh deductions, taxable income is ₹13.25 Lakh. Tax: ₹12,500 on 5 percent slab, ₹1,00,000 on 20 percent slab, and ₹99,000 on ₹3.3 Lakh at 30 percent. Wait, let me redo: taxable is ₹20 Lakh minus ₹50,000 minus ₹6.25 Lakh equals ₹13.25 Lakh. Tax: zero on ₹2.5 Lakh, ₹12,500 on ₹2.5 to 5 Lakh, ₹1,00,000 on ₹5 to 10 Lakh, ₹99,000 on ₹3.25 Lakh at 30 percent (₹10 to 13.25 Lakh). Total before cess is ₹2,11,500. Adding 4 percent cess (₹8,460), final tax is ₹2,19,960.

At ₹20 Lakh with heavy deductions, the old regime saves about ₹25,740. The high deduction level tilts the math.

When the old regime wins

The old regime wins when total deductions are large enough to overcome the new regime's lower headline rates. As a general rule:

For incomes up to ₹10 to 12 Lakh, the new regime almost always wins because the rebate eliminates tax entirely.

For incomes of ₹12 to 15 Lakh, the new regime usually wins unless you have very large deductions. About ₹3.5 to 4 Lakh in additional deductions (beyond the standard deduction) can swing the math to the old regime at this income level.

For incomes of ₹15 to 20 Lakh, the break even deduction level is roughly ₹4 to 5 Lakh. If you have a home loan, HRA, full 80C, and NPS contributions, the old regime often wins.

For incomes above ₹20 Lakh, the 30 percent rate under the old regime remains the same as the new regime's top rate, but the deductions available lower the effective base significantly. Heavy deduction users at ₹20 to 30 Lakh income frequently find the old regime better.

When the new regime wins

The new regime wins clearly for taxpayers who do not pay rent (no HRA), do not have a home loan, do not maximise the ₹1.5 Lakh 80C limit, and do not make additional NPS contributions. Young professionals in their first few years of employment often fall into this category.

The simplicity of the new regime is also a real benefit. You do not need to collect and preserve rent receipts, insurance premium certificates, PPF passbooks, or home loan statements at tax time. The standard deduction is automatic.

Self employed professionals with income primarily from professional fees and whose deductions are limited to 80C and 80D will often find the new regime more advantageous.

How to switch between regimes

Salaried taxpayers can switch between the two regimes every financial year by selecting the appropriate option when filing their ITR. Your employer will typically ask you to declare your choice at the beginning of the financial year for TDS purposes, and you can finalise at filing time.

Business and professional income earners can switch from new to old only once in their lifetime. After exercising that switch, they must continue with the old regime. This asymmetry reflects the fact that business income is more complex to administer with multiple regime shifts.

The right way to decide every year

Always run both regimes with your actual numbers before choosing. Do not rely on rules of thumb alone. The Income Tax Calculator on HazeGrid computes tax under both regimes simultaneously for FY 2025 to 2026 using the actual slab logic and deduction eligibility.

Re compute every financial year, especially after these life events: buying a home (adds 24(b) home loan interest), taking an additional NPS subscription (adds 80CCD(1B)), getting married and adding to your family health insurance (raises 80D), starting to pay higher rent or moving city (changes HRA exemption), or a significant salary increment (shifts the effective tax rate under each regime).

The Income Tax Calculator is the fastest way to verify your choice and quantify the savings before you lock in your declaration with your employer at the start of each financial year.