Old Tax Regime vs New Tax Regime AY 2025-26: Which Is Better for You?
The new tax regime is the default for AY 2025-26 with revised slabs and a higher rebate limit. Here is a structured comparison to help you decide which regime saves you more tax.
Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Old vs New Tax Regime: AY 2025-26
The new tax regime became the default under Section 115BAC(1A) of the Income Tax Act from AY 2024-25 onwards. For AY 2025-26 (FY 2024-25), if you do not explicitly opt for the old regime when filing your ITR, the new regime applies automatically.
New Tax Regime Slabs (AY 2025-26)
Section 87A rebate: For new regime — full rebate up to ₹25,000 if total income does not exceed ₹7,00,000. This effectively means zero tax for income up to ₹7 lakh.
Standard deduction: ₹75,000 is available under the new regime for salaried persons (enhanced in Budget 2024).
Old Tax Regime Slabs (AY 2025-26)
Section 87A rebate under old regime: up to ₹12,500 if total income does not exceed ₹5,00,000.
When Does the Old Regime Still Win?
The old regime benefits those with high deductions and exemptions:
- Section 80C deductions (PPF, ELSS, LIC, home loan principal) up to ₹1.5 lakh
- Section 80D (health insurance premium) up to ₹25,000 (₹50,000 for senior citizens)
- HRA exemption for those living in rented accommodation
- Home loan interest under Section 24(b) up to ₹2 lakh
- LTA, leave encashment, gratuity exemptions
- Section 80CCD(1B) additional NPS contribution up to ₹50,000
Rule of thumb: If your total deductions and exemptions exceed approximately ₹3.75 lakh (at 30% slab), the old regime saves more. Below that, the new regime is usually better.
Quick Comparison Scenario
Scenario: Salaried person, income ₹12 lakh, HRA ₹1.8L, 80C ₹1.5L, 80D ₹25,000
How to Switch Regimes
- Salaried employees: Declare your choice to your employer at the start of the financial year. You can change at the time of filing the ITR if needed.
- Business/profession income: You can switch to old regime only once. After opting out of new regime, switching back is not allowed (Section 115BAC(6)).
- ITR filing: Select regime at the time of filing — the ITR software computes tax under both and lets you choose.
Our team runs the comparison for every client and recommends the regime that minimises tax legally. Start your ITR filing →
See Also
Frequently Asked Questions
Is the new tax regime mandatory for AY 2025-26 or can I choose the old regime?+
The new tax regime became the default under Section 115BAC(1A) of the Income Tax Act from AY 2024-25 onwards. For AY 2025-26, if you do not explicitly opt for the old regime when filing your ITR, the new regime applies automatically. However, you can still choose the old regime by making an explicit declaration.
What is the standard deduction available in the new tax regime for salaried employees AY 2025-26?+
Under the new tax regime for AY 2025-26, the standard deduction available for salaried persons is ₹75,000, which was enhanced in Budget 2024.
How much tax will I pay on ₹7 lakh income under new tax regime 2025-26?+
Under the new tax regime for AY 2025-26, you will pay zero tax on income up to ₹7 lakh due to the Section 87A rebate, which provides a full rebate up to ₹25,000 if total income does not exceed ₹7,00,000.
Which tax regime is better if I have high HRA exemption and 80C deductions?+
The old tax regime wins when you have high deductions and exemptions including HRA exemption, Section 80C deductions (up to ₹1.5 lakh), Section 80D health insurance premiums (up to ₹25,000), home loan interest under Section 24(b) (up to ₹2 lakh), and Section 80CCD(1B) NPS contributions (up to ₹50,000). As per the rule of thumb, if your total deductions and exemptions exceed approximately ₹3.75 lakh, the old regime saves more.
What is the tax rate for income between 10 lakh to 12 lakh rupees in new tax regime AY 2025-26?+
Under the new tax regime for AY 2025-26, the tax rate for income in the range of ₹10,00,001 to ₹12,00,000 is 15%.
Can I switch from new regime to old regime at the time of ITR filing?+
Yes, according to the article, you can change your regime choice at the time of filing the ITR. For salaried employees, you can also declare your choice to your employer at the start of the financial year.
Go deeper with our hub guides
Statute-cited, section-by-section guides covering the same ground this article does.
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