📌 Key Takeaway for FY 2025-26: The New Tax Regime is now the default regime. If you don't declare your choice to your employer, your TDS will be deducted under the New Regime. You can still switch when filing your ITR.
What Changed in Budget 2025?
Budget 2025 brought two major changes to the New Tax Regime that make it significantly more appealing:
- Zero tax up to ₹12 lakh — Section 87A rebate increased from ₹25,000 to ₹60,000, making income up to ₹12 lakh completely tax-free for resident individuals
- Standard deduction raised to ₹75,000 — up from ₹50,000 for salaried employees and pensioners
- For salaried employees — effectively zero tax up to ₹12.75 lakh (₹12L + ₹75K standard deduction)
- Revised slabs — ₹4L–₹8L taxed at 5%, ₹8L–₹12L at 10% (vs earlier ₹3L–₹7L and ₹7L–₹10L)
Tax Slab Comparison: Old vs New Regime
Here's a side-by-side view of the tax slabs for FY 2025-26:
| Income Range | Old Regime Rate | New Regime Rate (FY 2025-26) |
|---|---|---|
| Up to ₹2.5 lakh | Nil | Nil |
| ₹2.5L – ₹3 lakh | 5% | Nil |
| ₹3L – ₹4 lakh | 5% | Nil |
| ₹4L – ₹8 lakh | 20% (₹5L–10L) | 5% |
| ₹8L – ₹12 lakh | 20% | 10% |
| ₹12L – ₹16 lakh | 30% | 15% |
| ₹16L – ₹20 lakh | 30% | 20% |
| ₹20L – ₹24 lakh | 30% | 25% |
| Above ₹24 lakh | 30% | 30% |
*4% Health & Education Cess applies on tax amount in both regimes. Surcharge applies above ₹50 lakh.
Key Differences at a Glance
🏛️ Old Regime
- ✓ Claim 80C deduction (₹1.5L)
- ✓ Claim HRA exemption
- ✓ Claim 80D (health insurance)
- ✓ Claim home loan interest (24B)
- ✓ LTA, gratuity exemptions
- ✓ 80CCD(1B) NPS extra ₹50K
- ✗ Higher tax slab rates
- ✗ Complex — need proof of all claims
✨ New Regime
- ✓ Zero tax up to ₹12 lakh
- ✓ Lower slab rates across all levels
- ✓ ₹75,000 standard deduction
- ✓ Simple — no investment proofs
- ✓ Default regime from FY 2023-24
- ✗ No 80C, HRA, 80D deductions
- ✗ No home loan interest benefit
- ✗ No LTA, leave encashment exemption
Real Examples: Who Saves More?
Example 1 — ₹8 Lakh Annual Salary
💼 Ravi, Software Engineer — ₹8L CTC, No HRA (Owns Home)
Gross Income₹8,00,000
Standard Deduction₹75,000
Taxable Income (New Regime)₹7,25,000
Tax (New Regime)₹0 (87A Rebate — Under ₹12L)
Tax (Old Regime, with 80C ₹1.5L)₹46,800
New Regime Saves₹46,800 per year ✅
Example 2 — ₹15 Lakh Annual Salary with HRA
🏠 Priya, Manager — ₹15L Salary, HRA ₹1.8L, 80C ₹1.5L, 80D ₹25K
Gross Income₹15,00,000
Old Regime — Total Deductions₹4,10,000 (Std + HRA + 80C + 80D)
Old Regime — Taxable Income₹10,90,000
Old Regime — Tax + Cess₹1,36,500
New Regime — Taxable Income₹14,25,000
New Regime — Tax + Cess₹1,56,000
Old Regime Saves₹19,500 per year ✅
Example 3 — ₹25 Lakh Income (Home Loan)
🏡 Arjun, Senior Manager — ₹25L, Home Loan Int ₹2L, 80C ₹1.5L, HRA ₹2.4L, 80D ₹50K
Old Regime — Total Deductions₹7,15,000
Old Regime — Tax + Cess₹3,04,200
New Regime — Tax + Cess₹4,29,000
Old Regime Saves₹1,24,800 per year ✅
Who Should Pick Which Regime?
| Your Situation | Recommended Regime | Why |
|---|---|---|
| Income below ₹12.75L (salaried) | New Regime ✅ | Zero tax after standard deduction |
| Income ₹12L–₹15L, minimal deductions | New Regime ✅ | Lower slab rates, simpler |
| Paying high rent (HRA ₹2L+) | Old Regime | HRA exemption is significant |
| Home loan interest above ₹1.5L | Old Regime | Section 24B saves big |
| Total deductions above ₹3.75L | Old Regime | Break-even point for most incomes |
| Freelancer / Business income | New Regime ✅ | No records/proofs needed, lower rates |
| Senior citizen (65+) | Check both | Old regime has higher basic exemption (₹3L) |
💡 The Break-Even Rule: If your total eligible deductions (HRA + 80C + 80D + home loan interest + others) exceed approximately ₹3.75 lakh, the Old Regime will likely save more tax. Below that, the New Regime wins.
Deductions Allowed & Not Allowed
| Deduction / Exemption | Old Regime | New Regime |
|---|---|---|
| Standard Deduction (Salaried) | ✅ ₹75,000 | ✅ ₹75,000 |
| Section 80C (PPF, ELSS, LIC) | ✅ Up to ₹1.5L | ❌ Not allowed |
| HRA Exemption | ✅ As per formula | ❌ Not allowed |
| Section 80D (Health Insurance) | ✅ Up to ₹1L | ❌ Not allowed |
| Home Loan Interest (Sec 24B) | ✅ Up to ₹2L | ❌ Not allowed |
| Section 80CCD(1B) NPS | ✅ ₹50,000 | ❌ Not allowed |
| LTA (Leave Travel Allowance) | ✅ Allowed | ❌ Not allowed |
| Section 87A Rebate | ✅ Up to ₹12,500 | ✅ Up to ₹60,000 |
| Employer NPS contribution (80CCD2) | ✅ Up to 10% salary | ✅ Up to 14% salary |
| Gratuity Exemption | ✅ Allowed | ❌ Not allowed |
How to Switch Between Regimes
Switching is simpler than most people think:
- Salaried employees — Declare your choice to your employer at the start of every financial year (April). You can change your mind when filing your actual ITR.
- At ITR filing time — You can choose whichever regime saves more, regardless of what you told your employer. If more tax was deducted, you'll get a refund.
- Business income earners — You can switch from New to Old regime only once in a lifetime. After reverting to Old, you can never go back to New if you have business income.
- Deadline — The choice must be made before filing your ITR (July 31, 2026 for most taxpayers).
✅ Pro Tip: Use the Old vs New Regime Comparator tool on ITRTax.in to enter your exact income, HRA, 80C, and 80D numbers and get the precise tax difference in seconds — free, no login needed.
🏆 Our Verdict for FY 2025-26
New Regime wins for most salaried employees — especially those earning below ₹15 lakh with limited deductions. Zero tax up to ₹12.75 lakh is hard to beat.
Old Regime wins if you pay high rent (HRA), have a home loan, and consistently max out 80C + 80D. You need total deductions above ₹3.75 lakh for the Old Regime to make sense.
Our recommendation: Calculate both every April with your actual numbers. The extra 15 minutes could save you ₹20,000–₹1 lakh+ per year.
Not sure which regime saves you more? Enter your income and deductions in our free tool and get the answer in 30 seconds.
⚖️ Compare Old vs New Regime Free →Frequently Asked Questions
Is the New Regime mandatory from FY 2025-26?
No, the New Regime is the default but not mandatory. You can still choose the Old Regime by declaring it to your employer or by selecting it when filing your ITR. If you don't declare anything, your TDS will be deducted under the New Regime.
Is there really zero tax up to ₹12 lakh?
Yes, for resident individuals under the New Regime. The Section 87A rebate was increased to ₹60,000 in Budget 2025, which fully covers the tax liability on income up to ₹12 lakh. For salaried employees, the ₹75,000 standard deduction makes it effectively ₹12.75 lakh. Note: This rebate is not available on special rate income like capital gains.
Can I claim HRA in New Regime?
No. HRA exemption under Section 10(13A) is not available in the New Regime. If you pay significant rent and would have a large HRA exemption, this is a major reason to consider the Old Regime.
What if my employer deducted TDS under New Regime but I want Old Regime?
No problem. When you file your ITR, select the Old Regime, enter all your deductions, and calculate your actual tax. If you're eligible for a refund (because more TDS was deducted), the Income Tax Department will credit it to your bank account within 4–8 weeks of ITR processing.
Is Section 80C available in New Regime?
No. Section 80C deductions (PPF, ELSS, LIC, NSC, tuition fees, home loan principal) are not available under the New Regime. However, this doesn't mean you shouldn't invest in PPF or ELSS — these are good long-term investments regardless of the tax benefit.
New Tax Regime
Old Tax Regime
FY 2025-26
Budget 2025
Income Tax
Section 87A
Zero Tax ₹12 Lakh
80C Deductions
HRA Exemption