New vs Old Tax Regime FY 2025-26: Which Saves More?
For most salaried people the new regime saves more in FY 2025-26: salary up to ₹12.75 lakh is tax-free, and the slabs are lower at every level. The old regime wins only when your deductions are large, roughly ₹5.4 lakh or more at a ₹15 lakh salary and ₹8 lakh or more once you earn ₹25 lakh and above.
What changed for FY 2025-26
Budget 2025 rewrote the new regime slabs for income earned between 1 April 2025 and 31 March 2026 (assessment year 2026-27). Three changes matter most for salaried people:
- Wider slabs: the nil band now runs to ₹4 lakh, and each later band is ₹4 lakh wide, with 30% applying only above ₹24 lakh.
- Bigger Section 87A rebate: under the new regime the rebate goes up to ₹60,000, so tax is zero if your taxable income is ₹12 lakh or less.
- Standard deduction of ₹75,000 for salaried employees and pensioners (new regime only; the old regime stays at ₹50,000). Together with the rebate, a salary of up to ₹12.75 lakh pays no income tax.
The new regime is the default. If you want the old regime, salaried employees tell their employer at the start of the year (for TDS) and can still pick either regime when filing the ITR. People with business or professional income have a stricter rule: they opt out of the new regime by filing Form 10-IEA on time, and the option to move between regimes after that is limited to once in a lifetime. Official details are on the Income Tax e-filing portal.
Slab rates side by side
Both tables are for individuals below 60. Add 4% health and education cess on the tax. Surcharge applies only above ₹50 lakh of income.
| Taxable income (new regime) | Rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4 lakh – ₹8 lakh | 5% |
| ₹8 lakh – ₹12 lakh | 10% |
| ₹12 lakh – ₹16 lakh | 15% |
| ₹16 lakh – ₹20 lakh | 20% |
| ₹20 lakh – ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
| Taxable income (old regime) | Rate |
|---|---|
| Up to ₹2.5 lakh | Nil |
| ₹2.5 lakh – ₹5 lakh | 5% |
| ₹5 lakh – ₹10 lakh | 20% |
| Above ₹10 lakh | 30% |
In the old regime the Section 87A rebate is only ₹12,500, available when taxable income is ₹5 lakh or less. The basic exemption is higher for senior citizens (₹3 lakh) and super seniors (₹5 lakh) in the old regime; the new regime uses the same slabs for every age.
Which deductions each regime allows
This is the real decision point. The new regime gives lower rates but removes most deductions. The old regime keeps higher rates but lets you subtract investments and expenses first.
| Item | Old regime | New regime |
|---|---|---|
| Standard deduction (salary) | ₹50,000 | ₹75,000 |
| Section 80C (EPF, PPF, ELSS, life insurance, principal repayment, tuition fees) | Up to ₹1,50,000 | Not allowed |
| Section 80D (health insurance) | ₹25,000 self/family + ₹25,000–₹50,000 parents | Not allowed |
| HRA exemption | Allowed | Not allowed |
| Home loan interest, self-occupied (Sec 24b) | Up to ₹2,00,000 | Not allowed |
| Own NPS contribution, 80CCD(1B) | Extra ₹50,000 | Not allowed |
| Employer NPS contribution, 80CCD(2) | Up to 10% of basic + DA | Up to 14% of basic + DA |
| Section 87A rebate | Up to ₹12,500 | Up to ₹60,000 |
Note the last-but-one row: the employer’s NPS contribution is one of the few benefits that survives in the new regime, and it is more generous there. If your company offers NPS through payroll, it is worth asking for.
Worked examples: four salaries
All figures below include 4% cess and assume a salaried individual under 60 with no other income. “Deductions” means everything the old regime lets you subtract beyond the standard deduction (80C, 80D, HRA, home loan interest, 80CCD(1B)).
| Gross salary | Old-regime deductions | Tax: new regime | Tax: old regime | Better choice |
|---|---|---|---|---|
| ₹10,00,000 | ₹1,50,000 | ₹0 | ₹75,400 | New (saves ₹75,400) |
| ₹15,00,000 | ₹3,75,000 | ₹97,500 | ₹1,40,400 | New (saves ₹42,900) |
| ₹20,00,000 | ₹5,00,000 | ₹1,92,400 | ₹2,57,400 | New (saves ₹65,000) |
| ₹20,00,000 | ₹8,00,000 | ₹1,92,400 | ₹1,63,800 | Old (saves ₹28,600) |
Priya: ₹10 lakh salary, only 80C investments
New regime: ₹10,00,000 − ₹75,000 = ₹9,25,000 taxable. That is below ₹12 lakh, so the full rebate applies and tax is zero. Old regime: ₹10,00,000 − ₹50,000 − ₹1,50,000 = ₹8,00,000 taxable. Tax is ₹12,500 on the 5% band plus ₹60,000 on the 20% band, plus cess, which is ₹75,400. For most people earning up to about ₹12.75 lakh, the new regime is the clear winner.
Rahul: ₹15 lakh salary with ₹3,75,000 of deductions
Rahul claims ₹1,50,000 under 80C, ₹25,000 under 80D, ₹50,000 of extra NPS under 80CCD(1B) and ₹1,50,000 of HRA exemption. Even with all that, the old regime leaves him with ₹10,75,000 taxable and ₹1,40,400 of tax, against ₹97,500 in the new regime on ₹14,25,000. He would need about ₹5,44,000 of deductions for the old regime to break even.
Anjali: ₹20 lakh salary, home loan and rent
With ₹5,00,000 of deductions, Anjali still pays more in the old regime (₹2,57,400 vs ₹1,92,400). But suppose she has a self-occupied home loan with ₹2,00,000 of interest, pays rent in another city that gives her a large HRA exemption, maxes 80C and 80CCD(1B), and buys health insurance for herself and her senior-citizen parents. If that adds up to ₹8,00,000, the old regime tax drops to ₹1,63,800 and beats the new regime by ₹28,600. Large housing deductions are the usual reason the old regime still wins.
What employer NPS does in the new regime
If Anjali’s basic pay is ₹8 lakh and her employer puts 14% of it (₹1,12,000) into NPS under 80CCD(2), her new-regime taxable income falls to ₹18,13,000 and tax to ₹1,69,104, a saving of ₹23,296 without any change in the old-regime picture. (Total employer contributions to EPF, NPS and superannuation above ₹7.5 lakh a year become taxable, so very high earners should check that limit.)
Try it: Enter your own salary and deductions and see both regimes side by side in the Income Tax Calculator
Marginal relief just above ₹12 lakh
Without a safety valve, earning ₹1 more than ₹12 lakh of taxable income would suddenly cost you about ₹60,000 in tax. Marginal relief stops that: in the new regime, the tax payable cannot exceed the amount by which your taxable income crosses ₹12 lakh.
Example: a salary of ₹13 lakh gives taxable income of ₹12,25,000 after the ₹75,000 standard deduction. Slab tax would be ₹63,750, but the income above ₹12 lakh is only ₹25,000, so tax is capped at ₹25,000. With cess the bill is ₹26,000. Relief stops mattering once taxable income goes past roughly ₹12.7 lakh, where the normal slab tax becomes lower than the excess.
The break-even deduction rule
The quickest way to decide is to total your old-regime deductions (everything except the standard deduction) and compare it with the break-even figure for your salary. If your deductions are higher, the old regime saves money; if lower, stay in the new regime.
| Gross salary | Tax in new regime | Deductions needed for old regime to match |
|---|---|---|
| ₹10,00,000 | ₹0 | ₹4,50,000 |
| ₹12,00,000 | ₹0 | ₹6,50,000 |
| ₹15,00,000 | ₹97,500 | ₹5,44,000 |
| ₹18,00,000 | ₹1,50,800 | ₹6,42,000 |
| ₹20,00,000 | ₹1,92,400 | ₹7,09,000 |
| ₹25,00,000 | ₹3,19,800 | ₹8,00,000 |
| ₹30,00,000 | ₹4,75,800 | ₹8,00,000 |
Computed in Python for a salaried individual below 60, rounded to the nearest ₹1,000 of deductions, ignoring surcharge.
Two patterns stand out. Up to about ₹12.75 lakh the new regime charges nothing, so the old regime needs ₹4.5 lakh or more of deductions just to match it. From about ₹25 lakh upwards, the break-even settles at ₹8 lakh because both regimes are taxing the top slice at 30%. Very few people have ₹8 lakh of genuine deductions, which is why the new regime suits most salaried taxpayers.
Who should still pick the old regime
- People paying a home loan on a self-occupied house (up to ₹2,00,000 interest) and claiming a large HRA exemption, for example because the family home is in one city and the job in another, or the loan is on a house that is let out.
- High earners who already max out 80C, 80D for parents and 80CCD(1B), plus big HRA, so that total deductions cross the break-even in the table.
- Senior citizens with modest income and large medical insurance and 80TTB interest deductions, where the old regime’s higher exemption still helps. Run both numbers.
Everyone else, especially younger earners without a home loan, usually pays less in the new regime and keeps the freedom to invest without a lock-in.
Try it: Rent a flat? Check how much of your HRA is actually exempt before counting it as a deduction with the HRA Calculator
How to choose in five steps
- Get your annual gross salary from your offer letter or Form 16 (see our CTC vs in-hand salary guide for what is included).
- List every deduction you would genuinely claim under the old regime: 80C, 80D, HRA exemption, home loan interest, 80CCD(1B), others.
- Compare the total with the break-even table, or run both regimes in a calculator.
- Tell your employer your choice at the start of the year so TDS is right. You can still change it while filing the ITR if you have only salary income.
- Recheck each year. A new home loan, a change in rent or a big raise can flip the answer.
Try it: Want to see monthly take-home under each regime? Use the Salary Calculator
Frequently asked questions
Is the new tax regime better for everyone in FY 2025-26?
No, but it is better for most salaried people. Up to ₹12.75 lakh of salary it charges zero tax. Above that, the old regime only wins if your deductions (80C, 80D, HRA, home loan interest, 80CCD(1B)) exceed the break-even, which is about ₹5.4 lakh at ₹15 lakh salary and ₹8 lakh for salaries of ₹25 lakh and above.
Is income up to 12 lakh tax-free in the new regime?
Yes. If taxable income is ₹12 lakh or less, the Section 87A rebate of up to ₹60,000 brings tax to zero. Salaried employees also get a ₹75,000 standard deduction, so a salary of up to ₹12.75 lakh is tax-free. The rebate does not cover special-rate income such as capital gains.
Can I switch between the old and new regime every year?
Salaried individuals without business income can choose either regime every year while filing the return. People with business or professional income opt out of the new regime through Form 10-IEA, and can move between the regimes only once in their lifetime after that.
Which deductions are allowed in the new tax regime?
Mainly the ₹75,000 standard deduction for salary, the employer’s NPS contribution under Section 80CCD(2) up to 14% of basic plus DA, the family pension deduction and a few others. 80C, 80D, HRA, LTA and home loan interest on a self-occupied house are not allowed.
What is marginal relief in the new regime?
If your taxable income is slightly above ₹12 lakh, your tax cannot exceed the amount by which it crosses ₹12 lakh. For example, at ₹12.25 lakh taxable income the tax is capped at ₹25,000 plus cess, instead of the ₹63,750 the slabs would give.
Should I choose the old regime if I have a home loan?
Only if your total deductions cross the break-even for your salary. Home loan interest of up to ₹2 lakh plus principal under 80C helps a lot, but on its own it is often not enough. Add your HRA, 80D and NPS figures and compare both regimes in a calculator before deciding.
Related guides
- HRA Exemption & Rent Receipts: Complete Guide
- CTC vs In-Hand Salary: How to Calculate Take-Home Pay
- PPF vs EPF vs NPS vs Sukanya Samriddhi Compared
- How to Reduce Home Loan EMI and Interest
This guide is general information, not tax advice. Rules are as of FY 2025-26; check the latest notifications on incometax.gov.in or with a tax professional before you file.