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Tax Planning10 min read4 May 2026

New vs Old Tax Regime — Which Saves You More in FY 2025-26?

A plain-English comparison of the new and old tax regimes for FY 2025-26. Includes worked examples for salaried individuals, the 87A rebate update, and a simple rule of thumb to pick the right regime.

The Short Answer

For most salaried individuals earning up to ₹15 lakh with moderate investments, the new regime saves more tax in FY 2025-26. The Finance Act 2025 made the new regime significantly more attractive by extending the Section 87A rebate to cover incomes up to ₹12 lakh — meaning zero tax liability up to that level under the new regime.

But "most" is not "all." If you have a home loan, pay substantial rent, and maximise 80C investments, the old regime can still be superior. This guide helps you find out which side you fall on.

Tax Slabs: New Regime vs Old Regime (FY 2025-26)

New Regime Slabs (Default from FY 2025-26)

  • Up to ₹4,00,000 — Nil
  • ₹4,00,001 to ₹8,00,000 — 5%
  • ₹8,00,001 to ₹12,00,000 — 10%
  • ₹12,00,001 to ₹16,00,000 — 15%
  • ₹16,00,001 to ₹20,00,000 — 20%
  • ₹20,00,001 to ₹24,00,000 — 25%
  • Above ₹24,00,000 — 30%

Plus: Standard deduction of ₹75,000 for salaried employees and pensioners (new regime).

Section 87A rebate: If net taxable income (after standard deduction) does not exceed ₹12 lakh, the full tax liability is rebated — effectively zero tax.

Old Regime Slabs

  • Up to ₹2,50,000 — Nil
  • ₹2,50,001 to ₹5,00,000 — 5%
  • ₹5,00,001 to ₹10,00,000 — 20%
  • Above ₹10,00,000 — 30%

Section 87A rebate (old regime): Only for income up to ₹5 lakh (not ₹12 lakh).

All deductions available: 80C (₹1.5L), 80D (₹25K–₹50K), HRA, home loan interest (₹2L), 80TTA, etc.

Worked Example 1 — Salaried, ₹10 Lakh Gross, No Home Loan

Assumptions: ₹10 lakh gross salary, no investments except mandatory EPF of ₹72,000 (under 80C), no home loan, no HRA.

New Regime

  • Gross salary: ₹10,00,000
  • Less standard deduction: ₹75,000
  • Taxable income: ₹9,25,000
  • Tax: ₹0 on first ₹4L + ₹20,000 (5% on ₹4–8L) + ₹12,500 (10% on ₹8–9.25L) = ₹32,500
  • Section 87A: Not applicable (income > ₹12L after std deduction threshold — wait, ₹9.25L is below ₹12L, so full rebate applies)
  • Net tax: ₹0

Old Regime

  • Gross salary: ₹10,00,000
  • Less standard deduction: ₹50,000
  • Less 80C (EPF only): ₹72,000
  • Taxable income: ₹8,78,000
  • Tax: ₹12,500 (5% on ₹2.5–5L) + ₹75,600 (20% on ₹5–8.78L) = ₹88,100
  • Less Section 87A: Not applicable (income > ₹5L)
  • Net tax: ₹88,100

Winner: New regime saves ₹88,100.

Worked Example 2 — Salaried, ₹18 Lakh, Heavy Deductions

Assumptions: ₹18 lakh gross, 80C maxed at ₹1.5L (ELSS + EPF), home loan interest ₹2L, HRA ₹90,000, 80D health insurance ₹25,000.

New Regime

  • Taxable income: ₹18L − ₹75K (std deduction) = ₹17,25,000
  • Tax: ₹0 + ₹20K + ₹40K + ₹78,750 + ₹25,000 = approx ₹1,63,750

Old Regime

  • Taxable income: ₹18L − ₹50K (std) − ₹1.5L (80C) − ₹2L (home loan) − ₹90K (HRA) − ₹25K (80D) = ₹12,85,000
  • Tax: ₹12,500 + ₹1,57,000 = approx ₹1,69,500

In this case, the difference is small. With a very large home loan or additional deductions (80E, 80G, NPS), the old regime can pull ahead. The break-even point is roughly when your total deductions exceed ₹4–5 lakh.

The Rule of Thumb

Add up all your deductions you plan to claim: 80C + home loan interest (24b) + HRA + 80D + anything else. Then compare:

  • Total deductions under ₹3.75 lakh: New regime almost always wins
  • Total deductions ₹3.75L–₹5L: Run both calculations — depends on income level
  • Total deductions above ₹5 lakh: Old regime likely saves more

What Deductions Are NOT Available in the New Regime

The new regime eliminates most deductions. You cannot claim:

  • Section 80C, 80CC, 80CCD (PPF, ELSS, NPS, LIC premiums, home loan principal)
  • Section 80D (health insurance)
  • Section 24(b) home loan interest on self-occupied property
  • HRA exemption
  • LTA exemption
  • Standard deduction for rent paid

You can still claim: standard deduction of ₹75,000, employer NPS contribution (Section 80CCD(2)), gratuity exemption, and leave encashment exemption.

Switching Regime: What Are the Rules?

Salaried employees can switch between the new and old regime every year when filing their ITR — you are not locked in. You can also inform your employer of your preference for the year so they deduct TDS accordingly; if you do not inform them, they default to the new regime from FY 2023-24 onwards.

If you have business income, switching to the old regime is possible but you get only one chance to switch back to the new regime in your lifetime — so choose carefully.

How a CA Helps With Regime Choice

The choice is not always obvious — it depends on your exact income, employer benefits, home loan outstanding amount, rent, family health insurance, and planned investments. A CA runs the exact calculation for both scenarios and picks the one that minimises your liability. At FirstReports, this is included in every ITR filing package — your assigned CA computes both regimes and chooses the lower-tax option for you. See ITR filing packages →

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