New vs Old Tax Regime FY 2025-26: Which Is Better?

17 October 2026 · ZapToolbox guides

For FY 2025-26 (AY 2026-27), the new tax regime is better for most salaried people. Anyone earning up to ₹12.75 lakh pays no tax in it. The old regime only wins if you claim large deductions, usually HRA, the full 80C limit, health insurance and home-loan interest together. Above ₹15 lakh, those deductions have to add up to roughly ₹5.4 lakh to ₹8 lakh a year before the old regime saves you money.

Below are the slabs for both regimes, a full worked example, a comparison table for common salaries, and a quick way to check your own case with our Income Tax Calculator.

New regime vs old regime slabs for FY 2025-26

The new regime (Section 115BAC, as changed by Budget 2025) has lower rates but allows almost no deductions. The old regime has higher rates but lets you subtract HRA, 80C, 80D, home-loan interest and more.

Other rules that matter:

• Standard deduction: ₹75,000 in the new regime and ₹50,000 in the old regime, for salaried people and pensioners.
• Section 87A rebate: in the new regime, tax is nil if taxable income is up to ₹12 lakh (a rebate of up to ₹60,000). Just above ₹12 lakh, marginal relief means your tax can't be more than the income above ₹12 lakh. In the old regime, the rebate makes tax nil only up to ₹5 lakh of taxable income.
• Cess: both regimes add 4% health and education cess to the tax.
• Old-regime age slabs: the nil band is ₹3 lakh for ages 60–79 and ₹5 lakh for 80 and above. The new regime has the same slabs for every age.

How to calculate income tax: the formula

The steps are the same in both regimes:

1. Taxable income = salary − standard deduction − deductions (deductions apply in the old regime only).
2. Slab tax = tax on each slice of taxable income at that slab's rate, added up.
3. Tax after rebate = slab tax − 87A rebate (if you are eligible).
4. Total tax = tax after rebate × 1.04 (4% cess). Surcharge applies only above ₹50 lakh.

Worked example: ₹15 lakh salary, new vs old regime

Riya earns ₹15,00,000 a year. She invests ₹1,50,000 under 80C (EPF + PPF), pays ₹25,000 for health insurance (80D) and ₹2,500 professional tax, and her HRA exemption is ₹2,00,000. You can work out your own HRA figure with the HRA Exemption Calculator.

New regime

• Taxable income = ₹15,00,000 − ₹75,000 = ₹14,25,000
• Slab tax = 5% of ₹4 lakh (₹20,000) + 10% of ₹4 lakh (₹40,000) + 15% of ₹2,25,000 (₹33,750) = ₹93,750
• No rebate, because taxable income is above ₹12 lakh
• Total tax = ₹93,750 + 4% cess (₹3,750) = ₹97,500

Old regime

• Taxable income = ₹15,00,000 − ₹50,000 − ₹1,50,000 − ₹25,000 − ₹2,500 − ₹2,00,000 = ₹10,72,500
• Slab tax = 5% of ₹2.5 lakh (₹12,500) + 20% of ₹5 lakh (₹1,00,000) + 30% of ₹72,500 (₹21,750) = ₹1,34,250
• Total tax = ₹1,34,250 + 4% cess (₹5,370) = ₹1,39,620

Even with ₹3,77,500 of deductions, Riya pays ₹42,120 more in the old regime. The new regime is clearly better for her.

Which tax regime is better for salaried employees? Salary examples

The table shows the total yearly tax, including cess, for three levels of deductions in the old regime. "Basic" means 80C ₹1.5 lakh + 80D ₹25,000 + professional tax ₹2,500. The last column adds ₹2 lakh of HRA, ₹2 lakh of home-loan interest and ₹50,000 of NPS (80CCD(1B)).

Up to ₹12.75 lakh, the new regime's zero tax is hard to beat. The old regime wins in only one row: ₹15 lakh with every big deduction claimed, where it saves ₹17,420. At ₹20 lakh and above, even ₹6.27 lakh of deductions isn't enough.

Break-even deductions: when the old regime wins

Here is the total you must claim in the old regime, on top of the ₹50,000 standard deduction, just to match your new-regime tax:

• ₹10 lakh salary: ₹4,50,000 (old-regime taxable income must come down to ₹5 lakh)
• ₹15 lakh salary: about ₹5,43,750
• ₹20 lakh salary: about ₹7,08,333
• ₹25 lakh and above: about ₹8,00,000

If your HRA exemption, 80C, 80D, home-loan interest, NPS and other deductions add up to more than this, the old regime is cheaper. If not, choose the new one. Most people without a home loan and a high rent don't reach these amounts.

What you lose in the new tax regime

The new regime doesn't allow HRA exemption, 80C (PPF, ELSS, life insurance, tuition fees), 80D, interest on a self-occupied home loan, 80CCD(1B) NPS or professional tax. It does still allow the ₹75,000 standard deduction and the employer's NPS contribution under 80CCD(2). Gratuity and leave encashment exemptions also apply in both regimes. Remember that your EPF still gets deducted from salary in either regime. It just doesn't reduce your tax in the new one.

To see how the regime choice changes your monthly take-home pay, try the Salary Calculator. It converts CTC to in-hand salary under either regime.

Frequently asked questions

Is income up to ₹12 lakh tax-free in the new regime?

Yes, for FY 2025-26. Taxable income up to ₹12 lakh has nil tax because of the 87A rebate, so a salaried person earning up to ₹12.75 lakh pays nothing. The rebate doesn't cover special-rate income such as capital gains.

Can I switch between the old and new regime every year?

Salaried people without business income can pick either regime each year when filing the return, even if they told their employer something different. People with business income can switch back to the old regime only once.

Which regime is better for ₹10 lakh salary?

The new regime. Your tax is nil, because taxable income is ₹9.25 lakh after the standard deduction. The old regime would need ₹4.5 lakh of deductions just to reach zero.

Is the new regime the default?

Yes. If you don't choose, your employer deducts TDS and the return is processed under the new regime. Tell your employer at the start of the year if you want the old one.

This guide is for information only and is not tax advice. Figures follow FY 2025-26 rules for resident individuals; please confirm with the income-tax e-filing portal or a CA.