New vs Old Tax Regime for FY 2025-26: Which One Should You Choose?

Every individual taxpayer now chooses between two regimes: the new regime, which is the default, and the old one. For FY 2025-26, the new regime became considerably more attractive. This guide compares them.

Note: this article covers the rules for FY 2025-26 under the Income-tax Act, 1961. The Income-tax Act, 2025 applies from tax year 2026-27, with renumbered provisions and some changes, so check the current position for later years.

New Regime Slabs (FY 2025-26)

• Up to ₹4 lakh: nil.
• ₹4–8 lakh: 5%.
• ₹8–12 lakh: 10%.
• ₹12–16 lakh: 15%.
• ₹16–20 lakh: 20%.
• ₹20–24 lakh: 25%.
• Above ₹24 lakh: 30%.

A rebate makes income up to ₹12 lakh effectively tax-free, other than income taxed at special rates like capital gains. Salaried people also get a ₹75,000 standard deduction, so salary up to ₹12.75 lakh can be tax-free.

The Old Regime

The old regime has higher slab rates and a rebate only up to ₹5 lakh of income, but allows deductions such as:

• Section 80C investments, up to ₹1.5 lakh.
• Health insurance under Section 80D.
• House rent allowance exemption.
• Interest on a home loan for a self-occupied house.
• Leave travel allowance and other exemptions.

How to Decide

The new regime is better for most people without large deductions. The old regime can still win for someone with a big home loan, full 80C and 80D, and significant HRA. The only reliable way is to compute tax both ways.

Switching

• Salaried individuals without business income can choose each year.
• Those with business or professional income can switch back to the old regime only in limited circumstances.
• The choice is made when filing the return, though you tell your employer your preference for TDS purposes during the year.

Getting Help

Think Filing computes your tax under both regimes and files your return under whichever is lower.