08 Mar New vs. Old Tax Regime for Salaried Individuals: What’s Best for You in FY 2025-26?
With the start of the new financial year 2025-26, salaried individuals must decide whether to stick with the old tax regime or switch to the new tax regime. The government has introduced significant tax benefits under the new tax regime, making it essential to compare both structures before making a choice.
Income Tax Slabs for FY 2025-26
Under the New Tax Regime
| Income Range | Tax Rate |
|---|---|
| Up to ₹4 Lakhs | Nil |
| ₹4 Lakhs – ₹8 Lakhs | 5% |
| ₹8 Lakhs – ₹12 Lakhs | 10% |
| ₹12 Lakhs – ₹16 Lakhs | 15% |
| ₹16 Lakhs – ₹20 Lakhs | 20% |
| ₹20 Lakhs – ₹24 Lakhs | 25% |
| Above ₹24 Lakhs | 30% |
👉 Key Benefit: No income tax up to ₹12 Lakhs due to an additional standard deduction for salaried individuals.
Under the Old Tax Regime
| Income Range | Tax Rate |
|---|---|
| Up to ₹2.5 Lakhs | Nil |
| ₹2.5 Lakhs – ₹5 Lakhs | 5% |
| ₹5 Lakhs – ₹10 Lakhs | 20% |
| Above ₹10 Lakhs | 30% |
While the old tax regime offers various deductions and exemptions, the new tax regime simplifies taxation with lower rates.
Deductions and Benefits: Old vs. New Tax Regime
One of the biggest differences between the two regimes is the availability of deductions. The old regime allows taxpayers to claim several deductions under different sections, whereas the new regime has eliminated most of them.
Key Deductions Comparison
| Particulars | New Tax Regime | Old Tax Regime |
|---|---|---|
| Standard Deduction | ₹75,000 | ₹50,000 |
| Section 80C (PPF, NSC, LIC, ELSS, etc.) | ❌ Not Available | ✅ Up to ₹1,50,000 |
| Section 80CCD(1B) (NPS Contribution) | ❌ Not Available | ✅ Up to ₹50,000 |
| Section 80CCD(2) (Employer’s NPS Contribution) | ✅ Up to 14% (Govt.) & 10% (Private) | ✅ Same |
| Section 80D (Health Insurance Premium) | ❌ Not Available | ✅ Up to ₹50,000 (₹1,00,000 for Senior Citizens) |
| Section 80DD, 80DDB & 80U (Disability Deductions) | ❌ Not Available | ✅ Up to ₹1,25,000 |
| Section 80E (Education Loan Interest) | ❌ Not Available | ✅ Fully Deductible for 8 years |
| Section 80G (Donations to Charitable Institutions) | ❌ Not Available | ✅ Up to 100% Deduction |
| House Rent Allowance (HRA) | ❌ Not Available | ✅ Deductible based on actual rent & salary |
| Home Loan Interest (Self-Occupied Property) | ❌ Not Available | ✅ Up to ₹2,00,000 |
| Leave Travel Concession (LTC) | ❌ Not Available | ✅ Available as per limits |
👉 Verdict: The old tax regime is beneficial for those who have high investments in tax-saving instruments and claim deductions. However, the new tax regime offers a higher standard deduction and is more beneficial for individuals who do not want to deal with complex deductions.
Rebate & Surcharge Under Both Regimes
| Particulars | New Tax Regime | Old Tax Regime |
|---|---|---|
| Rebate Under Section 87A | Income up to ₹12.75 Lakhs is exempt (Including Standard Deduction) | Income up to ₹5.5 Lakhs is exempt (Including Standard Deduction) |
| Surcharge for High-Income Earners (>₹5 Crores) | 25% | 37% |
👉 New Tax Regime provides a better rebate structure, making it more attractive for middle-income earners.
Which Tax Regime Should You Choose?
The decision depends on multiple factors:
Choose the New Tax Regime if:
✅ You do not claim significant deductions.
✅ You prefer a simplified tax structure with lower tax rates.
✅ Your income is below ₹12 Lakhs to take full advantage of the standard deduction.
Choose the Old Tax Regime if:
✅ You have investments in PPF, NPS, or Insurance that qualify under Section 80C.
✅ You pay high rent and claim HRA benefits.
✅ You have home loan interest deductions or education loan repayments.
✅ You or your family members require health insurance tax deductions.
Taxability Scenarios: New vs. Old Regime
To understand how tax varies under both regimes, let’s compare taxation for different income levels:
| Income Level | New Tax Regime (No Deductions) | Old Tax Regime with ₹2L Deductions | Old Tax Regime with ₹4L Deductions | Old Tax Regime with ₹6L Deductions |
|---|---|---|---|---|
| ₹10 Lakhs | ₹0 | ₹65,000 | ₹23,400 | ₹0 |
| ₹15 Lakhs | ₹97,500 | ₹1,95,000 | ₹1,32,600 | ₹85,800 |
| ₹20 Lakhs | ₹1,92,400 | ₹3,51,000 | ₹2,88,600 | ₹2,26,200 |
| ₹24 Lakhs | ₹2,92,500 | ₹4,75,800 | ₹4,13,400 | ₹3,51,000 |
| ₹50 Lakhs | ₹10,99,800 | ₹12,87,000 | ₹12,24,600 | ₹11,62,200 |
👉 Observations:
- For low deductions, the new tax regime is better.
- If you can claim higher deductions (₹4L – ₹6L), the old tax regime saves more tax.
Final Thoughts
The New Tax Regime is beneficial for individuals with minimal deductions, providing a higher standard deduction and simplified compliance. However, the Old Tax Regime remains advantageous for those with high tax-saving investments, home loans, or other deductions.
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