Old vs New Tax Regime (FY 2025-26): Which Should You Choose?

6 min read · Income Tax

From FY 2023-24 the new tax regime is the default, but you can still opt for the old one — and for many people the old regime is cheaper. The right answer isn't a rule of thumb; it's arithmetic. Here's how the two compare for FY 2025-26 (AY 2026-27) and how to decide.

The core trade-off

The new regime gives you lower slab rates and a ₹75,000 standard deduction, but disallows almost every deduction — no 80C, no 80D, no HRA, no home-loan interest. The old regime keeps all those deductions but taxes at higher rates with a smaller ₹50,000 standard deduction. So: fewer deductions favour the new regime; heavy deductions favour the old.

New-regime slabs, FY 2025-26

₹0–4L: nil · ₹4–8L: 5% · ₹8–12L: 10% · ₹12–16L: 15% · ₹16–20L: 20% · ₹20–24L: 25% · above ₹24L: 30%. Crucially, after the §87A rebate (up to ₹60,000), a resident with taxable income up to ₹12,00,000 pays no tax under the new regime, with marginal relief just above that.

Old-regime slabs

₹0–2.5L: nil · ₹2.5–5L: 5% · ₹5–10L: 20% · above ₹10L: 30% (higher basic exemption for seniors). The §87A rebate here applies up to ₹5,00,000 taxable income.

A quick way to decide

Add up the deductions you actually claim — 80C (PF, ELSS, insurance, up to ₹1.5L), 80D (health insurance), HRA if you pay rent, and home-loan interest under 24(b) up to ₹2L. If those add up to a large number, the old regime often wins. If you claim little, the new regime usually does. But small differences flip the result, so the only reliable method is to compute both.

Common mistakes

People assume the new regime is always cheaper because it's the default — it isn't. Others forget that most deductions vanish under the new regime, so an 80C-heavy taxpayer who switches can end up paying more. And a salaried person can choose each year, so last year's choice isn't binding.

This is general information, not tax advice. Confirm specifics with your CA.