Old vs New Tax Regime (FY 2025-26): which one actually saves you money?
Budget 2025 rewrote the new tax regime so aggressively that, for FY 2025-26 (AY 2026-27), an income of up to ₹12 lakh attracts zero tax under it. Yet thousands of taxpayers with home loans and big deductions will still save more in the old regime. The right answer is arithmetic, not fashion.
The new regime slabs for FY 2025-26
Under the new (default) regime, income is taxed in these slabs:
| Income slab | Rate |
|---|---|
| Up to ₹4,00,000 | 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% |
Two boosters sit on top of these slabs. Salaried taxpayers get a standard deduction of ₹75,000. And the Section 87A rebate wipes out the tax entirely where taxable income doesn’t exceed ₹12 lakh — which is why a salaried person earning up to about ₹12.75 lakh can end up paying nothing (marginal relief softens the cliff just above the line; special-rate income like capital gains sits outside this rebate).
What the old regime still offers
The old regime keeps the familiar slabs (₹2.5 lakh exemption, then 5%, 20%, 30%) but lets you stack deductions: 80C up to ₹1.5 lakh, 80D health premiums, HRA, home-loan interest under Section 24(b) up to ₹2 lakh, NPS, education-loan interest and more. Load enough of these and your taxable income drops far below your CTC.
So who should choose what?
- Income up to ~₹12.75 lakh (salaried): the new regime is almost always the winner — zero tax with zero paperwork.
- Big home loan + HRA + full 80C/80D: run the numbers — the old regime often wins when total deductions cross roughly ₹5–5.5 lakh at higher incomes.
- Business/professional income: switching rules are stricter (you can’t flip-flop every year the way salaried taxpayers can), so choose with a plan, not a mood.
- Investors with large capital gains: remember special-rate income is taxed separately and doesn’t enjoy the 87A rebate.
Key takeaways
- New regime FY 2025-26: effectively tax-free up to ₹12 lakh (₹12.75 lakh salaried).
- Old regime still wins for heavy deduction users — do the comparison before filing.
- Salaried can choose each year while filing; business income faces switching limits.
The comparison takes us minutes with your actual numbers — and the wrong choice can cost tens of thousands. Get it checked before you file, not after.