New vs Old Tax Regime (FY 2025-26): Which Saves More?

Updated for FY 2025-26 (AY 2026-27) · 7 min read

Every salaried Indian now faces one yearly decision: file under the new regime (lower rates, fewer deductions) or the old regime (higher rates, but you can claim deductions like 80C and HRA). The right answer depends entirely on how many deductions you actually use.

New regime slabs (FY 2025-26)

The new regime gives a ₹75,000 standard deduction and a Section 87A rebate that makes income up to ₹12 lakh effectively tax-free. A 4% health & education cess applies on the tax.

Old regime slabs

The old regime has a ₹50,000 standard deduction and lets you claim 80C (up to ₹1.5 lakh), 80D health insurance, HRA, home-loan interest and more. The 87A rebate covers taxable income up to ₹5 lakh.

So which should you choose?

• Few or no deductions? The new regime almost always wins thanks to lower rates and the big rebate.
• Large 80C + HRA + home-loan interest? The old regime can still come out ahead once your deductions cross a break-even point (often around ₹3.5–4 lakh of deductions, depending on income).

There's no universal answer — it's arithmetic specific to your salary and deductions. The fastest way is to enter your income and deductions once and let the tool compute both.

FAQs

Is income up to ₹12 lakh really tax-free?

Under the new regime, yes — the 87A rebate zeroes out tax on taxable income up to ₹12 lakh for residents. With the standard deduction, salaried earners up to ~₹12.75 lakh gross can pay zero.

Can I change regime next year?

Salaried taxpayers without business income can choose afresh each year at filing time.