Every year, I get hundreds of questions from clients: "Which tax regime is better for me?" In FY 2025-26, the answer has changed significantly after the Budget 2025 changes. Let me give you the clearest possible comparison so you can make an informed decision.
The Big Change: Zero Tax Up to ₹12.75 Lakhs (New Regime)
Budget 2025 introduced a full tax rebate under Section 87A in the new regime, making the effective tax liability zero for salaried individuals with income up to ₹12.75 lakhs (after the ₹75,000 standard deduction). This is a significant jump from the earlier ₹7 lakh threshold.
Key numbers for FY 2025-26 (New Regime): Standard Deduction ₹75,000 | Section 87A Rebate up to ₹25,000 | Zero tax on income up to ₹12,75,000 for salaried individuals.
New Regime Tax Slabs FY 2025-26
| Income Slab | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Old Regime Tax Slabs FY 2025-26
| Income Slab | Tax Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Head-to-Head: New vs Old Regime
| Feature | New Regime | Old Regime |
|---|---|---|
| Standard Deduction (Salaried) | ₹75,000 | ₹50,000 |
| Section 80C (LIC, PF, ELSS etc.) | Not available | Up to ₹1.5L |
| HRA Exemption | Not available | Available |
| Section 80D (Health Insurance) | Not available | Up to ₹25,000–₹50,000 |
| Home Loan Interest (80EEA) | Not available | Up to ₹2L |
| Zero tax limit (salaried) | ₹12.75 Lakhs | ₹5 Lakhs |
| Default regime | Yes (from FY 2023-24) | Must opt-in |
When the New Regime Wins
If you don't have large 80C investments, HRA, or home loan interest deductions — or if your income is below ₹12.75L — the new regime will almost always give you lower tax or zero tax. It's also simpler: no need to maintain investment proofs.
Example: ₹10L Annual Salary, No Major Deductions
| Calculation Step | New Regime | Old Regime |
|---|---|---|
| Gross Salary | ₹10,00,000 | ₹10,00,000 |
| Standard Deduction | -₹75,000 | -₹50,000 |
| 80C Deduction | Nil | -₹1,50,000 |
| Taxable Income | ₹9,25,000 | ₹8,00,000 |
| Tax Payable | ₹42,500 | ₹75,000 |
| Cess (4%) | ₹1,700 | ₹3,000 |
| Total Tax | ₹44,200 | ₹78,000 |
When the Old Regime Wins
If you pay rent in a metro city (high HRA), have a home loan with significant interest, and maximize 80C — your combined deductions can easily exceed ₹5-6 lakhs, making the old regime the better choice above ₹15-20 lakh incomes.
Example: ₹20L Salary with HRA + Home Loan + 80C
| Scenario | New Regime | Old Regime |
|---|---|---|
| Gross Salary | ₹20,00,000 | ₹20,00,000 |
| Total Deductions | -₹75,000 | -₹5,50,000 (HRA+80C+HL) |
| Taxable Income | ₹19,25,000 | ₹14,50,000 |
| Tax + Cess | ₹2,31,750 | ₹2,03,100 |
Quick Decision Guide
- Income below ₹12.75L (salaried)? → New Regime, zero tax
- Income ₹12.75L–₹15L with modest deductions? → New Regime likely better
- Income above ₹15L with HRA + Home Loan + full 80C? → Run the numbers, old regime may win
- Business/professional income? → New regime often better; old regime only if deductions exceed ₹3.75L
- Senior citizen with no salary? → Old regime with basic exemption ₹3L may be better
Pro Tip: Use our free Income Tax Calculator to compute your exact liability under both regimes with your actual numbers. Always run the comparison before April each year.
Not Sure Which Regime Is Right for You?
Get a personalized tax computation. CA Prabhakar Kumar will compare both regimes with your exact numbers — free of charge for first-time clients.
Get Free Tax ComparisonDisclaimer: Tax calculations in this article are illustrative examples. Actual tax liability depends on your specific income sources, deductions, and applicable provisions. Please consult a qualified CA for personalized advice.