New vs Old Tax Regime: Slabs, Deductions and Which to Choose
FY 2025-26 new and old tax regime slabs, the Rs 12 lakh 87A rebate, key deductions, worked examples and a simple way to decide which regime saves more tax.
Every salaried person now has to decide each year between the new tax regime, with lower rates and almost no deductions, and the old regime, with higher rates but deductions such as 80C, 80D, HRA and home-loan interest. Since the 2025 Budget made income up to ₹12 lakh effectively tax-free under the new regime, the answer has changed for most people. This guide sets out the slabs, the key deductions and worked examples so you can decide with numbers rather than guesswork.
Compare instantly: enter your salary and deductions in the free Income Tax Calculator to see your tax under both regimes side by side.
Important: the slabs below are for FY 2025-26 (assessment year 2026-27). The Income-tax Act, 2025 replaces the 1961 Act from 1 April 2026, introducing the single "tax year" concept and renumbering many sections. Slabs, rebates and section numbers can change with each Budget, so verify the figures for your year on incometax.gov.in.
New regime slabs (FY 2025-26)
| Taxable income | 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% |
- Standard deduction for salaried people and pensioners: ₹75,000.
- Rebate under section 87A: up to ₹60,000, so a resident individual with taxable income up to ₹12 lakh pays no tax. For a salaried person, that means gross salary up to ₹12.75 lakh.
- Marginal relief applies just above ₹12 lakh: the tax payable cannot exceed the income above ₹12 lakh. For example, at ₹12.10 lakh taxable, tax is limited to ₹10,000 rather than ₹61,500.
- The rebate does not apply to income taxed at special rates, such as capital gains under sections 111A and 112.
- Health and education cess of 4% is added to the tax; surcharge applies above ₹50 lakh.
The new regime is the default. Deductions allowed in it are limited: the standard deduction, employer's contribution to NPS under section 80CCD(2), and a few others. HRA, LTA, 80C, 80D and home-loan interest on a self-occupied house are not available.
Old regime slabs
| Taxable income (below 60 years) | 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% |
The basic exemption is ₹3 lakh for senior citizens (60–79) and ₹5 lakh for super senior citizens (80+). The standard deduction is ₹50,000, and the 87A rebate of up to ₹12,500 makes taxable income up to ₹5 lakh tax-free.
Main deductions in the old regime
| Deduction | Limit | Examples |
|---|---|---|
| Section 80C | ₹1,50,000 | EPF, PPF, ELSS, life insurance premium, home-loan principal, tuition fees, Sukanya Samriddhi, 5-year tax-saver FD |
| Section 80CCD(1B) | ₹50,000 extra | Own contribution to NPS |
| Section 80D | ₹25,000 (₹50,000 if senior) for self and family; a further ₹25,000/₹50,000 for parents | Health insurance, preventive check-up (within the limit) |
| Section 24(b) | ₹2,00,000 | Interest on home loan for a self-occupied house |
| HRA exemption | Least of three amounts | Rent paid by salaried employees; see HRA exemption guide |
| LTA, 80E, 80G, 80TTA | Various | Travel, education loan interest, donations, savings interest |
Worked examples (salaried, below 60, FY 2025-26)
Example 1: salary ₹10 lakh, deductions of ₹1.75 lakh
New: ₹10,00,000 − ₹75,000 = ₹9,25,000 taxable. Below ₹12 lakh, so tax is nil.
Old: ₹10,00,000 − ₹50,000 − ₹1,50,000 (80C) − ₹25,000 (80D) = ₹7,75,000. Tax ₹67,500 + cess = ₹70,200.
The new regime wins clearly.
Example 2: salary ₹15 lakh, renting in a metro
Deductions available: 80C ₹1.5 lakh, 80D ₹25,000, NPS ₹50,000, HRA exemption ₹1.8 lakh.
New: taxable ₹14,25,000. Tax ₹93,750 + cess = ₹97,500.
Old: taxable ₹15,00,000 − ₹50,000 − ₹4,05,000 = ₹10,45,000. Tax ₹1,26,000 + cess = ₹1,31,040.
Even with over ₹4 lakh of deductions, the new regime saves about ₹33,500.
Example 3: salary ₹20 lakh with a home loan
Deductions: 80C ₹1.5 lakh, 80D ₹75,000 (self plus senior-citizen parents), NPS ₹50,000, home-loan interest ₹2 lakh.
New: taxable ₹19,25,000. Tax ₹1,85,000 + cess = ₹1,92,400.
Old: taxable ₹20,00,000 − ₹50,000 − ₹4,75,000 = ₹14,75,000. Tax ₹2,55,000 + cess = ₹2,65,200.
A quick way to decide: the break-even deduction
Add up every deduction you would actually claim under the old regime, excluding the standard deduction. The old regime starts to win only above roughly these amounts:
| Gross salary | Approximate deductions needed for old regime to win |
|---|---|
| Up to ₹12.75 lakh | Almost never; new regime tax is nil |
| ₹15 lakh | About ₹5.4 lakh |
| ₹20 lakh | About ₹7.1 lakh |
These are estimates from the FY 2025-26 slabs; run your own numbers in the Income Tax Calculator.
Who should pick which
- New regime suits most people earning up to about ₹12.75 lakh, anyone who does not want to lock money into tax-saving products, young earners with few deductions, and people living in their own house without a home loan.
- Old regime may suit people with very large deductions combined: high HRA in a metro, the full ₹2 lakh home-loan interest, full 80C and NPS, and 80D for senior-citizen parents.
Switching rules
- Salaried individuals without business income can choose either regime every year while filing the return.
- Tell your employer your choice at the start of the year so that TDS is deducted correctly; the final choice is made in the return.
- People with business or professional income can switch back from the new regime only once in their lifetime (unless they stop having business income), and must file the prescribed form before the due date.
Whichever regime you choose, do not buy insurance or lock-in products purely to save tax. Compare returns first; our guide to PPF, SSY and FD may help.
Next step: open the free Income Tax Calculator, enter your salary and deductions, and see which regime leaves more money in your pocket.
Frequently asked questions
Is income up to Rs 12 lakh tax-free under the new regime?
For FY 2025-26, yes for resident individuals: the section 87A rebate of up to Rs 60,000 makes tax nil on taxable income up to Rs 12 lakh. Salaried people also get a Rs 75,000 standard deduction, so gross salary up to Rs 12.75 lakh is covered. Special-rate income such as capital gains is excluded.
Can I claim HRA and 80C in the new regime?
No. HRA exemption, 80C, 80D and home-loan interest on a self-occupied property are available only in the old regime.
Can a salaried person switch regimes every year?
Yes. Salaried individuals without business income can choose the regime each year when filing the income tax return.
What changes with the Income-tax Act, 2025?
It replaces the Income-tax Act, 1961 from 1 April 2026, uses a single tax year instead of previous year and assessment year, and renumbers many sections. Check incometax.gov.in for the slabs and rules that apply to your year.