New Tax Regime Vs Old Tax Regime for FY 2025-26 (AY 2026-27)

2025 Budget Updates

1. Zero Tax Up to ₹12.75 Lakh (Salaried Under New Regime)

   For salaried individuals under the new tax regime, the basic exemption limit has been raised to ₹12 lakh. With a ₹75,000 standard deduction, income up to ₹12.75 lakh is effectively tax-free.

2. New Income Tax Slab Rates for FY 2025-26 (AY 2026-27)

   The new tax regime now has seven income tax slabs:

   • 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%

3. Old Income Tax Slabs for FY 2025-26 (AY 2026-27)

   The old tax regime retains its standard slabs:

   Up to ₹2.5 lakh: NIL

   ₹2.5 lakh - ₹5 lakh: 5%

   ₹5 lakh - ₹10 lakh: 20%

   Above ₹10 lakh: 30%

4. Minimal Deductions in the New Regime

   The new regime eliminates most exemptions and deductions (e.g., HRA, LTA, Section 80C, and Section 80D), with the primary benefit being the ₹75,000 standard deduction for salaried individuals.

5. Rebate Under Section 87A

   The rebate under Section 87A has increased to ₹60,000 in the new regime (from ₹25,000), making the tax liability for income up to ₹12 lakh effectively zero. However, the rebate does not apply to income taxable under special rates, like capital gains.

6. Marginal Relief and Upcoming Changes

   Marginal relief on rebates remains applicable, and the new tax regime for FY 2025-26 (AY 2026-27) is part of the existing Income Tax Act. The new Income Tax Bill, once passed, will become the new Act from April 2026.

About the New Tax Regime

The Government of India introduced the new tax regime under Section 115BAC of the Income Tax Act, 1961, in the Union Budget 2020. It came into effect from 1 April 2020 (FY 2020-21) for individuals, businesses, and Hindu Undivided Families (HUFs). The Union Budget 2025-26 has now introduced streamlined tax slabs under this regime, replacing the previous structure introduced in the Union Budget 2023.

Note: The new tax structure announced in Budget 2025 supersedes the one from Budget 2023 under Section 115BAC of the Income Tax Act.

Key Features of the New Tax Regime:

• Default Tax Regime: The new tax regime is the default for individuals without business income. However, you can choose to switch to the old tax regime if preferred.
• Basic Exemption Limit: The exemption limit is now ₹4 lakh, up from ₹3 lakh, providing a benefit for all taxpayers.
• Tax Rebate: Taxable income up to ₹12 lakh is exempt from tax, thanks to the rebate under Section 87A.
• Standard Deduction: Salaried individuals can avail a standard deduction of ₹75,000, making income up to ₹12.75 lakh tax-free.
• Simplified Tax Slabs: The new regime offers seven tax slabs, with rates ranging from 0% to 30%

  Income Tax Slabs (in Rs.)	Income Tax Rates (in % p.a.)
  Up to ₹4 lakh	Nil
  Above ₹4 lakh - ₹8 lakh	5%
  Above ₹8 lakh - ₹12 lakh	10%
  Above ₹12 lakh - ₹16 lakh	15%
  Above ₹16 lakh - ₹20 lakh	20%
  Above ₹20 lakh - ₹24 lakh	25%
  More than ₹24 lakh	30%

• Minimal Deductions: Traditional deductions like HRA, LTA, and Section 80C are not available under the new regime.
• Simplified Compliance: With fewer documents required, the tax filing process is easier and more straightforward.

About the Old Tax Regime

The old tax regime, which was in effect before the introduction of the new tax regime in the Union Budget 2020, featured five tax slab rates for individual taxpayers: 0% for income up to ₹2.5 lakh, 5% for income between ₹2.5 lakh and ₹5 lakh, 20% for income between ₹5 lakh and ₹10 lakh, and 30% for income above ₹10 lakh.

This revision specifies the income ranges along with the respective tax rates clearly and concisely, based on the old tax slabs applicable before the new regime was introduced

Key Features of the Old Tax Regime:

• Old Regime Tax Slabs: The old regime retains its traditional slabs for FY 2025-26. The following table shows the income tax slabs in India for the old regime:

  Income Slab (in Rs.)	General Citizen	Senior Citizen (60 years or above)	Super Senior Citizen (80 years or above)
  ₹0 - ₹2,50,000	No Tax	No Tax	No Tax
  ₹2,50,001 - ₹3,00,000	5%	No Tax	No Tax
  ₹3,00,000 - ₹5,00,000	5%	5%	No Tax
  ₹5,00,001 - ₹10,00,000	20%	20%	20%
  Above ₹10,00,000	30%	30%	30%

• More Tax Deductions and Exemptions: Under the old tax regime, you have access to over 70 exemptions and deductions, including Section 80C, Section 10(10D), HRA and LTA. This enables you to lower your taxable income and reduce your tax obligations.
• LTCG Benefits: The old tax slab regime provides Long-Term Capital Gains (LTCG) benefits on your investments in debt funds.
• Standard Deduction: ₹50,000 for salaried individuals.
• Compliance and Documentation: Requires maintaining extensive documentation for exemptions and deductions.
• Ideal For: Suitable for taxpayers with significant investments or deductions, as these can reduce taxable income substantially.
• Senior Citizen Benefits: Higher exemption limits apply for senior citizens aged between 60 and 80 years (up to ₹3 lakh) and above 80 years (up to ₹5 lakh).

Which Tax Regime is Better: New Tax Regime vs Old Tax Regime in FY 2025-26 (AY 2026-27)

Deciding between the new tax regime vs the old one depends on a comparative analysis of the overall benefits from different tax slab rates and deductions available for you under both tax regimes. 

To make it easier, we have compared old and new tax regimes based on various parameters in the following sections.

To make it easier, we have compared old and new tax regimes based on various parameters in the following sections.

Income Tax Slab for Old Regime vs New Tax Regime

Surcharge Rates for Old vs New Tax Regime (FY 2025-26)

Illustration of the Old vs New Tax Regime Comparison

Let us assume the following details of income and investments for two individuals:

New vs Old Tax Regime - Which Regime is Best for Tax Saving for Taxpayer X?

Old Scheme vs New Scheme - Which Tax Regime is Better for Taxpayer Y?

Deductions/ Exemptions under Old vs New Tax Regime (AY 2025-26)

The tax deductions and exemptions under the old regime and new tax regime for FY 2025-26 are as follows:

How to Choose a Tax Regime Between Old Scheme and New Scheme?

When choosing between the Old and New Tax Regimes for the financial year 2025-26 (Assessment Year 2026-27), it is crucial to understand the key features, benefits, and limitations of both. 

Below is a detailed analysis of the factors you should consider when deciding which tax regime is more suitable for you in FY 2025-26: 

1. Income Tax Slabs Comparison:

   • The old tax regime retains the traditional slabs starting from ₹2.5 lakh, with higher tax rates at ₹10 lakh and above.
   • The new tax regime starts at ₹4 lakh and increases gradually, with no tax on incomes up to ₹4 lakh, making it more favorable for low-to-mid-income earners.
   • For higher-income groups, the new regime offers marginally reduced tax rates, but there are fewer opportunities to reduce taxable income through deductions.
   • The new tax regime increases the income at hand which will boost consumer habits and decline the investing mindset.

2. Deductions and Exemptions:

   • The old regime allows for a variety of deductions (e.g., ₹1.5 lakh under Section 80C, ₹50,000 under Section 80CCD(1B) for NPS), which can lower your taxable income substantially.
   • The new regime, however, doesn't offer these deductions, making it less favorable for individuals with significant investments or deductions to claim.

3. Which Tax Regime is Ideal for You?

   Old Tax Regime:

   • Best for taxpayers who have significant deductions to claim (e.g., HRA, NPS, 80C investments, and home loan interest).
   • Ideal for those with higher incomes and the ability to reduce taxable income through various exemptions and deductions.
   • Senior citizens may also benefit more from the old regime due to the higher exemption limits.

   New Tax Regime:

   • Best for individuals who prefer a simplified tax filing process and do not have significant exemptions or deductions to claim.
   • Ideal for middle-income earners who will benefit from the lower income tax slabs and the higher standard deduction.
   • Beneficial for those who do not have large investments or who don't use deductions like HRA or Section 80C, as they won't lose any benefits from the new regime.

Old vs New Tax Regime Calculator

The Policybazaar Income Tax Calculator is an online tool that helps you compare your tax liability under the old regime and the new income tax regimes. This allows you to assess the financial implications of choosing between the two tax regimes. 

The Old vs. New Tax Regime Calculator is a fast, easy and hassle-free tool that simply considers the following factors for the calculations:

• Your Income
• Eligible Deductions
• Tax Exemptions 

The calculator will then calculate your tax liability under the old tax regime and new tax regime and will help you learn which regime is better for you. Ultimately, this enables you to improve your financial planning and tax optimisation.

Conclusion

If you have significant deductions to claim, such as HRA, NPS, and Section 80C, or if you're a senior citizen benefiting from higher exemption limits, the old tax regime is a better choice. It offers a more detailed approach to tax savings, allowing you to reduce your taxable income through various deductions.

On the other hand, if you prefer simplicity and a faster tax filing process with fewer records and deductions, the new tax regime is ideal. It's perfect for individuals with moderate income and fewer investments or deductions. The new regime also offers clear, lower tax rates, making it easier for those earning up to ₹15 lakh to file taxes efficiently.