The new income tax regime became the default for FY 2025-26 — but 42% of salaried taxpayers still save more under the old regime.
That statistic from the CBDT's internal compliance data surprises most people, because the New Regime's headline slabs look far simpler and lower. But tax liability is not just about slabs. It is about exemptions, deductions, and your specific financial profile. A salaried employee with a home loan, HRA, and maxed-out 80C investments in a ₹12–18 lakh bracket will frequently pay less tax under the Old Regime, even after accounting for its higher nominal rates.
This guide walks you through both regimes completely — slabs, available deductions, practical examples, and the exact calculation logic. Use the free WOWHOW income tax calculator to run your own numbers once you understand the framework.
FY 2025-26 Income Tax Slabs: Old vs New Regime at a Glance
The two regimes have fundamentally different structures. The New Regime offers lower rates but eliminates almost all exemptions. The Old Regime keeps higher rates but preserves the full deduction ecosystem.
New Tax Regime — FY 2025-26 Slabs (Default)
Under Budget 2025, the New Regime slabs were revised to make incomes up to ₹12 lakh effectively tax-free (after the ₹75,000 standard deduction and Section 87A rebate):
₹0 – ₹3,00,000: Nil
₹3,00,001 – ₹7,00,000: 5%
₹7,00,001 – ₹10,00,000: 10%
₹10,00,001 – ₹12,00,000: 15%
₹12,00,001 – ₹15,00,000: 20%
Above ₹15,00,000: 30%
Key additions for FY 2025-26: Standard deduction of ₹75,000 (up from ₹50,000), and Section 87A rebate of up to ₹60,000 for net taxable income up to ₹12 lakh. This means a salaried employee with gross income of ₹12.75 lakh pays zero tax under the New Regime.
Old Tax Regime — FY 2025-26 Slabs
₹0 – ₹2,50,000: Nil
₹2,50,001 – ₹5,00,000: 5%
₹5,00,001 – ₹10,00,000: 20%
Above ₹10,00,000: 30%
Senior citizens (60–80 years) get a ₹3 lakh basic exemption limit. Super senior citizens (80+) get ₹5 lakh. The 87A rebate under the Old Regime is ₹12,500 for income up to ₹5 lakh.
Old Regime Deductions: The Full List
The Old Regime's advantage lives in its deductions. If you can claim enough of them, the lower effective rate beats the New Regime's lower nominal slabs.
Standard Deduction and House Rent Allowance
All salaried employees get a flat ₹50,000 standard deduction under the Old Regime. HRA exemption is calculated as the minimum of: actual HRA received, 40% of basic salary (50% for metro cities), or rent paid minus 10% of basic salary. In a high-rent metro like Mumbai or Bangalore, HRA exemption alone can reduce taxable income by ₹1.5–3 lakh per year.
Section 80C: ₹1.5 Lakh Deduction
This is the single most-used deduction. It covers EPF contributions, PPF, ELSS mutual funds, NSC, 5-year bank FD, principal repayment on home loan, children's tuition fees, and life insurance premiums. The cap is ₹1.5 lakh regardless of how many instruments you use.
Section 80D: Health Insurance Premiums
₹25,000 for self/spouse/children; additional ₹25,000 for parents under 60 (₹50,000 if parents are 60+). A family paying ₹50,000–75,000 annually in health premiums can claim ₹50,000–75,000 in deductions here.
Home Loan Interest: Section 24(b)
Interest on a self-occupied property's home loan is deductible up to ₹2 lakh per year. This is available only under the Old Regime — it is completely disallowed under the New Regime for self-occupied properties. For someone paying ₹1.5–2 lakh in home loan interest annually, this single deduction can make the Old Regime unambiguously better.
National Pension System: Section 80CCD(1B)
An additional ₹50,000 deduction over and above the 80C limit, exclusively for NPS contributions. Combined with 80C, this takes the total basic deduction to ₹2 lakh.
Which Regime Saves More? A Practical Comparison
The break-even point depends on your total deductions relative to income. A rule of thumb: if your deductions exceed ₹3.75 lakh (for income under ₹15 lakh), the Old Regime is likely better. Below that threshold, the New Regime wins due to its lower base rates.
Example 1: ₹10 Lakh Gross Income, Renter, No Home Loan
Under the New Regime (after ₹75,000 standard deduction): taxable income ₹9.25 lakh, tax ≈ ₹57,500. Under the Old Regime (standard deduction ₹50,000 + 80C ₹1.5 lakh): taxable income ₹8 lakh, tax ≈ ₹75,000. New Regime saves ₹17,500.
Example 2: ₹15 Lakh Gross Income, Metro Renter With HRA + 80C + 80D
Old Regime deductions: standard deduction ₹50,000 + HRA ₹1.5 lakh + 80C ₹1.5 lakh + 80D ₹50,000 = ₹4.5 lakh total. Taxable income: ₹10.5 lakh. Tax ≈ ₹1,32,500. New Regime (₹75,000 standard deduction only): taxable income ₹14.25 lakh. Tax ≈ ₹1,80,000. Old Regime saves ₹47,500.
Example 3: ₹20 Lakh With Home Loan, HRA, Full 80C + 80CCD(1B)
Old Regime deductions: standard ₹50,000 + HRA ₹1.5 lakh + home loan interest ₹2 lakh + 80C ₹1.5 lakh + 80CCD(1B) ₹50,000 + 80D ₹50,000 = ₹7 lakh. Taxable income: ₹13 lakh. Tax ≈ ₹2,02,500. New Regime: taxable income ₹19.25 lakh. Tax ≈ ₹3,37,500. Old Regime saves ₹1,35,000.
Use the income tax calculator to run your specific numbers — it handles both regimes, all standard deductions, and shows a side-by-side comparison.
Surcharge and Cess: The Hidden Addition
Base tax is not your final liability. Add:
Health and Education Cess: 4% of base tax (applies to both regimes)
Surcharge: 10% for income ₹50L–1 crore; 15% for ₹1–2 crore; 25% for ₹2–5 crore; 37% above ₹5 crore (Old Regime). Under the New Regime, surcharge above ₹2 crore is capped at 25%.
For high earners above ₹2 crore, the surcharge cap under the New Regime is significant. This is one of the few scenarios where the New Regime wins decisively even with maximum Old Regime deductions.
How to Switch Between Regimes
Salaried employees: inform your employer at the start of each financial year (April). You can switch every year. The employer uses this to compute TDS. If you miss informing, the employer applies the default (New Regime).
Business owners and professionals with business income: you can switch to the Old Regime only once. Once you switch back to the New Regime, you cannot return to Old. Choose carefully.
Filing ITR: if you missed informing your employer, you can still choose your regime while filing your return before the due date (July 31 for salaried). Late filing after July 31 locks you into the New Regime.
People Also Ask
Is the new income tax regime better than the old regime in 2025-26?
It depends on your deductions. For incomes below ₹10 lakh with minimal deductions, the New Regime is almost always better due to its 87A rebate (zero tax up to ₹12 lakh after standard deduction). For incomes above ₹12 lakh with significant HRA, home loan, and 80C deductions, the Old Regime frequently wins. Calculate both using the free tax calculator.
What is the income tax slab for ₹12 lakh salary in FY 2025-26?
Under the New Regime: after ₹75,000 standard deduction, taxable income is ₹11.25 lakh, and the 87A rebate applies (net taxable income ≤ ₹12 lakh), making tax payable zero. Under the Old Regime: depends on deductions claimed, but typically results in some tax liability after standard deduction and 80C.
Can I claim HRA and home loan interest together?
Yes — only under the Old Regime. If you live in a rented house in a different city from where your mortgaged property is located, you can claim both HRA exemption (Section 10(13A)) and home loan interest deduction (Section 24(b)) simultaneously.
What happens if I don't choose a tax regime?
The New Regime is automatically applied. From FY 2023-24 onwards, the New Regime is the default. You must explicitly opt for the Old Regime by informing your employer at the year's start or by filing Form 10-IEA with your ITR.
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Originally published at wowhow.cloud
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