New Tax Regime vs. Old Tax Regime: Complete Decision Guide
Under the Indian Income Tax Act, salaried taxpayers can choose between the New Concessional Tax Regime (Section 115BAC) and the Old Tax Regime. With the updates introduced in the Union Budget for FY 2024-25 and FY 2025-26, the New Tax Regime is now the default tax regime with a higher standard deduction of ₹75,000.
1. Income Tax Slab Comparison (FY 2025-26)
| Income Slab | New Tax Regime (Default) | Old Tax Regime |
|---|---|---|
| ₹0 to ₹2,50,000 | 0% | 0% |
| ₹2,50,000 to ₹3,00,000 | 0% | 5% |
| ₹3,00,000 to ₹5,00,000 | 5% | 5% |
| ₹5,00,000 to ₹7,00,000 | 5% (Zero tax with Sec 87A rebate) | 20% |
| ₹7,00,000 to ₹10,00,000 | 10% | 20% |
| ₹10,00,000 to ₹12,00,000 | 15% | 30% |
| ₹12,00,000 to ₹15,00,000 | 20% | 30% |
| Above ₹15,00,000 | 30% | 30% |
2. When Should You Opt for the Old Regime?
The break-even deduction threshold between the two regimes depends on your annual salary. As a general rule:
- Choose the New Regime if your total deductions (HRA + 80C + 80D + Home Loan Interest) are less than ₹3,75,000 to ₹4,00,000. You pay less tax with zero documentation hassle.
- Choose the Old Regime if you pay heavy rent in metro cities (claiming ₹2L–₹3L HRA exemption) AND utilize full ₹1.5L Section 80C, ₹25k Section 80D, and ₹2L home loan interest.
3. Frequently Asked Questions (FAQ)
Yes! Salaried individuals without business income can freely choose between the New and Old Tax Regime every financial year when filing their Income Tax Return (ITR). You can also inform your employer at the beginning of the financial year for monthly TDS deductions.
Yes. Employer's contribution to NPS under Section 80CCD(2) up to 14% of basic salary is exempt under both the New and Old Tax Regimes. However, self-contributions under Section 80CCD(1B) (up to ₹50,000) are only deductible under the Old Regime.