India's income tax system underwent a major overhaul in the Union Budget 2020 with the introduction of the New Tax Regime — simplified slabs with lower rates but no exemptions. For FY 2025-26, Budget 2025 made the new regime even more attractive with a higher rebate limit. Understanding which regime saves you more tax is now the most important financial decision for every salaried employee in India.
New Tax Regime Slabs (FY 2025-26)
| Income Range | Tax Rate |
|---|---|
| Up to ₹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 benefit: Section 87A rebate makes income up to ₹12 lakh completely tax-free under the new regime (after ₹75,000 standard deduction).
Old Tax Regime Slabs (FY 2025-26)
| Income Range | 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% |
Key benefit: You can claim deductions under 80C (₹1.5 lakh), HRA, LTA, home loan interest (Section 24B up to ₹2 lakh), NPS (80CCD), and more — potentially reducing taxable income by ₹4–5 lakhs.
Side-by-Side Comparison: ₹12 Lakh Gross Salary
| Item | Old Regime | New Regime |
|---|---|---|
| Gross Salary | ₹12,00,000 | ₹12,00,000 |
| Standard Deduction | ₹50,000 | ₹75,000 |
| 80C Deductions (PPF, ELSS, etc.) | ₹1,50,000 | Not allowed |
| HRA Exemption | ₹1,50,000 (example) | Not allowed |
| Other Deductions | ₹50,000 (NPS 80CCD) | Not allowed |
| Taxable Income | ₹7,00,000 | ₹11,25,000 |
| Tax Payable | ₹52,500 | ₹56,250 |
| With 4% Cess | ₹54,600 | ₹58,500 |
Who Should Choose Which Regime?
| Your Situation | Recommended Regime |
|---|---|
| Salary below ₹7.75 lakh (gross) | New Regime (zero tax after rebate) |
| Home loan + HRA + 80C investments | Old Regime (more deductions) |
| Renting in metro + home loan | Old Regime (likely saves more) |
| No major deductions/investments | New Regime (simpler, lower rates) |
| Salary above ₹50 lakhs | Compare both — high surcharge may change equation |
Frequently Asked Questions
Can I switch between old and new regime every year?
Yes, if you have only salary income (no business income). Salaried employees can switch regimes at the start of each financial year. Business owners must stick with their chosen regime and can switch back only once.
Is the standard deduction available in the new regime?
Yes — Budget 2023 extended the standard deduction of ₹50,000 to the new regime as well. Budget 2024 further increased it to ₹75,000 under the new regime.
What deductions are still allowed in the new regime?
The new regime retains: standard deduction (₹75,000), employer NPS contribution (80CCD(2)), Agniveer scheme deductions, and family pension standard deduction. Most other deductions (80C, HRA, LTA, 24B) are not available.