Feeling confused about which tax regime to choose? You’re not alone. With the financial year 2025-26 approaching, millions of Indians are facing this crucial decision that could significantly impact their savings. Let’s break down both regimes and compare Old vs New Tax Regime in simple terms and help you make the best choice for your financial future.
Introduction
The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman on February 1, 2025, introduced several tax-related reforms aimed at easing the burden on taxpayers and increasing disposable income. One of the key highlights was the revision of tax slabs under the new income tax regime. With these changes, taxpayers now have a more compelling choice between the old and new tax regimes. In this blog, we will break down both regimes and help you decide which one is best suited for you.
Understanding the Old vs New Tax Regimes
Old Tax Regime
The old tax regime provides various exemptions and deductions under different sections of the Income Tax Act, 1961, such as:
- Section 80C: Deduction up to Rs. 1.5 lakh for investments in PPF, ELSS, LIC, etc.
- Section 80D: Health insurance premium deduction.
- HRA (House Rent Allowance): Exemption for salaried individuals who pay rent.
- Standard Deduction: Rs. 50,000 for salaried employees and pensioners.
- Home Loan Interest (Section 24b): Deduction of up to Rs. 2 lakh on interest paid on home loans.
New Tax Regime (Updated in Budget 2025-26)
The new tax regime offers lower tax rates but removes most deductions and exemptions. The revised tax slabs for FY 2025-26 are:
Income Slab (Rs.) Tax Rate 0 – 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%
Additionally, a tax rebate ensures that individuals earning up to Rs. 12 lakh pay zero tax, while salaried taxpayers benefit from a standard deduction of Rs. 75,000.
Which Tax Regime Should You Choose?
Your choice depends on your financial situation. Consider the following:
- If you have multiple investments & deductions (PPF, insurance, home loans, etc.), the old regime may be better.
- If you prefer a simpler structure with lower tax rates and no paperwork, the new tax regime is beneficial.
Example Comparison
Let’s compare an individual earning Rs. 15 lakh per annum under both regimes:
| Particulars | Old Regime (Rs.) | New Regime (Rs.) |
| Gross Income | 15,00,000 | 15,00,000 |
| Standard Deduction | (50,000) | (75,000) |
| Section 80C Deduction | (1,50,000) | – |
| Section 24(b) (Home Loan) | (2,00,000) | – |
| Taxable Income | 11,00,000 | 14,25,000 |
| Tax Payable | 1,17,000 | 1,12,500 |
Key Takeaways:
- With deductions, the old regime offers lower tax liability.
- Without deductions, the new regime results in savings due to lower tax rates.
Conclusion: Making the Right Choice
The revised new tax regime for FY 2025-26 makes it more attractive for many taxpayers, especially those with fewer exemptions. However, if you claim significant deductions, the old regime might still be a better option. Evaluate your income, investments, and tax liability before making a decision.
For personalized tax planning, consult a chartered accountant or use the official tax calculator.
Do you still have questions? Drop a comment below to know more