Is the new tax regime compulsory?

No. The new regime under Section 115BAC is the default, but an eligible taxpayer can still opt for the old regime. A taxpayer with no business or professional income can choose afresh each year in a return filed within the due date. A taxpayer with business or professional income must furnish Form 10-IEA on or before the due date to be taxed under the old regime; that option can be withdrawn only once, and after withdrawal the old regime is not available again for later years while the business income continues.

Is income up to Rs 12 lakh completely tax free under the new regime?

For FY 2025-26, a resident individual with total income up to Rs 12,00,000 gets a Section 87A rebate that brings the tax on normally-slab-taxed income down to nil. For a salaried person the Rs 75,000 standard deduction lifts the effective break-even to about Rs 12.75 lakh of salary. Special-rate income such as capital gains is not eligible for the rebate.

Can I claim 80C or HRA under the new regime?

Most common deductions, including Section 80C and HRA exemption, are not available under the new regime. The standard deduction on salary, the employer's NPS contribution under Section 80CCD(2) and a few specified items continue to be allowed.

Which regime is better for me?

It depends on how much you can genuinely claim. Broadly, the higher your verified deductions and exemptions, the more likely the old regime wins; with few deductions the new regime is usually cheaper. Compute both before filing rather than repeating last year's choice.

Income Tax

Old vs New Tax Regime (FY 2025-26): Which One Saves You More Tax?

A practical comparison of the old and new tax regimes for FY 2025-26 (AY 2026-27) — revised slabs, the enhanced Section 87A rebate, standard deduction, and the deduction level at which the old regime still wins.

By CA Suraj SoniPublished 22 Jul 2025Updated 22 Aug 20264 min read

Short answer: if you claim few deductions, the new regime is usually cheaper for FY 2025-26 because of its wider slabs and the enhanced Section 87A rebate. If you genuinely claim a large 80C, 80D, HRA and home-loan interest package, the old regime can still work out better. The only reliable way to decide is to compute tax under both for your own numbers before you file.

What the two regimes actually are

Old tax regime

Higher slab rates, but a wide set of exemptions and deductions remain available, including:

Section 80C investments and payments (up to Rs 1.5 lakh)
Section 80D health insurance premium
House Rent Allowance and Leave Travel Allowance, subject to conditions
Standard deduction of Rs 50,000 on salary
Interest on housing loan, subject to the applicable limits

New tax regime (Section 115BAC)

Lower slab rates, but most exemptions and deductions are withdrawn. It has been the default regime since AY 2024-25. The standard deduction on salary under this regime is Rs 75,000, and the employer's NPS contribution under Section 80CCD(2) continues to be allowed.

Income tax slabs for FY 2025-26 (AY 2026-27)

New regime slabs — individuals

Up to Rs 4,00,000 — Nil
Rs 4,00,001 to Rs 8,00,000 — 5%
Rs 8,00,001 to Rs 12,00,000 — 10%
Rs 12,00,001 to Rs 16,00,000 — 15%
Rs 16,00,001 to Rs 20,00,000 — 20%
Rs 20,00,001 to Rs 24,00,000 — 25%
Above Rs 24,00,000 — 30%

Old regime slabs — individuals below 60

Up to Rs 2,50,000 — Nil
Rs 2,50,001 to Rs 5,00,000 — 5%
Rs 5,00,001 to Rs 10,00,000 — 20%
Above Rs 10,00,000 — 30%

Higher basic exemption limits continue to apply to resident senior and super senior citizens under the old regime. Surcharge, where applicable, and health and education cess at 4% are added on top under both regimes.

Filing for an earlier year? If you are filing a belated or updated return for AY 2025-26 (FY 2024-25), the slabs of that year apply — the new regime then ran from a Rs 3 lakh basic exemption with a Section 87A rebate up to Rs 7 lakh of total income.

Section 87A rebate and standard deduction

New regime, FY 2025-26: resident individuals with total income up to Rs 12,00,000 get a rebate that reduces the tax on slab-rate income to nil. Income taxed at special rates, such as capital gains, does not get this relief.
Salaried taxpayers: with the Rs 75,000 standard deduction, salary of roughly Rs 12.75 lakh can still land at nil tax under the new regime.
Old regime: the Section 87A rebate remains limited to resident individuals with total income up to Rs 5,00,000, and the standard deduction on salary is Rs 50,000.

Which regime suits whom

Likely better on the new regime: taxpayers with little or no 80C/80D/HRA claim, younger earners without a home loan, and pensioners with simple income.
Likely better on the old regime: taxpayers with a substantial and genuine deduction package — full 80C, health insurance, real HRA supported by rent paid, and housing loan interest.
Everyone else: the answer sits in the middle and changes with income level. Run both computations. Our team does this as part of Income Tax Return filing, and structured, year-round planning sits under Tax Planning & Advisory.

How and when you can switch

A taxpayer without any business or professional income (salary, pension, house property, capital gains, other sources) can choose the regime afresh each year in the return, provided the return is filed within the due date under Section 139(1). No separate form is required.
A taxpayer with business or professional income does not have a free annual choice. To be taxed under the old regime, such a taxpayer has to furnish Form 10-IEA on or before the due date under Section 139(1) for that year. Once that option is exercised it can be withdrawn only once, and after that withdrawal the old regime cannot be opted for again in any later year for as long as the business or professional income continues. Treat the decision as a long-term one and take advice before exercising or withdrawing it.
If you file after the due date, the option to move to the old regime for that year can be lost. Do not treat regime choice as something to fix later.

Points that need professional confirmation

Verification note for review: surcharge slabs and marginal relief, the exact treatment of regime choice for taxpayers with business income, and the transition to the Income-tax Act, 2025 (which applies from the tax year beginning 1 April 2026 and renumbers many provisions) should be confirmed against the current law and CBDT notifications for your specific facts before you rely on them.

Get it computed for you

If you would rather not run two computations by hand, our chartered accountants compare both regimes on your actual figures and file the return for you: Income Tax Return filing.

Frequently asked questions

Is the new tax regime compulsory?: No. The new regime under Section 115BAC is the default, but an eligible taxpayer can still opt for the old regime. A taxpayer with no business or professional income can choose afresh each year in a return filed within the due date. A taxpayer with business or professional income must furnish Form 10-IEA on or before the due date to be taxed under the old regime; that option can be withdrawn only once, and after withdrawal the old regime is not available again for later years while the business income continues.
Is income up to Rs 12 lakh completely tax free under the new regime?: For FY 2025-26, a resident individual with total income up to Rs 12,00,000 gets a Section 87A rebate that brings the tax on normally-slab-taxed income down to nil. For a salaried person the Rs 75,000 standard deduction lifts the effective break-even to about Rs 12.75 lakh of salary. Special-rate income such as capital gains is not eligible for the rebate.
Can I claim 80C or HRA under the new regime?: Most common deductions, including Section 80C and HRA exemption, are not available under the new regime. The standard deduction on salary, the employer's NPS contribution under Section 80CCD(2) and a few specified items continue to be allowed.
Which regime is better for me?: It depends on how much you can genuinely claim. Broadly, the higher your verified deductions and exemptions, the more likely the old regime wins; with few deductions the new regime is usually cheaper. Compute both before filing rather than repeating last year's choice.

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