Income Tax
Old Tax Regime vs New Tax Regime 2025: Which One Saves You More Money?
The government made the new tax regime the default in 2023. But that doesn't mean it's better for everyone. Here's a straightforward comparison with real numbers to help you decide.
Every year, one of the most common questions we get is: "Which tax regime should I choose?" The answer depends on your income level, how many deductions you can claim, and your lifestyle. Let's lay out the facts.
Tax slabs comparison for FY 2025-26
Old Regime: Up to ₹2.5L — Nil | ₹2.5L-₹5L — 5% | ₹5L-₹10L — 20% | Above ₹10L — 30%
New Regime (Default): Up to ₹4L — Nil | ₹4L-₹8L — 5% | ₹8L-₹12L — 10% | ₹12L-₹16L — 15% | ₹16L-₹20L — 20% | ₹20L-₹24L — 25% | Above ₹24L — 30%
Under the new regime, the Section 87A rebate makes tax nil if taxable income is up to ₹12 lakh, and salaried individuals also get a ₹75,000 standard deduction — so salary up to ₹12.75 lakh effectively attracts no tax.
Who benefits from the old regime?
The old regime is better if you have significant deductions: HRA (House Rent Allowance) for rent-paying employees, ₹1.5 lakh under Section 80C (LIC, PPF, ELSS, home loan principal), home loan interest (up to ₹2 lakh under Section 24b), health insurance under Section 80D, and NPS contribution under Section 80CCD.
A quick example: A salaried employee earning ₹20 lakh claims ₹1.5L (80C) + ₹3L (HRA) + ₹2L (home-loan interest) + ₹25K (80D), plus the ₹50,000 standard deduction — ₹7.25L in total. Taxable income under the old regime is ₹12.75L and tax (with cess) is about ₹2,02,800. Under the new regime, taxable income after the ₹75,000 standard deduction is ₹19.25L and tax is about ₹1,92,400. Even with heavy deductions, the new regime is slightly cheaper here — which is why you should always run both numbers.
Who benefits from the new regime?
If you have minimal deductions, are renting informally (no formal HRA), have no home loan, or your investments are small — the new regime's simpler slabs often work out better. For a salaried person earning up to ₹12.75 lakh, the tax is nil under the new regime thanks to the Section 87A rebate and the ₹75,000 standard deduction.
The default trap: From FY 2023-24, the new regime became the default. If you don't explicitly choose the old regime, you'll automatically be put in the new one. To choose the old regime, you must file Form 10-IEA (for business income) or select it when filing your ITR.
Our advice: Do a rough calculation both ways before filing. After the FY 2025-26 changes, the new regime is cheaper for most taxpayers. The old regime still makes sense mainly when deductions are very large — typically high HRA plus home-loan interest plus full 80C and 80D claims. When in doubt, consult a qualified professional — the right choice can save you tens of thousands of rupees.