India New vs Old Tax Regime 2025 — Which Should You Choose?
India · January 15, 2026 · 8 min read
India's tax system now offers two separate regimes: the New Tax Regime (default since FY2023-24, significantly enhanced in Budget 2025) and the Old Tax Regime (optional, with higher rates but many deductions). The regime you choose can make a difference of ₹50,000 to ₹2,00,000 in annual tax — so this is one of the most important financial decisions you make each year.
What changed in Budget 2025?
Budget 2025 (Union Budget presented in February 2025) made the New Regime even more attractive with two major changes:
1. Enhanced 87A rebate: The Section 87A rebate was increased to cover tax on income up to ₹12,00,000 under the New Regime. Combined with the ₹75,000 standard deduction available to all salaried employees, this means salaried individuals with a gross income up to ₹12,75,000 can pay zero income tax under the New Regime.
2. Revised tax slabs: The 30% slab threshold was raised from ₹15,00,000 to a higher level, reducing tax for those in the ₹15–20 lakh range.
These changes mean the Old Regime now needs to offer substantially higher deductions to remain competitive. For most middle-income salaried employees, the New Regime is now the clear winner.
New Tax Regime rates for FY2025-26
The New Tax Regime slabs for FY2025-26 (AY2026-27): 0% up to ₹3,00,000; 5% from ₹3,00,001 to ₹7,00,000; 10% from ₹7,00,001 to ₹10,00,000; 15% from ₹10,00,001 to ₹12,00,000; 20% from ₹12,00,001 to ₹15,00,000; 30% above ₹15,00,000. Add 4% Health and Education Cess on the final tax amount.
Salaried employees also get a standard deduction of ₹75,000 automatically, reducing taxable income before any calculation.
Old Tax Regime rates for FY2025-26
The Old Regime uses different slabs: 0% up to ₹2,50,000 (₹3,00,000 for seniors aged 60+); 5% from ₹2,50,001 to ₹5,00,000; 20% from ₹5,00,001 to ₹10,00,000; 30% above ₹10,00,000. Section 87A rebate covers tax on income up to ₹5,00,000.
The Old Regime allows numerous deductions that can significantly reduce taxable income: Section 80C (investments up to ₹1,50,000), HRA (house rent allowance), Section 80D (health insurance premiums up to ₹25,000), home loan interest (Section 24b, up to ₹2,00,000), standard deduction of ₹50,000, LTA (leave travel allowance), NPS contribution under Section 80CCD(1B) (additional ₹50,000), and more.
Comparison table: New vs Old Regime on key salary levels
₹8,00,000 gross salary:
New Regime: After ₹75,000 standard deduction, taxable = ₹7,25,000. Tax = ~₹35,000 + cess = ~₹36,400.
Old Regime: With ₹1,50,000 (80C) + ₹50,000 std deduction + ₹25,000 (80D) = ₹2,25,000 deductions. Taxable = ₹5,75,000. Tax = ~₹57,500 + cess = ~₹59,800.
Winner: New Regime by approximately ₹23,400.
₹12,00,000 gross salary:
New Regime: Standard deduction ₹75,000. Taxable = ₹11,25,000. Tax before rebate ~₹1,56,750; 87A rebate covers this. Tax = ₹0.
Old Regime: With ₹2,25,000 deductions (80C + std + 80D). Taxable = ₹9,75,000. Tax = ~₹1,17,500 + cess = ~₹1,22,200.
Winner: New Regime by over ₹1,22,200.
₹15,00,000 gross salary:
New Regime: Taxable = ₹14,25,000. Tax ~₹1,62,500 + cess = ~₹1,69,000.
Old Regime: Assume ₹3,50,000 total deductions (80C ₹1.5L, HRA ₹1L, 80D ₹25K, std ₹50K, NPS ₹25K). Taxable = ₹11,50,000. Tax = ~₹1,62,500 + cess = ~₹1,69,000.
Result: Roughly equal at ₹3.5L deductions. Old Regime wins only if deductions exceed ~₹3.5 lakh.
₹25,00,000 gross salary:
New Regime: Taxable = ₹24,25,000. Tax ~₹4,72,500 + cess = ~₹4,91,400.
Old Regime: With ₹5,00,000 deductions (max 80C ₹1.5L, home loan interest ₹2L, 80D ₹50K, NPS ₹50K, std ₹50K). Taxable = ₹20,00,000. Tax ~₹3,82,500 + cess = ~₹3,97,800.
Winner: Old Regime by approximately ₹93,600 — if you have the deductions to claim.
When does the Old Regime win?
The Old Regime is better when your total deductions exceed approximately:
₹3.5–4 lakh for a ₹15 lakh salary; ₹4.5–5 lakh for a ₹20 lakh salary; ₹5–6 lakh for a ₹25 lakh+ salary.
The most common scenario where Old Regime wins: you have a home loan (claiming ₹2,00,000 interest deduction under Section 24b), maximum 80C investments (₹1,50,000), health insurance (₹25,000–₹50,000 under 80D), and NPS contribution (₹50,000 under 80CCD(1B)). Together these can total ₹4–5 lakh in deductions, making the Old Regime beneficial for salaries above ₹15 lakh.
EPF's role in the regime decision
Employee EPF contributions (12% of basic salary) are deductible under 80C in the Old Regime. If your basic salary is ₹8 lakh (annual) and you contribute ₹96,000 to EPF, this already uses up 64% of your 80C limit. Combined with any ELSS, PPF or life insurance premiums, reaching the ₹1,50,000 80C maximum is easy — and this is one of the key reasons the Old Regime remains valuable for those with significant deductions.
How to switch between regimes
Salaried employees can switch between regimes every year — inform your employer at the start of each financial year (April) so they can adjust TDS accordingly. If you forget to inform your employer, you can still choose the optimal regime when filing your ITR before the 31 July deadline.
Business owners and self-employed individuals can only switch to the Old Regime once (after choosing New) and must stick to it thereafter — making the decision more consequential for non-salaried taxpayers.
Calculate your take-home under both regimes
Use our India salary calculator to estimate your take-home pay under the New Tax Regime. For an Old Regime comparison, subtract your eligible deductions from your gross income and re-run the calculation using the Old Regime tax bands listed above.