Old vs New Tax Regime in India — Which Should You Pick in 2025-26?
A plain-language comparison of India's old and new income tax regimes, including the 2024-25 budget changes, the ₹7 lakh zero-tax threshold, and a worked break-even example.
Every year, salaried Indians face one question at tax-filing time: old tax regime or new tax regime? The new regime offers lower slab rates and simpler paperwork, but the old regime lets you claim deductions that can shrink your taxable income. The Union Budget 2024 made the new regime even more attractive — the zero-tax threshold moved up to ₹7 lakh, and the standard deduction was raised to ₹75,000. This guide breaks down the differences, the math, and the simple decision rule that works for most taxpayers.
What changed in the 2024-25 budget
The Union Budget 2024 (effective for FY 2024-25 and later) made the new tax regime more attractive in three key ways. If you last compared the regimes a couple of years ago, the numbers have shifted in favour of the new regime.
- •Standard deduction in the new regime was raised from ₹50,000 to ₹75,000 for salaried employees.
- •Section 87A rebate limit was increased from ₹5 lakh to ₹7 lakh under the new regime, meaning zero tax up to ₹7 lakh taxable income.
- •Tax slabs were revised so that 5% applies on ₹3–7 lakh, 10% on ₹7–10 lakh, 15% on ₹10–12 lakh, 20% on ₹12–15 lakh, and 30% only above ₹15 lakh.
- •Salaried employees can still choose either regime each year when filing their ITR, unless they have business income.
The combined effect: many middle-income taxpayers who were earlier better off in the old regime now pay the same — or less — under the new regime, without the paperwork.
FY 2025-26 tax slabs side by side
| Income slab | New regime rate | Old regime rate |
|---|---|---|
| Up to ₹3 lakh | Nil | Nil (up to ₹2.5 lakh) |
| ₹3 lakh – ₹7 lakh | 5% | 5% (₹2.5L–₹5L), then 20% |
| ₹7 lakh – ₹10 lakh | 10% | 20% |
| ₹10 lakh – ₹12 lakh | 15% | 30% |
| ₹12 lakh – ₹15 lakh | 20% | 30% |
| Above ₹15 lakh | 30% | 30% |
Both regimes add a 4% Health & Education Cess on the tax computed, plus surcharge on income above ₹50 lakh. The old regime also allows a ₹50,000 standard deduction; the new regime allows ₹75,000.
The ₹7 lakh zero-tax threshold
Section 87A gives a tax rebate that wipes out the entire tax liability for low-income taxpayers. Under the new regime, this rebate applies up to ₹7 lakh of taxable income. Under the old regime, it only applies up to ₹5 lakh.
What this means in practice
A salaried person with a gross salary of around ₹7.75 lakh can pay zero tax under the new regime after the ₹75,000 standard deduction. In the old regime, the zero-tax limit is closer to ₹5.5 lakh after the ₹50,000 standard deduction.
This single rule makes the new regime the default winner for young professionals, first-job earners, freelancers with modest income, and anyone without large deductions to claim.
Deductions you lose in the new regime
The old regime's biggest selling point is the long list of deductions and exemptions. The new regime trades these away for lower slab rates. If you are considering the new regime, you are effectively giving up:
| Section | Maximum deduction | What it covers |
|---|---|---|
| 80C | ₹1,50,000 | EPF, PPF, ELSS, life insurance premium, home loan principal, children's tuition fees |
| 80D | ₹25,000 (₹50,000 for senior citizens) | Health insurance premium for self and family |
| HRA | As per formula | House rent allowance if you live in a rented house |
| 24(b) | ₹2,00,000 | Interest on home loan for a self-occupied property |
| 80CCD(1B) | ₹50,000 | Additional NPS Tier-I contribution over and above 80C |
| LTA | Actual travel cost | Leave travel allowance for domestic travel within India |
| 80E | No cap | Interest on education loan for 8 years |
| 80G | 50% or 100% | Donations to approved charities |
What stays in the new regime
The new regime keeps the standard deduction (₹75,000), employer's contribution to NPS under 80CCD(2), and a few employment-specific perks. Most other deductions, including 80C, 80D, HRA and home-loan interest, are not allowed.
Break-even: when does the old regime win?
The old regime is better only if your total deductions are large enough to offset the lower slab rates of the new regime. Here is a quick rule of thumb for FY 2025-26.
| Gross salary | Break-even deductions (old wins above) | Likely winner |
|---|---|---|
| Up to ₹7.5 lakh | N/A | New regime |
| ₹10 lakh | ~₹1.5 lakh | Depends on deductions |
| ₹12 lakh | ~₹2.75 lakh | Old if you have HRA + 80C |
| ₹15 lakh | ~₹3.75 lakh | Old if heavy deductions |
| ₹20 lakh | ~₹4.25 lakh | Old if heavy deductions |
| ₹30 lakh+ | ~₹4.5 lakh+ | Usually old regime |
These are approximate numbers. The exact break-even depends on your mix of salary components and the deductions you can actually claim, not just the ones you wish you could.
Worked example
Gross salary: ₹15 lakh. Deductions under old regime: ₹1.5 lakh under 80C, ₹25,000 under 80D, ₹2 lakh HRA, ₹2 lakh home-loan interest. Total deductions = ₹5.75 lakh. Old-regime taxable income = ₹9.25 lakh. Tax under old regime is lower than tax on ₹15 lakh under the new regime. Without those deductions, the new regime wins.
A simple decision framework
If the math feels overwhelming, use this three-step rule:
- 1If your gross salary is under ₹7.5 lakh and you have no major deductions, pick the new regime. You will likely pay zero or minimal tax.
- 2Add up your real old-regime deductions: 80C, 80D, HRA, home-loan interest, NPS under 80CCD(1B), and any others. If the total is higher than the break-even for your salary, the old regime is probably better.
- 3Compare the actual tax in both regimes using the Income Tax Department's e-filing calculator or a simple spreadsheet. Pick the one with the lower tax.
Remember to re-evaluate every year. A change in rent, a closed home loan, or a new insurance premium can flip the answer.
How to switch at filing time
Your employer usually defaults to the new regime for TDS. That does not lock you in. You can still choose the old regime when you file your ITR.
- •Pick the regime in your ITR while filing. The tax portal will compute tax under both if you are unsure.
- •If you want TDS to be deducted under the old regime, inform your employer and submit proof of investments, rent receipts, and home-loan interest certificates.
- •If you missed informing your employer, you can still switch when filing and claim a refund of excess TDS.
People with business income face a different rule: once you choose the new regime, you can switch back to the old regime only once, and after switching back you cannot choose the new regime again. Salaried employees do not have this restriction.
Common mistakes to avoid
Choosing the old regime by default
Many employees stay in the old regime because it was the default for years. If your deductions are small, the new regime is likely cheaper.
Staying in the old regime after deductions drop
After you close a home loan or stop paying rent, your HRA and 24(b) deductions disappear. Re-check the regimes every year.
Ignoring the Section 87A rebate
Taxpayers with income under ₹7 lakh often miss that the new regime can make their tax zero. Don't pay tax you don't owe.
Forgetting cess and surcharge
Always compare the final tax after adding 4% cess. At high incomes, surcharge can significantly change the break-even.
Letting the employer's default decide
Employer TDS is not your final tax. You can choose the better regime at ITR filing time.
Your action checklist
- List your gross salary and all available old-regime deductions.
- Calculate tax under both regimes using the latest slabs and cess.
- Check if your taxable income falls under the ₹7 lakh zero-tax threshold.
- Include HRA, home-loan interest, 80C, 80D, and NPS 80CCD(1B) if applicable.
- Choose the regime with the lower final tax liability.
- Inform your employer if you want TDS under the old regime.
- Set a calendar reminder to compare the regimes again next year.