Old vs New Income Tax Regime in India (FY 2025–26): Which One Should You Choose?

 

  

Financial Year 2025–26 AY 2026–27

The income you earn from 1st April 2025 to 31st March 2026 will be taxed in Assessment Year 2026–27.

With Budget 2025 updates, especially the increase in standard deduction under the new regime, choosing the right regime has become even more important.

Union Budget 2025: Major Tax Reforms

In the Union Budget 2025, Finance Minister Nirmala Sitharaman introduced significant changes to the income tax structure under the new tax regime, aiming to simplify taxation and provide relief to middle-class taxpayers.

Key Highlights:

• No Income Tax for individuals earning up to 12 lakh annually under the new tax regime.
• Standard Deduction Increased to 75,000 for salaried individuals, effectively making income up to 12.75 lakh tax-free.
• Section 115BAC of the Income Tax Act governs the new tax regime, offering concessional tax rates with limited exemptions

 Understanding Section 115BAC

Section 115BAC of the Income Tax Act, introduced in the Finance Act 2020, outlines the provisions of the new tax regime. Key points include:

• Concessional Tax Rates: Offered with the condition of forgoing most exemptions and deductions.

• Default Regime: From FY 2023–24 onwards, the new tax regime is the default option. Taxpayers can opt for the old regime by filing Form 10-IEA.

• Upcoming Changes: Provisions of Section 115BAC will be restructured under Section 202 in the new Income Tax Bill 2025, effective from April 1, 2026.

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 Income Tax Slabs for FY 2025–26

 New Tax Regime (Default Regime)

Income Range	Tax Rate
0 – 4 lakh	0%
4 lakh – 8 lakh	5%
8 lakh – 12 lakh	10%
12 lakh – 16 lakh	15%
16 lakh – 20 lakh	20%
20 lakh – 24 lakh	25%
Above  24 lakh	30%

➡Standard Deduction: 75,000 (Updated in Budget 2025)

➡ Rebate under Section 87A: For FY 2025-26, the rebate has been increased to 60,000 (from 25,000), making income up to 12 lakh tax-free for all individuals under the new regime.

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 Old Tax Regime (Opt-in Required)

Income Range	Tax Rate
0 – 2.5 lakh	0%
2.5 lakh – 5 lakh	5%
5 lakh – 10 lakh	20%
Above 10 lakh	30%

Note: The old tax regime has different basic exemption limits for senior citizens (3 lakh) and super senior citizens (5 lakh).

➡ Standard Deduction: 50,000
➡ Plus deductions under 80C, 80D, HRA, LTA, Home Loan Interest, etc.

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 Key Differences at a Glance

Feature	Old Regime	New Regime (FY 2025–26)
Tax Rates	Higher	Lower
Standard Deduction	50,000	75,000
80C, 80D, HRA, etc.	Allowed	Not Allowed
Ease of Filing	Moderate	Simple
Ideal For	Individuals with multiple deductions	Those with minimal deductions
Switch Option	Yes (every year for salaried)	Yes

 Who Should Choose Which Regime?

 Choose New Regime If:

• You don’t claim many deductions
• You want a simplified tax filing process
• You are a freelancer or gig worker
• You earn 7–12 lakh and invest minimally

 Choose Old Regime If:

• You claim multiple deductions (80C, 80D, HRA)
• You pay home loan interest
• You make NPS contributions and insurance investments
• You’re a salaried employee with employer tax benefits

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 Real-Life Example

 Salaried Employee (Income 9 lakh/year)

• 80C investments: 1.5 lakh
• Health insurance (80D): 25,000
• NPS: 50,000
  ➡ Old Regime saves more due to deductions

 Freelancer (Income 9 lakh/year)

• No deductions or structured savings
  ➡ New Regime offers better rates + 75,000 standard deduction

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 Common Myths Busted

 Myth: New regime doesn’t allow any deduction
 Fact: 75,000 standard deduction is now allowed (from FY 2025–26)

 Myth: You must use one regime forever
 Fact: Salaried individuals can switch between old/new regime every year.

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 Pro Tips to Maximize Savings

•  Use a government or trusted tax calculator to compare both regimes.
•  Track all your deductions (80C, 80D, etc.) during the year.
•  Choose your regime while filing ITR, not after.

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  Related Posts for You

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         Visit The SVibes Homepage

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 Conclusion

With the standard deduction increased to 75,000, the new tax regime is now more attractive — especially for individuals who prefer simplicity and don't have major tax-saving investments.

But if you invest smartly and want to utilize deductions, the old regime still gives more control over your taxable income.

➡ Compare your tax under both regimes before filing — it could save you thousands!

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 Have questions? Leave a comment below or share this with your friends making the same choice!

~ The SVibes

 Frequently Asked Questions (FAQs)

What is the difference between old and new tax regime?

The old regime allows deductions like 80C, HRA, and 80D. The new regime has lower rates but fewer exemptions.

Is 12 lakh completely tax-free under the new regime?

Yes. With 75,000 standard deduction and rebate under Section 87A, salaried individuals with income up to 12.75 lakh may pay no tax in FY 2025–26.

Can I switch tax regimes every year?

Salaried taxpayers can switch annually. Businesses can switch only once unless they stop having business income.

Which regime is better for salaried individuals?

If you claim multiple deductions (LIC, NPS, PF, etc.), the old regime may save more tax. Otherwise, the new regime is simpler.

What is Section 115BAC?

Section 115BAC defines the new regime’s structure, rates, and conditions. It became the default from FY 2023–24 onwards.