Every year, the question comes up: should you stick with the Old Regime or switch to the New Regime? For FY 2025-26, the answer has shifted significantly ā the New Regime has become more attractive for most salaried individuals, and the government has made it the default. But "default" doesn't always mean "better for you." This guide walks through everything you need to know.
What Changed in Budget 2025?
The Union Budget 2025 overhauled the New Regime's tax slabs substantially. The biggest headline: if your taxable income is ā¹12 lakh or less under the New Regime, you pay zero tax ā because of an enhanced Section 87A rebate of ā¹60,000. The standard deduction for salaried employees was also raised to ā¹75,000, so a salaried person with a gross salary up to ā¹12.75 lakh effectively pays no income tax under the New Regime.
New Regime Tax Slabs ā FY 2025-26
The New Regime (now the default under Section 115BAC) uses these slabs:
New Regime Slabs (FY 2025-26)
| Income Slab | Rate |
|---|---|
| ā¹0 ā ā¹4,00,000 | 0% |
| ā¹4,00,001 ā ā¹8,00,000 | 5% |
| ā¹8,00,001 ā ā¹12,00,000 | 10% |
| ā¹12,00,001 ā ā¹16,00,000 | 15% |
| ā¹16,00,001 ā ā¹20,00,000 | 20% |
| ā¹20,00,001 ā ā¹24,00,000 | 25% |
| Above ā¹24,00,000 | 30% |
Plus: Standard deduction ā¹75,000 for salaried. Section 87A rebate up to ā¹60,000 if taxable income ā¤ ā¹12L. Health & Education Cess 4% on total tax.
Old Regime Tax Slabs ā FY 2025-26
Old Regime Slabs (FY 2025-26)
| Income Slab | Rate |
|---|---|
| ā¹0 ā ā¹2,50,000 | 0% |
| ā¹2,50,001 ā ā¹5,00,000 | 5% |
| ā¹5,00,001 ā ā¹10,00,000 | 20% |
| Above ā¹10,00,000 | 30% |
Standard deduction: ā¹50,000. 87A rebate: ā¹12,500 if taxable income ā¤ ā¹5L. Allows 80C, 80D, HRA, and many other deductions.
Section 87A Rebate ā The Most Important Number
The Section 87A rebate is the single biggest driver of which regime is better. Here's how it works:
- New Regime: If your net taxable income (after standard deduction) is ā¹12 lakh or less, you get a rebate equal to your entire tax liability ā up to ā¹60,000. You pay zero tax.
- Old Regime: If your net taxable income is ā¹5 lakh or less, your tax liability is zero (rebate up to ā¹12,500).
Crucially, the rebate is a cliff ā it doesn't taper. If your New Regime taxable income is ā¹12,00,001 (just ā¹1 over), you suddenly owe full tax on the entire ā¹12L, not just on ā¹1. This is why you'll hear about people trying to stay just under the limit.
Surcharge
Surcharge applies on top of income tax for high earners, before the cess is added:
- ā¹50L ā ā¹1Cr: 10%
- ā¹1Cr ā ā¹2Cr: 15%
- ā¹2Cr ā ā¹5Cr: 25%
- Above ā¹5Cr: 25% (New Regime); 37% (Old Regime)
The surcharge cap at 25% in the New Regime is a meaningful benefit for very high earners ā under the Old Regime, the 37% surcharge on income above ā¹5 crore creates an eye-watering effective rate.
Health & Education Cess (4%)
After calculating income tax and adding any surcharge, you pay 4% on the total as Health & Education Cess. This applies to everyone regardless of income. No deduction reduces it.
Worked Examples ā Five Income Levels
Example 1 ā ā¹8 Lakh Gross Salary (Salaried)
New Regime: ā¹8L ā ā¹75K std deduction = ā¹7.25L taxable. Tax on ā¹7.25L: ā¹0 (0ā4L) + ā¹20,000 (5% on 4ā7.25L) = ā¹20,000. Since taxable income < ā¹12L ā 87A rebate = ā¹20,000. Tax = ā¹0.
Old Regime (no deductions): ā¹8L ā ā¹50K = ā¹7.5L taxable. Tax: ā¹0 + ā¹12,500 + ā¹50,000 = ā¹62,500. Cess: ā¹2,500. Total: ā¹65,000.
New Regime saves ā¹65,000.
Example 2 ā ā¹12 Lakh Gross Salary (Salaried)
New Regime: ā¹12L ā ā¹75K = ā¹11.25L taxable. Tax: ā¹0 + ā¹20,000 + ā¹32,500 = ā¹52,500. Since taxable ā¤ ā¹12L ā 87A rebate = ā¹52,500. Tax = ā¹0.
Old Regime (80C ā¹1.5L + 80D ā¹25K): ā¹12L ā ā¹50K ā ā¹1.5L ā ā¹25K = ā¹9.75L taxable. Tax: ā¹12,500 + ā¹95,000 = ā¹1,07,500. Cess: ā¹4,300. Total: ā¹1,11,800.
New Regime saves ā¹1,11,800.
Example 3 ā ā¹15 Lakh Gross Salary (Salaried)
New Regime: ā¹15L ā ā¹75K = ā¹14.25L taxable. Tax: ā¹20,000 + ā¹40,000 + ā¹33,750 = ā¹93,750. Cess 4%: ā¹3,750. Total: ā¹97,500.
Old Regime (80C ā¹1.5L + 80D ā¹25K + HRA ā¹1L): ā¹15L ā ā¹50K ā ā¹1.5L ā ā¹25K ā ā¹1L = ā¹11.75L taxable. Tax: ā¹12,500 + ā¹1,35,000 = ā¹1,47,500. Cess: ā¹5,900. Total: ā¹1,53,400.
New Regime saves ā¹55,900 ā even with deductions.
Example 4 ā ā¹25 Lakh Gross Salary (Salaried)
New Regime: ā¹25L ā ā¹75K = ā¹24.25L taxable. Tax: ā¹20K + ā¹40K + ā¹60K + ā¹80K + ā¹80K + ā¹6,250 = ā¹2,86,250. Cess: ā¹11,450. Total: ā¹2,97,700.
Old Regime (max deductions ā¹2.5L): ā¹25L ā ā¹50K ā ā¹2.5L = ā¹22L taxable. Tax: ā¹12,500 + ā¹1,00,000 + ā¹3,60,000 = ā¹4,72,500. Cess: ā¹18,900. Total: ā¹4,91,400.
New Regime saves ā¹1,93,700.
Example 5 ā ā¹1 Crore Gross Income (Business)
New Regime: No standard deduction for business. ā¹1Cr taxable. Tax at slabs: ā¹20K + ā¹40K + ā¹60K + ā¹80K + ā¹80K + ā¹2,28,000 = ā¹17,28,000 approx (rough calc). Surcharge 10% (income ā¹50Lāā¹1Cr): Add ā¹1,72,800. Cess 4%: ā¹75,992. Total ~ā¹19,76,792.
At high incomes, always compare both regimes carefully. Use our calculator for precise figures.
When Does the Old Regime Still Win?
The Old Regime can still be better if you have very high deductions. The break-even point where Old Regime becomes better than New Regime (for a salaried person) is roughly:
- Income ā¹15ā20L: Old Regime needs deductions of ~ā¹3.75L+ to beat New Regime
- Income ā¹20ā30L: Needs ~ā¹4ā5L in deductions
- Income above ā¹30L: Old Regime rarely wins ā the New Regime's lower top rates and surcharge cap make it hard to overcome
Business owners and professionals get no standard deduction under the New Regime, which changes the calculation. If you have significant business expenses, home loan interest (for let-out property), or multiple investments, always run both numbers.
Key Deductions Available Only Under Old Regime
- Section 80C ā PF, PPF, ELSS, LIC, NSC, home loan principal, children's tuition. Max ā¹1,50,000.
- Section 80D ā Health insurance premiums. ā¹25,000 for self/family; ā¹25,000 (ā¹50,000 for senior citizens) for parents.
- HRA ā House Rent Allowance exemption. Actual HRA received, or 50%/40% of basic (metro/non-metro), or (rent paid ā 10% basic), whichever is lowest.
- Section 24(b) ā Home loan interest up to ā¹2L (self-occupied property).
- LTA ā Leave Travel Allowance exemption.
- Standard deduction ā ā¹50,000 (vs ā¹75,000 in New Regime).
Calculate your exact tax in seconds
Enter your salary once ā our calculator shows Old vs New regime side by side, names the winner, and gives you the full bracket breakdown including rebate, surcharge and cess.
Open Income Tax Calculator āFrequently Asked Questions
Data sources: Income Tax Department India (incometax.gov.in), Finance Act 2025, Union Budget 2025 memorandum. Tax Year: FY 2025-26 (AY 2026-27). This guide is for educational purposes. Individual circumstances vary ā consult a chartered accountant for personal tax advice.