New Tax Regime vs. Old Tax Regime for FY 2025-26: A Detailed Comparison

In the Indian taxation system, taxpayers have the option to choose between two tax regimes:

1. New Tax Regime: Introduced to simplify the tax structure by offering reduced tax rates in exchange for forgoing certain exemptions and deductions.
2. Old Tax Regime: Maintains existing tax rates and allows taxpayers to claim various exemptions and deductions to reduce taxable income.

Understanding the nuances of both regimes is crucial for optimizing tax liabilities.

Key Differences Between the New and Old Tax Regimes

The primary distinctions between the two regimes are:

• Tax Rates and Slabs: The New Tax Regime offers reduced tax rates across different income slabs, while the Old Tax Regime has higher rates but allows for exemptions and deductions.
• Deductions and Exemptions: Under the Old Tax Regime, taxpayers can claim various deductions (e.g., Section 80C, 80D) and exemptions (e.g., House Rent Allowance, Leave Travel Allowance) to lower taxable income. In contrast, the New Tax Regime does not permit most deductions and exemptions, aiming for a simplified tax process.

Tax Slabs and Rates for FY 2025-26

1. New Tax Regime Slabs (FY 2025-26)

The New Tax Regime for FY 2025-26 offers the following tax slabs:

• Up to ₹4,00,000: Nil
• ₹4,00,001 to ₹8,00,000: 5%
• ₹8,00,001 to ₹12,00,000: 10%
• ₹12,00,001 to ₹16,00,000: 15%
• ₹16,00,001 to ₹20,00,000: 20%
• ₹20,00,001 to ₹24,00,000: 25%
• Above ₹24,00,000: 30%

Additionally, the standard deduction under the New Tax Regime has been increased from ₹50,000 to ₹75,000 for FY 2025-26.

2. Old Tax Regime Slabs (FY 2025-26)

The Old Tax Regime retains the following tax slabs:

• Up to ₹2,50,000: Nil
• ₹2,50,001 to ₹5,00,000: 5%
• ₹5,00,001 to ₹10,00,000: 20%
• Above ₹10,00,000: 30%

Under this regime, taxpayers can claim various deductions and exemptions, such as:

• Section 80C: Investments in PPF, EPF, life insurance premiums (up to ₹1,50,000)
• Section 80D: Deductions for insurance premiums for self and family
• House Rent Allowance (HRA): For salaried individuals living in rented accommodation
• Leave Travel Allowance (LTA): For travel expenses incurred during leave

These deductions and exemptions can significantly reduce taxable income, especially for individuals with substantial eligible expenses.

Rebate Under Section 87A

The rebate under Section 87A provides tax relief to individuals with lower income:

• New Tax Regime: Rebate increased to ₹60,000 for FY 2025-26, applicable to taxpayers with taxable income up to ₹12,00,000.
• Old Tax Regime: Rebate remains at ₹12,500, applicable to taxpayers with taxable income up to ₹5,00,000.

This means that under the New Tax Regime, individuals earning up to ₹12,00,000 can have a tax liability of zero after applying the rebate.

Standard Deduction

The standard deduction is a flat deduction allowed from gross income:

• New Tax Regime: Standard deduction increased to ₹75,000 for FY 2025-26.
• Old Tax Regime: Standard deduction remains at ₹50,000.

This benefit is particularly advantageous for salaried individuals and pensioners.

Choosing the Right Tax Regime

The optimal choice between the New and Old Tax Regimes depends on individual financial situations:

• New Tax Regime: Suitable for individuals with no significant deductions or exemptions, or those preferring a simplified tax process.
• Old Tax Regime: Beneficial for individuals with substantial deductible expenses, such as home loan interest, insurance premiums, and other eligible expenditures.

It’s advisable to calculate the tax liability under both regimes, considering your income and eligible deductions, to determine the most beneficial option.

 

Here are two examples to help you understand how to choose between the New Tax Regime and Old Tax Regime for FY 2025-26 based on a salary of ₹15 lakh and ₹20 lakh. Both examples will calculate the total tax liability under each regime, considering the respective benefits and deductions.

Example 1: Salary of ₹15 Lakh

1. Under the New Tax Regime:

Income: ₹15,00,000

Tax Slabs:

• ₹0 to ₹4,00,000: Nil
• ₹4,00,001 to ₹8,00,000: 5% of ₹4,00,000 = ₹20,000
• ₹8,00,001 to ₹12,00,000: 10% of ₹4,00,000 = ₹40,000
• ₹12,00,001 to ₹15,00,000: 15% of ₹3,00,000 = ₹45,000

Total Tax Liability:

• ₹20,000 + ₹40,000 + ₹45,000 = ₹1,05,000

Rebate under Section 87A:

• Eligible for rebate of ₹60,000 (since taxable income is under ₹12 lakh).

Final Tax Payable:

• ₹1,05,000 – ₹60,000 = ₹45,000

2. Under the Old Tax Regime:

Income: ₹15,00,000

Tax Slabs:

• ₹0 to ₹2,50,000: Nil
• ₹2,50,001 to ₹5,00,000: 5% of ₹2,50,000 = ₹12,500
• ₹5,00,001 to ₹10,00,000: 20% of ₹5,00,000 = ₹1,00,000
• ₹10,00,001 to ₹15,00,000: 30% of ₹5,00,000 = ₹1,50,000

Total Tax Liability:

• ₹12,500 + ₹1,00,000 + ₹1,50,000 = ₹2,62,500

Deductions Available:

• Section 80C (PPF, EPF, Life Insurance Premiums, etc.): ₹1,50,000
• Section 80D (Insurance Premium for Self/Family): ₹25,000
• Home Loan Interest (Section 24(b)): ₹2,00,000

Total Deductions: ₹1,50,000 + ₹25,000 + ₹2,00,000 = ₹3,75,000

Taxable Income after Deductions: ₹15,00,000 – ₹3,75,000 = ₹11,25,000

Revised Tax Calculation:

Revised Tax Slabs:

• ₹0 to ₹2,50,000: Nil
• ₹2,50,001 to ₹5,00,000: 5% of ₹2,50,000 = ₹12,500
• ₹5,00,001 to ₹10,00,000: 20% of ₹5,00,000 = ₹1,00,000
• ₹10,00,001 to ₹11,25,000: 30% of ₹1,25,000 = ₹37,500

Total Tax Liability:

• ₹12,500 + ₹1,00,000 + ₹37,500 = ₹1,50,000

Rebate under Section 87A: ₹12,500 (as taxable income is under ₹5,00,000)

Final Tax Payable:

• ₹1,50,000 – ₹12,500 = ₹1,37,500

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Example 2: Salary of ₹20 Lakh

1. Under the New Tax Regime:

Income: ₹20,00,000

Tax Slabs:

• ₹0 to ₹4,00,000: Nil
• ₹4,00,001 to ₹8,00,000: 5% of ₹4,00,000 = ₹20,000
• ₹8,00,001 to ₹12,00,000: 10% of ₹4,00,000 = ₹40,000
• ₹12,00,001 to ₹16,00,000: 15% of ₹4,00,000 = ₹60,000
• ₹16,00,001 to ₹20,00,000: 20% of ₹4,00,000 = ₹80,000

Total Tax Liability:

• ₹20,000 + ₹40,000 + ₹60,000 + ₹80,000 = ₹2,00,000

Rebate under Section 87A:

• No rebate (taxable income is above ₹12 lakh).

Final Tax Payable:

• ₹2,00,000 (no rebate available)

2. Under the Old Tax Regime:

Income: ₹20,00,000

Tax Slabs:

• ₹0 to ₹2,50,000: Nil
• ₹2,50,001 to ₹5,00,000: 5% of ₹2,50,000 = ₹12,500
• ₹5,00,001 to ₹10,00,000: 20% of ₹5,00,000 = ₹1,00,000
• ₹10,00,001 to ₹20,00,000: 30% of ₹10,00,000 = ₹3,00,000

Total Tax Liability:

• ₹12,500 + ₹1,00,000 + ₹3,00,000 = ₹4,12,500

Deductions Available:

• Section 80C (PPF, EPF, Life Insurance Premiums, etc.): ₹1,50,000
• Section 80D (Insurance Premium for Self/Family): ₹25,000
• Home Loan Interest (Section 24(b)): ₹2,00,000

Total Deductions: ₹1,50,000 + ₹25,000 + ₹2,00,000 = ₹3,75,000

Taxable Income after Deductions: ₹20,00,000 – ₹3,75,000 = ₹16,25,000

Revised Tax Calculation:

Revised Tax Slabs:

• ₹0 to ₹2,50,000: Nil
• ₹2,50,001 to ₹5,00,000: 5% of ₹2,50,000 = ₹12,500
• ₹5,00,001 to ₹10,00,000: 20% of ₹5,00,000 = ₹1,00,000
• ₹10,00,001 to ₹16,25,000: 30% of ₹6,25,000 = ₹1,87,500

Total Tax Liability:

• ₹12,500 + ₹1,00,000 + ₹1,87,500 = ₹3,00,000

Rebate under Section 87A: ₹12,500 (taxable income is below ₹5,00,000)

Final Tax Payable:

• ₹3,00,000 – ₹12,500 = ₹2,87,500

Comparison of Tax Liabilities for Both Regimes

Salary	Tax Regime	Tax Liability
₹15,00,000	New Tax Regime	₹45,000
₹15,00,000	Old Tax Regime	₹1,37,500
₹20,00,000	New Tax Regime	₹2,00,000
₹20,00,000	Old Tax Regime	₹2,87,500

Conclusion: Which Tax Regime is Better for You?

1. New Tax Regime: Best suited for individuals who do not have significant deductions and exemptions. It offers lower tax rates, making it attractive for those with simpler financial situations.
2. Old Tax Regime: If you have substantial deductions such as home loan interest, insurance premiums, and other eligible expenses, the Old Tax Regime may help you reduce your taxable income significantly, resulting in lower taxes overall.

If you’re still unsure which regime to choose, we recommend consulting with a tax expert at Upstart India to assess your specific situation.

📞 Contact us at +91 83077 15960 or 📩 email help@upstartindia.in for personalized assistance.