Old vs New Tax Regime 2025-26: Which One Saves You More Tax?

Choosing between the old and the new tax regime is a common dilemma for taxpayers. The government has made the new tax regime the default option, but is it the right choice for you? It largely depends on your income level, the nature of your investments, and your deductible expenses. Let's break down both regimes for FY 2025-26.

New Tax Regime Slabs for FY 2025-26

The new tax regime offers lower tax rates across various income slabs but removes most of the deductions and exemptions. The tax slabs are:

• Up to Rs 4 Lakh: Nil
• Rs 4 Lakh to Rs 8 Lakh: 5%
• Rs 8 Lakh to Rs 12 Lakh: 10%
• Rs 12 Lakh to Rs 16 Lakh: 15%
• Rs 16 Lakh to Rs 20 Lakh: 20%
• Rs 20 Lakh to Rs 24 Lakh: 25%
• Above Rs 24 Lakh: 30%

Importantly, under the new tax regime, a rebate u/s 87A is available, effectively making income up to Rs 12 Lakh tax-free for most taxpayers. A standard deduction of Rs 75,000 also applies to salaried individuals.

Old Tax Regime Slabs

The old tax regime maintains higher tax rates but allows for numerous deductions. The slabs for individuals below 60 years are:

• Up to Rs 2.5 Lakh: Nil
• Rs 2.5 Lakh to Rs 5 Lakh: 5%
• Rs 5 Lakh to Rs 10 Lakh: 20%
• Above Rs 10 Lakh: 30%

Key Deductions Available in Old Regime

If you stick to the old tax regime, you can utilize several deductions to lower your taxable income:

• Section 80C: Up to Rs 1.5 Lakh for investments in PPF, ELSS, LIC, EPF, etc.
• Section 80D: Deductions for health insurance premiums.
• HRA & LTA: House Rent Allowance and Leave Travel Allowance exemptions.
• Section 24(b): Interest on a home loan up to Rs 2 Lakh.

Who Should Choose the New Regime?

The new regime is generally better suited for individuals who:

• Are just starting their careers and do not have significant investments or deductions.
• Do not pay rent (so HRA is not applicable) and do not have a home loan.
• Prefer a simplified tax calculation without the hassle of tracking investment proofs.

Who Should Choose the Old Regime?

The old regime might save you more money if you:

• Have maximized your Section 80C limit (Rs 1.5 Lakh).
• Pay substantial health insurance premiums.
• Pay high rent and can claim a significant HRA exemption.
• Are servicing a home loan and can claim deductions on the interest.

How We Help

Deciding between the two regimes requires careful calculation. At Al-Hisab A-Count Tax, we do the math for you. Our experts run a detailed old vs. new regime comparison based on your financial data to ensure you choose the one that minimizes your tax outflow.

Best of all, this comparison is included free when we file your ITR. Contact us today and optimize your tax strategy!