Which Tax Regime Will Save You Money for AY 2025-26?

August 04, 2025

Navigating the Choice: New vs. Old Tax Regimes in Indian Income Tax

For Indian taxpayers, the landscape of income tax has changed significantly in recent years. The introduction of a new tax regime in the Union Budget 2023-24 has given taxpayers a choice: stick with the old regime or opt for the new. Understanding the differences and making the right decision can significantly impact your tax liability. Let's break down the key aspects.

1. What's the Difference? – A Side-by-Side Comparison
The core difference lies in the approach to deductions and exemptions.

  • Old Tax Regime: This is the system we're familiar with. It allows you to claim various deductions and exemptions under different sections of the Income Tax Act, such as:

    • Section 80C (investments like PPF, ELSS, life insurance premiums – up to ₹1.5 lakh)
    • House Rent Allowance (HRA)
    • Standard Deduction (₹50,000 for salaried individuals)
    • Medical Expenses (under certain conditions)
    • Interest on Home Loan (up to ₹2 lakh)
    • And many more...
      The tax rates under the old regime are progressive, meaning they increase as your income rises.

  • New Tax Regime: This regime offers lower tax rates but significantly restricts the availability of most deductions and exemptions. It's a simplified system designed to reduce compliance burden. As per the Income Tax Department's website (https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-1 ), the new regime offers six tax slabs with reduced rates. The standard deduction is available for salaried individuals under the new regime.

Here's a simplified table of tax rates for individuals leass than 60 year of age (as of Union Budget 2024-25, applicable for Assessment Year 2025-26):

AY 2025-26 Tax Rate Table
Old Tax Regime New Tax Regime u/s 115BAC
Tax Slab Tax Rate Surcharge Tax Slab Tax Rate Surcharge

Up to ₹ 2,50,000

 Nil Nil

Up to ₹ 3,00,000

 Nil Nil
₹ 2,50,001 - ₹ 5,00,000** 5% above ₹ 2,50,000 Nil ₹ 3,00,001 - ₹ 7,00,000** 5% above ₹ 3,00,000 Nil
₹ 5,00,001 - ₹ 10,00,000 ₹ 12,500 + 20% above ₹ 5,00,000 Nil ₹ 7,00,001 - ₹ 10,00,000 ₹ 20,000 + 10% above ₹ 7,00,000 Nil
₹ 10,00,001- ₹ 50,00,000 ₹ 1,12,500 + 30% above ₹ 10,00,000 Nil ₹ 10,00,001 - ₹ 12,00,000 ₹ 50,000 + 15% above ₹ 10,00,000 Nil
₹ 50,00,001- ₹ 100,00,000 ₹ 1,12,500 + 30% above ₹ 10,00,000 10.00% ₹ 12,00,001 - ₹ 15,00,000 ₹ 80,000 + 20% above ₹ 12,00,000 Nil
₹ 100,00,001- ₹ 200,00,000 ₹ 1,12,500 + 30% above ₹ 10,00,000 15.00% ₹ 15,00,001- ₹ 50,00,000 ₹ 1,40,000 + 30% above ₹ 15,00,000 Nil
₹ 200,00,001- ₹ 500,00,000 ₹ 1,12,500 + 30% above ₹ 10,00,000 25.00% ₹ 50,00,001- ₹ 100,00,000 ₹ 1,40,000 + 30% above ₹ 15,00,000 10.00%
Above ₹ 500,00,000 ₹ 1,12,500 + 30% above ₹ 10,00,000 37.00% ₹ 100,00,001- ₹ 200,00,000 ₹ 1,40,000 + 30% above ₹ 15,00,000 15.00%
- - - Above ₹ ₹ 200,00,001 ₹ 1,40,000 + 30% above ₹ 15,00,000 25.00%

2. The Process of Switching Regimes

  • Declaration: You need to declare your choice of regime before filing your Income Tax Return (ITR).
  • One-Time Choice: The choice is generally for the entire financial year. However, you can change your choice every year.
  • Form Selection: When filing your ITR, select the appropriate form based on your income and chosen regime.
  • No Switching Mid-Year: Once you've declared a regime for the year, you cannot switch to the other regime mid-year.

3. How to Select the Best Regime – Scenarios & Examples
Choosing the right regime requires careful consideration of your income, investments, and deductions. There's no one-size-fits-all answer.

  • Scenario 1: Salaried Individual with High Investments

    • Income: ₹15 Lakh
    • Investments (80C, HRA, etc.): ₹3 Lakh
    • Analysis: The old regime allows you to claim ₹3 lakh in deductions, significantly reducing your taxable income. Even with the higher tax rates, the overall tax liability might be lower under the old regime.
    • Recommendation: Old Regime

  • Scenario 2: Young Professional with Limited Investments

    • Income: ₹8 Lakh
    • Investments: ₹50,000 (minimal)
    • Analysis: With limited deductions, the lower tax rates in the new regime might be more beneficial.
    • Recommendation: New Regime

  • Scenario 3: Senior Citizen with Medical Expenses

    • Income: ₹12 Lakh
    • Medical Expenses: ₹80,000
    • Analysis: The old regime allows you to claim deductions for medical expenses (subject to certain conditions), potentially lowering your tax liability.
    • Recommendation: Old Regime

  • Scenario 4: Individual with Home Loan Interest

    • Income: ₹20 Lakh
    • Home Loan Interest: ₹2 Lakh
    • Analysis: The old regime allows deduction for home loan interest up to ₹2 lakh. This can significantly reduce the taxable income.
    • Recommendation: Old Regime

Important Disclaimers:

  • This blog post is for informational purposes only and does not constitute professional tax advice. Tax laws are complex and subject to change.
  • Consult a qualified Chartered Accountant (CA) or tax advisor for personalized advice based on your specific circumstances. At Taxero, we can connect you with a CA for this purpose.
  • The information provided is based on current tax laws as of the date of publication (October 26, 2023). Always refer to the official Income Tax Department website (https://www.incometax.gov.in/iec/foportal/ ) for the most up-to-date information.
  • The examples provided are illustrative and may not be applicable to all taxpayers.



Note: Above details are meant for generalized situations and shall not be used as a legal basis for any particular situation readers may have. We do provide tax consultations for specific scenarios and can be reached through our contact us form.



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