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The Union Budget 2025 made one thing clear: the new tax regime is the default, and it's now dramatically more attractive. But the old regime still has teeth — especially if you invest heavily in tax-saving instruments. This guide tells you exactly which regime wins for your situation.

In this article

What Changed in Budget 2025?
Tax Slabs — New vs Old FY 2025–26
Key Differences at a Glance
Deductions & Exemptions Compared
Who Should Choose Which Regime?
Frequently Asked Questions

Section 01

What Changed in Budget 2025?

India operates two parallel income tax systems. The New Tax Regime (Section 115BAC) has been the default since FY 2023–24 — if you don't explicitly choose the old regime while filing your ITR, you're taxed under the new one automatically.

Budget 2025 brought major relief to middle-income earners under the new regime:

↑Basic exemption raised to ₹4 lakh — up from ₹3 lakh under the new regime.

↑Section 87A rebate doubled to ₹60,000 — making incomes up to ₹12 lakh effectively tax-free.

↑Standard deduction enhanced to ₹75,000 for salaried employees — pushing the tax-free threshold to ₹12.75 lakh.

↓Maximum surcharge reduced from 37% to 25% under the new regime for high earners.

Section 02

Tax Slabs: FY 2025–26 (AY 2026–27)

New Tax Regime — Default, lower rates

Income Range	New Regime Tax Rate
Up to ₹4,00,000	Nil
₹4,00,001 – ₹8,00,000	5%
₹8,00,001 – ₹12,00,000	10%
₹12,00,001 – ₹16,00,000	15%
₹16,00,001 – ₹20,00,000	20%
₹20,00,001 – ₹24,00,000	25%
Above ₹24,00,000	30%

Note: Individuals earning up to ₹12 lakh pay zero tax due to the Section 87A rebate (up to ₹60,000). For salaried employees, the ₹75,000 standard deduction raises this threshold to ₹12.75 lakh. This rebate does not apply to special-rate incomes like capital gains.

Old Tax Regime — Must opt in, rich in deductions

Income Range	Old Regime Tax Rate (Below 60 yrs)
Up to ₹2,50,000	Nil
₹2,50,001 – ₹5,00,000	5%
₹5,00,001 – ₹10,00,000	20%
Above ₹10,00,000	30%

Note: Senior citizens (60–80 yrs) get a ₹3 lakh exemption; super seniors (80+) get ₹5 lakh. The Section 87A rebate of ₹12,500 makes income up to ₹5 lakh effectively tax-free.

Section 03

Key Differences at a Glance

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New Tax Regime

Simpler. Lower rates. Ideal for those with fewer deductions or who want investment flexibility.

Default regime from FY 2023–24
Zero tax up to ₹12L (₹12.75L salaried)
Standard deduction ₹75,000
Employer NPS 80CCD(2) allowed
Surcharge capped at 25%
Can switch regimes yearly (no biz income)

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Old Tax Regime

Rewarding for disciplined investors. 70+ deductions can dramatically cut taxable income.

Must opt in explicitly while filing ITR
Zero tax up to ₹5 lakh (87A rebate)
Standard deduction ₹50,000
HRA, LTA, 80C, 80D, NPS 80CCD(1B)
Home loan interest under Section 24(b)
Better for incomes above ₹25L with high deductions

Section 04

Deductions & Exemptions Compared

Deduction / Exemption	New Regime	Old Regime
Standard Deduction (Salary)	✓ ₹75,000	✓ ₹50,000
HRA (House Rent Allowance)	✗ Not allowed	✓ Allowed
LTA (Leave Travel Allowance)	✗ Not allowed	✓ Allowed
Section 80C (PPF, ELSS, LIC, EPF…)	✗ Not allowed	✓ Up to ₹1.5 lakh
Section 80D (Health Insurance)	✗ Not allowed	✓ Up to ₹25K–50K
80CCD(1B) — NPS Self	✗ Not allowed	✓ Up to ₹50,000
80CCD(2) — Employer NPS	✓ Up to 14% of basic	✓ Up to 10% of basic
Home Loan Interest (Self-occupied)	✗ Not allowed	✓ Up to ₹2 lakh
Home Loan Interest (Let-out)	✓ No upper limit	✓ No upper limit
Section 87A Rebate	✓ ₹60,000 (≤₹12L)	✓ ₹12,500 (≤₹5L)
Family Pension Deduction	✓ Up to ₹25,000	✓ Up to ₹15,000
Section 80G (Donations)	✗ Not allowed	✓ Allowed
Section 80E (Education Loan)	✗ Not allowed	✓ Allowed

Section 05

Who Should Choose Which Regime?

The right choice depends on your income level and total investments in tax-saving instruments. Here's a profile-wise verdict:

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Salaried — Income ≤ ₹12.75L

Zero-tax benefit via the 87A rebate makes the new regime the clear winner for most salaried employees here.

New Regime ✓

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Home Loan + HRA Claimers

Claiming HRA and home loan interest together? The old regime's deductions often outweigh new regime benefits at moderate incomes.

Old Regime ✓

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High Deduction Investors

At ₹10L income, if deductions exceed ₹5.44L, old regime wins. At ₹20L, the breakeven threshold rises to ₹7.08L.

Old Regime ✓

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Self-Employed / Freelancers

Business income holders face restricted switching options. Switching old → new back is not allowed once you switch away.

Calculate Both

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Senior Citizens (60–80 yrs)

Old regime's ₹3L exemption and 80D medical insurance benefits can be very valuable. Analyse before choosing.

Old Regime — Often Better

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Income Above ₹25 Lakh

If total deductions exceed ₹8 lakh, old regime delivers greater savings. New regime's high marginal rate bites harder.

Old Regime (if high deductions)

Pro Tip: Always calculate your tax liability under both regimes before filing. The break-even deduction amount varies by income bracket — never assume without running the actual numbers.

Section 06

Frequently Asked Questions

Is the new tax regime the default in FY 2025–26? +

Yes. Since FY 2023–24, the new tax regime is the default. If you don't explicitly select the old regime while filing your ITR, the Income Tax Department automatically processes your return under the new regime.

Can I switch between regimes every year? +

Salaried individuals and those without business income can switch every financial year. However, individuals with business income who switch from new to old regime cannot switch back to new again.

Is income up to ₹12 lakh really tax-free in 2025? +

Under the new regime, the Section 87A rebate of up to ₹60,000 effectively zeroes out tax for taxable incomes up to ₹12 lakh. For salaried employees, the ₹75,000 standard deduction raises the gross threshold to ₹12.75 lakh. Note: this rebate does not apply to special-rate incomes like capital gains.

Is 80C deduction allowed in the new regime? +

No. Investments in PPF, ELSS, LIC, EPF, and other Section 80C instruments do not qualify under the new regime. Only employer contributions to NPS under Section 80CCD(2) are permitted.

Which regime is better for a ₹15 lakh salary? +

At ₹15 lakh, it depends on your deductions. After ₹75,000 standard deduction, taxable income under new regime is ₹14.25 lakh. Under old regime, if you claim ₹1.5L (80C) + ₹50K (80D) + ₹2L (home loan) + ₹50K (NPS) = ₹4.5L in deductions, taxable income falls to ₹10.5L — making the old regime often better. Always run both numbers.

Does the new tax regime benefit senior citizens? +

The new regime does not offer age-based enhanced exemptions — the basic exemption is ₹4 lakh for all. The old regime gives ₹3 lakh for citizens aged 60–80 and ₹5 lakh for those above 80, plus all 80C/80D deductions. For senior citizens with significant medical expenses, the old regime is usually more beneficial.