Income Tax Slabs FY 2025-26: New Tax Regime vs Old Tax Regime

India currently follows two parallel systems of individual income taxation - the old tax regime, which allows various exemptions and deductions, and the new tax regime, which offers lower slab rates but removes most exemptions and deductions. Understanding both is important to choose the option that results in a lower tax outflow for your specific situation.

New Tax Regime: The Default Regime

Following the changes announced in Union Budget 2025, the new tax regime slabs applicable for FY 2025-26 (Assessment Year 2026-27) are structured as follows for individual taxpayers, irrespective of age:

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

The new tax regime is the default regime, which means it applies automatically unless a taxpayer specifically opts for the old regime, subject to the applicable conditions and timelines for exercising this option.

Section 87A Rebate Under the New Regime

Under the new regime, resident individuals with total taxable income up to Rs. 12,00,000 are eligible for a rebate under Section 87A of up to Rs. 60,000, which effectively brings their tax liability to nil. Salaried individuals and pensioners also get a standard deduction of Rs. 75,000 under the new regime, which means salaried taxpayers with gross salary up to approximately Rs. 12.75 lakh can, in many cases, have a nil final tax liability, subject to their specific income composition.

It is important to note that this rebate reduces the tax payable to nil up to the specified income level, but does not change the basic exemption limit itself - once total income exceeds the rebate threshold, tax is computed on the full income as per the slabs, and the benefit of the rebate is lost beyond a marginal relief zone.

Old Tax Regime

The old tax regime slabs for individuals below 60 years of age have generally remained unchanged, and are commonly structured as follows:

• Up to Rs. 2,50,000 - Nil
• Rs. 2,50,001 to Rs. 5,00,000 - 5%
• Rs. 5,00,001 to Rs. 10,00,000 - 20%
• Above Rs. 10,00,000 - 30%

Senior citizens (60 to 80 years) and super senior citizens (above 80 years) enjoy a higher basic exemption limit under the old regime - generally Rs. 3,00,000 and Rs. 5,00,000 respectively - along with certain enhanced deduction limits, such as a higher Section 80D deduction for health insurance premiums.

Under the old regime, a rebate under Section 87A of up to Rs. 12,500 is generally available where total taxable income does not exceed Rs. 5,00,000, along with the usual standard deduction of Rs. 50,000 for salaried individuals and pensioners.

Key Deductions Available Only Under the Old Regime

The old regime allows taxpayers to reduce their taxable income through various deductions and exemptions, including (subject to the specific conditions and limits prescribed under each provision):

• Section 80C - up to Rs. 1,50,000 for investments such as PPF, ELSS, life insurance premium, principal repayment of home loan, etc.
• Section 80D - deduction for health insurance premiums
• House Rent Allowance (HRA) exemption under Section 10(13A)
• Deduction for home loan interest under Section 24(b)
• Leave Travel Allowance (LTA) exemption
• Various other deductions such as 80E (education loan interest), 80G (donations), 80TTA/80TTB (interest income), etc.

The new regime largely does not permit these deductions, other than a limited set of exceptions such as the standard deduction, employer's contribution to NPS under Section 80CCD(2), and a few others as specifically permitted.

Which Regime Should You Choose?

There is no single answer - it depends entirely on your income level and the deductions/exemptions you are actually able to claim.

• If you have limited investments, no home loan, and do not claim HRA, the new regime, with its lower slab rates and higher rebate threshold, is often more beneficial.
• If you have significant deductions - such as a home loan, substantial Section 80C investments, HRA and health insurance premiums - the old regime may still result in lower tax, depending on your specific numbers.

It is advisable to calculate your tax liability under both regimes based on your actual income and eligible deductions before deciding, since the better option can vary meaningfully from person to person.

Frequently Asked Questions

Can I switch between the old and new regime every year?

Salaried individuals without business income can generally choose their preferred regime each year at the time of filing their return. Individuals with business or professional income face certain restrictions on switching back and forth, subject to the applicable provisions.

Is the new tax regime compulsory?

No, the new regime is the default regime, but a taxpayer can still choose to opt for the old regime, subject to exercising this option in the manner and within the time prescribed under the law.

Does the new regime allow any deductions at all?

Yes, a limited number of deductions are permitted, such as the standard deduction for salaried individuals/pensioners and the employer's contribution to NPS under Section 80CCD(2), among a few other specifically permitted items.

Conclusion

Both the old and new tax regimes have their own advantages depending on your financial profile. Since tax slabs, rebate limits and deduction rules are revised from time to time through the Union Budget, it is important to check the rates applicable for the specific financial year you are filing for, and ideally compare your actual tax liability under both regimes before making a choice.