Since the new tax regime became the default option, every salaried taxpayer in India faces the same yearly question: stick with the old regime and its long list of deductions, or switch to the new regime with its lower slab rates? There is no universal answer - the right choice depends entirely on how much you can legitimately deduct. This guide lays out the slab rates for both regimes for FY 2025-26 (assessment year 2026-27), walks through a worked example, and shows you exactly how to decide.
The two regimes at a glance
The old regime charges higher tax rates but lets you reduce your taxable income with a wide range of deductions and exemptions - Section 80C investments, 80D health insurance, house rent allowance, home-loan interest and more. The new regime does almost the opposite: it offers lower slab rates and a larger standard deduction, but strips away nearly every other deduction. In short, the old regime rewards people who invest and claim heavily, while the new regime rewards simplicity. The only way to know which wins for your numbers is to compute the tax both ways, which is exactly what the Income Tax Calculator does.
New regime slabs (FY 2025-26)
After the Budget 2025 changes, the new regime slabs for an individual below 60 are:
- 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%
A salaried person also gets a standard deduction of 75,000, and a Section 87A rebate makes the tax zero for a taxable income up to 12,00,000. A 4% health and education cess is added on top of the tax in every case.
Old regime slabs and deductions
The old regime keeps the long-standing slabs for an individual below 60:
- 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%
Its standard deduction is smaller at 50,000, and the 87A rebate only covers taxable income up to 5,00,000. What makes the old regime competitive is the deductions: up to 1,50,000 under Section 80C (provident fund, ELSS, life insurance, principal repayment), another 50,000 for NPS under 80CCD(1B), up to 2,00,000 of home-loan interest under Section 24(b), plus 80D health-insurance premiums and HRA. Claim enough of these and your taxable income can fall by several lakh.
A worked example
Take a salaried person earning 15,00,000 a year and compare both regimes.
Under the new regime, the standard deduction of 75,000 brings taxable income to 14,25,000. The slab tax works out to 20,000 (in the 5% band) plus 40,000 (10% band) plus 33,750 (15% band on the slice from 12 to 14.25 lakh), a total of 93,750. Adding 4% cess of 3,750 gives a final tax of 97,500.
Under the old regime, suppose the same person claims the 50,000 standard deduction, a full 1,50,000 under 80C and 25,000 under 80D - total deductions of 2,25,000, bringing taxable income to 12,75,000. The slab tax is 12,500 (5% band) plus 1,00,000 (20% band) plus 82,500 (30% band on the slice above 10 lakh), a total of 1,95,000. With 4% cess of 7,800, the tax is 2,02,800.
Here the new regime wins comfortably - 97,500 against 2,02,800, a saving of over a lakh - because the old regime's higher 20% and 30% rates outweigh even sizeable deductions. The picture only flips when deductions are very large (for example, a big home-loan interest claim on top of 80C and NPS). That is precisely the kind of comparison the Income Tax Calculator settles in seconds.
The 12 lakh tax-free threshold and marginal relief
The headline feature of the new regime is that the 87A rebate makes tax zero for a taxable income up to 12,00,000. Because of the 75,000 standard deduction, a salaried person earning up to 12,75,000 pays no tax at all. Just above the threshold, marginal relief steps in so that a small increase in income does not trigger a disproportionate tax bill. For instance, at a taxable income of 12,10,000 the slab tax would be 61,500, but marginal relief caps the tax at the amount of income above 12,00,000 - so you pay roughly 10,400 (including cess), not 64,000.
How to decide which regime fits you
A useful rule of thumb: the more you can legitimately deduct, the more attractive the old regime becomes. As a rough break-even, if your total deductions (beyond the standard deduction) comfortably exceed about 3.75 to 4 lakh, the old regime often wins; below that, the new regime's lower rates usually come out ahead. People who pay rent and claim HRA, repay a home loan, and maximise 80C and NPS are the strongest candidates for the old regime.
But rules of thumb only get you close. Income level, the exact mix of deductions and HRA all shift the answer, so the safest approach is to compute both. Enter your salary and the deductions you actually claim into the Income Tax Calculator - it computes the tax under each regime side by side and tells you which one leaves more money in your pocket.
A few caveats
The figures above are for an individual below 60; senior citizens get higher exemption limits under the old regime. The calculation also excludes surcharge, which applies once income crosses 50 lakh, and special-rate income such as capital gains. Slab rates, the standard deduction and the 87A rebate are revised in most Union Budgets, so always confirm you are using the figures for the correct financial year before you file.
Frequently asked questions
- Which tax regime is better, old or new?
- It depends on your deductions. The new regime has lower slab rates and a 75,000 standard deduction but allows almost no other deductions, while the old regime has higher rates but lets you claim 80C, 80D, HRA and home-loan interest. As a rough guide, if your deductions beyond the standard deduction exceed about 3.75 to 4 lakh the old regime often wins; otherwise the new regime usually does. Compute both to be sure.
- Is income up to 12 lakh really tax-free under the new regime?
- Yes, for FY 2025-26 the Section 87A rebate makes tax zero for a taxable income up to 12,00,000. Because a salaried person also gets a 75,000 standard deduction, a salary of up to 12,75,000 attracts no tax. Marginal relief applies just above the threshold so income slightly over 12 lakh is not taxed disproportionately.
- Can I switch between the old and new regime every year?
- Salaried individuals without business income can choose their regime afresh each financial year when filing their return. Those with business or professional income face tighter rules and can generally opt back to the old regime only once. The new regime is the default, so you must actively choose the old one if it benefits you.