Old vs New Tax Regime (FY 2025–26): Which Is Better for Salaried Individuals?

What is the Income Tax Slab?

Income tax slabs are predefined income ranges set by the government where different portions of income are taxed at different rates. This is called a progressive taxation system in India.

Income Tax Slabs for FY 2025–26 (New Tax Regime)

• Effective Tax-Free Income: Due to the Section 87A rebate, individuals with net taxable income up to ₹12 lakh will pay no tax. Rebate is not allowed for incomes taxed at special rates such as capital gains under Section 111A and 112A.
• Standard Deduction: Salaried individuals and pensioners can claim a standard deduction of ₹75,000.
• Deductions such as HRA, 80C, 80D etc., are disallowed under the new tax regime.

Income Tax Slabs for FY 2025–26 (Old Tax Regime)

Additional Benefits (Old Regime)

• Higher exemption for senior citizens
• Standard deduction: ₹50,000
• Multiple deductions available:
  • Section 80C (PPF, ELSS, LIC)
  • Section 80D (health insurance)
  • HRA exemption
  • Home loan interest
  • NPS contributions

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Surcharge & Cess Rates

A surcharge is an additional tax that applies only if your total income exceeds certain thresholds. The surcharge rates are as follows:

All taxpayers pay a 4% health & education cess on their tax liability irrespective of their income limit.

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Old v/s New Tax Regime Calculator

Use Tax2win calculator to compare which tax regime is better for you!

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Old v/s New Tax Regime - Which is Better For FY 2025-26?

With salaried employees in all organisations being asked to make an official decision regarding their preference for either the old or the new tax regime, there is uncertainty over which choice would be advantageous. However, tax experts have brought forth an important term which makes the choice clear – ‘the break-even point’, which helps determine at what point one system turns out to be more profitable than the other, based on income structure and deductions.

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Salary-Wise Tax Comparison

(When salary income is of Rs. 15 lakhs)

The manner of calculation of tax is described below:

By opting for the old tax regime in FY 2025–26, the taxpayer can save ₹48,516 in taxes. The old regime becomes more beneficial when total deductions exceed ₹5,43,750, as the tax savings from these deductions outweigh the advantage of lower tax rates available under the new regime.

(When salary income is of Rs. 30 lakhs)

For an income of ₹30 lakh in FY 2025–26, opting for the new tax regime is more beneficial, resulting in a tax saving of ₹1,08,576. However, the old tax regime would become more advantageous if total deductions exceed ₹8 lakh, as the tax savings from deductions would outweigh the benefit of lower slab rates under the new regime.

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What is the Break-Even Point?

The break-even point refers to the level of total deductions at which the old tax regime becomes more beneficial than the new tax regime.

In simple terms, it is the point where:

• Tax savings from deductions (old regime) = Benefit of lower tax rates (new regime)

Tax2win Tax experts explain the concept as follows:

• If deductions are low, the new regime is better due to lower tax rates and minimal compliance
• If deductions are high and fully utilised, the old regime provides higher tax savings
• While there are minor structural differences at lower income levels, the final decision depends on how deductions scale with income

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How Does the Break-Even Work in Practice?

The break-even point varies depending on salary level and deduction structure. Here’s how it works in real scenarios:

₹15 Lakh Salary Scenario

• HRA plays a major role in reducing taxable income
• It can reduce income by up to ₹3–4 lakh (based on rent and city)
• Combined with:
  • Section 80C
  • Section 80D
  • Other exemptions

The old regime becomes competitive

However:

• At this level, the final tax outcome depends heavily on how effectively deductions are structured.

₹25 Lakh Salary Scenario

A clearer benchmark emerges at this level.

The old regime becomes beneficial only if deductions are around ₹6.87 lakh or more

• If deductions are below ₹6.87 lakh → New regime is better
• If deductions are above ₹6.87 lakh → Old regime is better

₹40 Lakh Salary Scenario

At higher income levels, the break-even threshold increases further.

Old regime becomes advantageous when deductions reach ₹8–10 lakh or more

This typically includes:

• HRA exemption
• Section 80C & 80D investments
• Home loan interest
• Education loan deductions
• Other exemptions

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Thumb Rule for Break-Even

According to tax experts:

• If total deductions exceed ₹7 lakh, the old tax regime is generally more beneficial.

This serves as a quick reference point before performing detailed calculations.

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When Should You Choose the Old Tax Regime?

Choose old regime if:

• You have high HRA (especially in metro cities)
• You have a home loan
• You fully utilise deductions under 80C, 80D, NPS
• Your total deductions exceed ₹6–8 lakh

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When Should You Choose the New Tax Regime?

Choose new regime if:

• You have minimal or no deductions
• No home loan or major investments
• You prefer simple tax filing without documentation

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Conclusion

The choice between the old and new tax regimes ultimately depends on your break-even point.

• If your deductions are low, the new regime offers better savings and simplicity.
• If your deductions are high, the old regime can significantly reduce your tax liability.

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How to File ITR For FY 2025-26?

Now that you have made your choice and selected the regime, the next step is calculating the tax liability as per the chosen regime and filing the ITR. Taxpayers should file their ITRs before the specified due dates to avoid late fees and interest. The due date to file ITR for FY 2025-26 (AY 2026-27) is 31st July 2026. Tax2win’s tax experts help you with ITR e-filing while ensuring maximum savings and tax deductions. Hire an Online CA Now!

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