New vs old tax regime for FY 2025-26: which one actually saves you money
· 6 min read
The new regime is now the default and taxes nothing up to ₹12 lakh. The old regime still wins for people with large deductions. The break-even is roughly ₹4,00,000 of total deductions — below that, take the new regime.
The new regime is the default from FY 2025-26. You have to opt out to use the old one, which is a reversal of how it worked when the new regime was introduced.
What changed this year
The new regime's slabs widened considerably. Nothing is taxed up to ₹4,00,000, and the section 87A rebate of ₹60,000 wipes out the tax entirely up to ₹12,00,000 of taxable income. For a salaried person, the ₹75,000 standard deduction means gross income up to ₹12,75,000 attracts no tax at all.
Just above that line, marginal relief applies: the tax cannot exceed the amount by which your income crossed ₹12,00,000. Without it, earning one rupee more would have cost about ₹60,000.
The break-even
The old regime only wins if your deductions are large enough to offset its narrower slabs. In practice the crossover sits around ₹4,00,000 of total deductions for most salaried filers — combining:
- Section 80C up to ₹1,50,000
- Section 80D health insurance, ₹25,000 or ₹50,000 for senior citizens
- Section 80CCD(1B) NPS, an extra ₹50,000
- Home loan interest under section 24(b), up to ₹2,00,000
- HRA exemption, which for a metro renter is often the largest single item
Someone paying ₹25,000 a month rent in Ranchi with a home loan and a full 80C will usually still be better off in the old regime. Someone with a ₹15,00,000 salary, no loan and no rent almost certainly is not.
What people get wrong
The most common error is assuming the regime you chose last year still applies. A salaried person with no business income chooses afresh every year at filing. Someone with business or professional income can move from new to old only once, and the switch back is permanent.
The second is forgetting that employer NPS contributions under section 80CCD(2) are deductible in both regimes. It is one of the few deductions the new regime kept, and it is frequently overlooked.
Work out your own number
Run both regimes with your actual figures rather than a rule of thumb — the answer turns on your deductions, not your salary.