Old vs New Regime – Which Saves More Tax? (For FY 2025–26)

Are you confused whether to choose the old tax regime or the new tax regime this year?

Don’t worry. You are not alone. Many salaried people, freelancers, and small business owners in India are asking the same question:

"Which tax regime will help me save more tax in FY 2025–26?"

In this simple guide, we will explain:

  • What is the old and new tax regime
  • Latest tax slabs
  • Main differences
  • Real-life examples
  • Tips on which regime to choose


What is the Old Tax Regime?

The old tax regime is the traditional system where you can claim various deductions and exemptions to reduce your taxable income. These include:

  • ₹1.5 lakh under Section 80C (PF, PPF, ELSS, LIC, tuition fees, etc.)
  • ₹50,000 standard deduction (for salaried and pensioners)
  • ₹25,000 to ₹50,000 under Section 80D (medical insurance)
  • HRA (House Rent Allowance)
  • LTA (Leave Travel Allowance)
  • ₹2 lakh home loan interest under Section 24(b)
  • ₹50,000 under NPS (Section 80CCD(1B))
  • Many more

If you are someone who invests for tax saving and has expenses like rent or home loan EMI, the old regime can help you save more tax.

What is the New Tax Regime?

The new tax regime was introduced to simplify the process. It offers lower tax rates but removes most of the deductions and exemptions.

You cannot claim benefits like 80C, 80D, HRA, home loan interest, etc.

The aim is to reduce your paperwork and allow you to pay a lower tax rate without needing to submit investment proofs or plan your taxes.

This regime is now the default option unless you choose the old one.

Tax Slabs for FY 2025–26 (AY 2026–27)

Old Tax Regime Slabs

  • Up to ₹2.5 lakh – NIL
  • ₹2.5 lakh to ₹5 lakh – 5%
  • ₹5 lakh to ₹10 lakh – 20%
  • Above ₹10 lakh – 30%

Note: Tax rebate under Section 87A is available if your taxable income is up to ₹5 lakh. In that case, you pay zero tax.

New Tax Regime Slabs (as per Budget 2023)

  • Up to ₹3 lakh – NIL
  • ₹3 lakh to ₹6 lakh – 5%
  • ₹6 lakh to ₹9 lakh – 10%
  • ₹9 lakh to ₹12 lakh – 15%
  • ₹12 lakh to ₹15 lakh – 20%
  • Above ₹15 lakh – 30%

Note: If your income is up to ₹7 lakh, you will get a full rebate under Section 87A, and pay zero tax.

Key Differences Between Old and New Regime

  • In the old regime, you can reduce taxable income using deductions.
  • In the new regime, you pay lower rates but no deductions allowed.
  • Old regime suits people who plan and invest for tax-saving.
  • New regime suits those with no major deductions or who want a simpler filing process.


Real-Life Examples

Example 1: ₹10 Lakh Salary Income

Assumptions:

  • ₹1.5 lakh under 80C
  • ₹50,000 standard deduction
  • ₹25,000 under 80D (medical insurance)

Old Regime Calculation:
Gross Income = ₹10,00,000
Total Deductions = ₹1,50,000 + ₹50,000 + ₹25,000 = ₹2,25,000
Taxable Income = ₹7,75,000
Tax = 5% on ₹2.5 lakh + 20% on ₹2.75 lakh
= ₹12,500 + ₹55,000 = ₹67,500

New Regime Calculation:
No deductions allowed
Tax on ₹10,00,000 =
5% on ₹3–6 lakh = ₹15,000
10% on ₹6–9 lakh = ₹30,000
15% on ₹9–10 lakh = ₹15,000
Total = ₹60,000

Conclusion: New regime saves ₹7,500 in this case.

Example 2: ₹15 Lakh Income With Heavy Deductions

Assumptions:

  • ₹1.5 lakh under 80C
  • ₹2 lakh home loan interest
  • ₹50,000 standard deduction
  • ₹25,000 under 80D
  • ₹20,000 under NPS (80CCD(1B))

Old Regime Calculation:
Total Deductions = ₹4.45 lakh
Taxable Income = ₹10.55 lakh
Tax = 5% on ₹2.5 lakh = ₹12,500

  • 20% on ₹5 lakh = ₹1,00,000
  • 30% on ₹55,000 = ₹16,500
    Total = ₹1,29,000

New Regime Calculation:
Tax on ₹15 lakh =
5% on ₹3–6 lakh = ₹15,000
10% on ₹6–9 lakh = ₹30,000
15% on ₹9–12 lakh = ₹45,000
20% on ₹12–15 lakh = ₹60,000
Total = ₹1,50,000

Conclusion: Old regime saves ₹21,000 in this case.

Which Regime Should You Choose?

Here's a simple guide:

  • If you claim deductions like 80C, 80D, home loan, HRA – choose Old Regime
  • If you do not have any tax-saving investments – choose New Regime
  • If you want easy, paperless filing with no documentation – New Regime
  • If you are disciplined and do tax planning – Old Regime

Every person’s situation is different, so it’s better to compare both options before filing ITR.

Use a Tax Calculator

Don’t worry about doing all the maths manually.

Use our free online tool to compare your tax in both regimes:
Income Tax Calculator for FY 2025–26
Visit: Income Tax Calculator

Just enter your income and deductions – and it will show you how much tax you’ll pay under both systems.

Final Thoughts

The Government wants more people to adopt the new tax regime. That’s why it is now the default option. But still, the choice is yours.

Take a few minutes to check:

  • Are you investing under 80C?
  • Do you pay rent or home loan EMI?
  • Do you have health insurance?

If yes, the old regime might help you save more.

If not, and you prefer simple tax filing with no headache, then the new regime is better.

Choose wisely and file smartly.

Helpful links:
Income Tax Calculator
Savings Calculator



Published on May 23, 2025
Category: Finance