The new tax regime is now the default for all taxpayers. If you do not actively opt for the old regime when filing your ITR, the system applies the new regime automatically. That single change — made permanent by the Finance Act 2023 — affects millions of salaried employees and professionals.
The question every client asks is the same: "Which regime should I pick?" There is no universal answer. The right choice depends entirely on your deductions, income level, and financial commitments.
Current New Tax Regime Slabs
The new regime was significantly revised by the Finance Act 2025, introducing lower rates and a higher rebate:
| Income Slab | Tax Rate | |---|---| | Up to ₹4,00,000 | Nil | | ₹4,00,001 – ₹8,00,000 | 5% | | ₹8,00,001 – ₹12,00,000 | 10% | | ₹12,00,001 – ₹16,00,000 | 15% | | ₹16,00,001 – ₹20,00,000 | 20% | | ₹20,00,001 – ₹24,00,000 | 25% | | Above ₹24,00,000 | 30% |
Section 87A Rebate: ₹60,000 — effectively nil tax on income up to ₹12,00,000.
Standard Deduction for Salaried: ₹75,000 — meaning gross salary up to ₹12,75,000 attracts zero tax under the new regime.
The 87A rebate does not apply to special rate incomes such as STCG taxed at 15% (Section 111A) or LTCG taxed at 12.5% (Section 112A).
Current Old Tax Regime Slabs
The old regime slabs have remained unchanged for several years:
| Income Slab | Tax Rate | |---|---| | Up to ₹2,50,000 | Nil | | ₹2,50,001 – ₹5,00,000 | 5% | | ₹5,00,001 – ₹10,00,000 | 20% | | Above ₹10,00,000 | 30% |
Standard Deduction for Salaried: ₹50,000.
All deductions available: 80C, 80D, HRA, LTA, home loan interest u/s 24(b), NPS u/s 80CCD, professional tax, etc.
What You Give Up in the New Regime
Switching to the new regime means forgoing:
- Section 80C — ₹1.5 lakh (EPF, PPF, ELSS, LIC, NSC, home loan principal)
- Section 80D — Health insurance premiums (₹25,000–₹1,00,000)
- HRA exemption — House Rent Allowance
- Section 24(b) — Home loan interest (up to ₹2 lakh on self-occupied property)
- LTA — Leave Travel Allowance
- Section 80CCD(1B) — Additional ₹50,000 NPS deduction (over and above 80C)
- Professional tax deduction
When Does the Old Regime Win?
With the revised new regime slabs, the old regime is beneficial only when your combined eligible deductions are very high — typically above ₹5–6 lakh including standard deduction.
Example — Salaried, ₹15 lakh gross, maximum deductions:
| Deduction | Amount | |---|---| | Standard deduction | ₹50,000 | | EPF (employee share ~12%) | ₹72,000 | | 80C (balance after EPF) | ₹78,000 | | 80D (self + family + parents) | ₹50,000 | | Home loan interest u/s 24(b) | ₹2,00,000 | | 80CCD(1B) — NPS | ₹50,000 | | Total deductions | ₹5,00,000 |
With ₹5 lakh deductions, taxable income under old regime = ₹10,00,000. At this point the tax liability under both regimes is approximately equal. The old regime only pulls clearly ahead when deductions exceed ₹5–5.5 lakh.
Who Should Prefer the New Regime
- Salaried individuals earning up to ₹12.75 lakh — zero tax, no contest
- Young professionals with no home loan, limited investments
- Freelancers and consultants who prefer simpler compliance
- Anyone whose total deductions (beyond standard deduction) are under ₹3–4 lakh
Who Should Consider the Old Regime
- Those with an active home loan (₹2 lakh interest deduction annually)
- Those paying large health insurance premiums for senior citizen parents (80D can give ₹75,000–₹1,00,000)
- Those consistently maximising NPS (extra ₹50,000 via 80CCD(1B) exclusively available in old regime)
- High earners with a full combination of 80C + home loan + NPS + health insurance
Important: Business Owners Have Limited Flexibility
Salaried employees can switch between regimes every year at the time of ITR filing.
If you have business or professional income, you can opt out of the new regime only once in your lifetime. After switching back to the old regime, you cannot re-enter the new regime if you have business income. Choose carefully.
How to Decide — Practical Steps
- Download Form 26AS and AIS from the Income Tax portal
- List all deductions you actually have (not aspirational ones)
- Compute tax under both regimes using the IT department's tax calculator at incometax.gov.in
- Factor in compliance simplicity — the new regime requires no documentation of deductions
- Choose the regime that results in lower net tax outgo
If you want a personalised comparison before filing, get in touch. It takes 20 minutes and can save meaningful money.
CA Mahesh M. Joshi (ACA) is a practising Chartered Accountant in Wakad, Pune. Tax slabs reflect the Finance Act 2025. Provisions are subject to change in subsequent budgets — always verify on incometax.gov.in before filing.
