Last updated: July 2026. Updated for the FY 2025-26 (AY 2026-27) slabs introduced by the Finance Act 2025 – these are the rates that apply to returns being filed in 2026.
Old Regime vs New Regime: Which Saves More Tax in FY 2025-26?
Choosing between the old and new income tax regimes remains the single biggest decision on your return – but Budget 2025 changed the math dramatically. For FY 2025-26 (AY 2026-27), the new regime offers a Rs 4 lakh nil slab and a Section 87A rebate that makes taxable income up to Rs 12 lakh completely tax-free. For most salaried taxpayers, the new regime now wins by a wide margin – but the old regime still makes sense in specific high-deduction cases.
New Tax Regime Slabs for FY 2025-26 (AY 2026-27)
| Income Range | Tax Rate (New Regime) |
|---|---|
| Up to Rs 4,00,000 | Nil |
| Rs 4,00,001 to Rs 8,00,000 | 5% |
| Rs 8,00,001 to Rs 12,00,000 | 10% |
| Rs 12,00,001 to Rs 16,00,000 | 15% |
| Rs 16,00,001 to Rs 20,00,000 | 20% |
| Rs 20,00,001 to Rs 24,00,000 | 25% |
| Above Rs 24,00,000 | 30% |
Key features of the new regime for FY 2025-26:
- Standard deduction of Rs 75,000 for salaried employees and pensioners
- Section 87A rebate of up to Rs 60,000, which wipes out the tax on taxable income up to Rs 12 lakh – so a salaried person earning up to Rs 12.75 lakh (Rs 12 lakh + Rs 75,000 standard deduction) pays zero tax
- Marginal relief for taxable income slightly above Rs 12 lakh (up to roughly Rs 12.70 lakh), so crossing the threshold by a small amount does not create a tax cliff
- The 87A rebate does not apply to income taxed at special rates, such as equity LTCG under Section 112A
Old Tax Regime Slabs for FY 2025-26
The old regime slabs are unchanged:
| Income Range | Tax Rate (Old Regime) |
|---|---|
| Up to Rs 2,50,000 | Nil |
| Rs 2,50,001 to Rs 5,00,000 | 5% |
| Rs 5,00,001 to Rs 10,00,000 | 20% |
| Above Rs 10,00,000 | 30% |
The old regime offers a standard deduction of Rs 50,000 and allows the full menu of deductions and exemptions under Sections 80C, 80D, 24(b), HRA, and more. Its 87A rebate is unchanged too: maximum Rs 12,500, only for taxable income up to Rs 5 lakh.
Key Deductions Available Only Under Old Regime
- Section 80C – Up to Rs 1.5 lakh (PPF, ELSS, LIC, EPF, home loan principal)
- Section 80D – Health insurance premiums (Rs 25,000 to Rs 1 lakh depending on age)
- Section 24(b) – Home loan interest up to Rs 2 lakh for self-occupied property
- HRA Exemption – Based on rent paid, salary, and city of residence
- Section 80E – Education loan interest (no upper limit)
- Section 80G – Donations to specified funds and charities
- LTA – Leave Travel Allowance exemption
- Section 80CCD(1B) – Additional Rs 50,000 for NPS contribution
Deductions Allowed Under New Regime
The new regime allows very limited deductions:
- Standard deduction of Rs 75,000 for salaried individuals and pensioners
- Employer contribution to NPS under Section 80CCD(2) up to 14% of salary
- Deduction for family pension under Section 57(iia)
- Deduction on voluntary retirement compensation under Section 10(10C)
Comparison Example 1: Income of Rs 12 Lakh
| Particulars | Old Regime | New Regime |
|---|---|---|
| Gross Salary | Rs 12,00,000 | Rs 12,00,000 |
| Standard Deduction | Rs 50,000 | Rs 75,000 |
| Section 80C | Rs 1,50,000 | Not available |
| Section 80D | Rs 25,000 | Not available |
| NPS 80CCD(1B) | Rs 50,000 | Not available |
| Taxable Income | Rs 9,25,000 | Rs 11,25,000 |
| Tax Before Rebate | Rs 97,500 | Rs 52,500 |
| Section 87A Rebate | Nil | Rs 52,500 (full) |
| Tax + 4% Cess | Rs 1,01,400 | Rs 0 |
At Rs 12 lakh gross salary, the new regime saves the entire Rs 1,01,400 – the 87A rebate reduces the tax to nil, while the old regime still charges over a lakh even after Rs 2.75 lakh of deductions.
Comparison Example 2: Income of Rs 18 Lakh
| Particulars | Old Regime | New Regime |
|---|---|---|
| Gross Salary | Rs 18,00,000 | Rs 18,00,000 |
| Deductions (incl. standard deduction) | Rs 2,75,000 | Rs 75,000 |
| Taxable Income | Rs 15,25,000 | Rs 17,25,000 |
| Tax | Rs 2,70,000 | Rs 1,45,000 |
| Tax + 4% Cess | Rs 2,80,800 | Rs 1,50,800 |
Here the new regime saves Rs 1,30,000. For the old regime to merely break even at Rs 18 lakh income, you would need roughly Rs 7 lakh of total deductions (standard deduction, full 80C, 80D, NPS, plus substantial HRA or home loan interest).
When is the Old Regime Still Better?
After Budget 2025, the old regime wins only in genuinely deduction-heavy situations, typically when you:
- Pay high rent in a metro and claim a large HRA exemption
- Have an active home loan with close to Rs 2 lakh annual interest under Section 24(b)
- Max out 80C (Rs 1.5 lakh), 80D, and 80CCD(1B) on top of the above
As a rule of thumb, add up all your old-regime deductions and exemptions. Unless the total is very large relative to your income (for example, Rs 7 lakh or more at an Rs 18 lakh salary), the new regime wins.
When is the New Regime Better?
- Salaried income up to Rs 12.75 lakh – zero tax, regardless of investments
- No large HRA claim or home loan interest
- You prefer simplicity and do not want to maintain investment proofs
How to Switch Between Regimes
The new regime is the default. Salaried individuals can pick either regime each year while filing their return. If you have business income, opting for the old regime requires filing Form 10-IEA before the due date, and you can return to the new regime only once.
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FileWithUs.ai calculates your tax under both regimes from your actual income and deductions, including the Rs 12 lakh rebate and marginal relief, so you can see exactly which regime saves you more before you file.
File your income tax return for AY 2026-27
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This article is for general information based on tax law current at the time of review and is not a substitute for professional advice. Verify figures against the official Income Tax and GST portals, and consult a qualified professional for your specific situation.