New Tax Regime Vs Old Tax Regime (Income Tax 2025-26)

India’s income tax system now offers two choices: the old regime with exemptions and deductions, and the new regime with lower tax rates but fewer benefits. Each regime suits different financial needs and income levels. Understanding the key differences helps individuals make smarter tax-saving decisions and manage income better under the latest tax rules announced by the Government of India. This article will provide detailed information on the new tax regime vs the old tax regime.

New Tax Regime Vs Old Tax Regime

Here are the main tax changes in India’s Union Budget 2025:

Under the New Tax Regime:

The income slabs now include seven tiers:

• 0–4 lakh: 0%
• 4–8lakh: 5%
• 8–12lakh: 10%
• 12–16lakh: 15%
• 16–20lakh: 20%
• 20–24lakh: 25%
• Above 24lakh: 30%

Zero tax on income up to 12 lakh. For salaried individuals, this goes up to 12.75 lakh after including a 75,000 standard deduction

1. Tax Rebate via Section 87A – Now Covers Incomes Up to 12 Lakh

• Section 87A offers a tax rebate to reduce the final tax payable for individuals earning below a certain limit. Earlier, this benefit was available only for those with income up to 7 lakh, but the Union Budget 2025 has extended this rebate up to 12 lakh under the new tax regime.
• If your total taxable income (after all eligible deductions like the standard deduction) is 12 lakh or less, you don’t need to pay any income tax. This is a huge relief, especially for the middle class

2. 75,000 Standard Deduction for Salaried Individuals

• A standard deduction is a fixed amount that is subtracted from your income, no documents needed, no questions asked. In this budget, the government increased the standard deduction for salaried taxpayers to 75,000 (up from 50,000).
• So, if your gross salary is 12 lakh, you automatically get a 75,000 deduction, which makes your taxable income 11.25 lakh. But due to the rebate under Section 87A, you still don’t pay any tax. This means salaried individuals effectively pay zero tax on income up to 12.75 lakh under the new regime.

3. Most Old Exemptions Removed in the New Regime

The new tax regime follows a “simplified, no-exemption” model.

That means popular tax-saving options under the old regime like are not allowed in the new regime:

• HRA (House Rent Allowance)
• Section 80C (Investments in LIC, PPF, ELSS, etc.)
• Section 80D (Health insurance premiums)
• LTA (Leave Travel Allowance)

The only major deductions you get are:

• The 75,000 standard deduction (if salaried)
• Employer’s contribution to NPS (National Pension Scheme), if applicable

This is done to reduce paperwork, make the system easier to follow, and stop misuse of multiple deductions. But it also means less flexibility for those who actively invest and plan their finances.

Who benefits most from the New Tax Regime?

The following details include who benefits most from the new tax regime:

1. Salaried individuals without many deductions: You get a 75,000 standard deduction, and with Section 87A rebate, you pay zero tax on income up to 12.75 lakh, ideal if you don’t claim HRA, 80C, 80D, etc.
2. Middle-income earners (7–12 lakh): Full rebate available, and lower slab rates make this regime simpler and more tax-friendly.
3. Those who value simplicity over investing for deductions: It removes the need to manage proofs or tax-saving investments—perfect for people who prefer a clean, hassle-free tax process.

Under the Old Tax Regime:

• 0–2.5lakh: 0%
• 2.5–5lakh: 5%
• 5–10lakh: 20%
• Above 10lakh: 30%

Many earners, especially salaried ones, pay no tax up to 12.75lakh total income under the new regime. But if you rely on exemptions (for investments, rent, health insurance), the old regime might still be better. This regime is especially helpful for individuals who invest or spend strategically to claim various deductions and exemptions.

Key Benefits Under the Old Regime:

You can reduce your taxable income significantly by using:

• Section 80C: Get deductions up to 1.5 lakh for investments in PPF, EPF, LIC, ELSS, tuition fees, etc.
• Section 80D: Claim medical insurance premium for yourself and your family.
• HRA: If you live in a rented house, you can claim House Rent Allowance.
• LTA: Claim leave travel expenses.

With careful tax planning, someone earning 10–12 lakh can reduce their taxable income to below 5 lakh and pay zero tax due to the 12,500 rebate under Section 87A (if taxable income is under 5 lakh).

Income Tax Old Regime Vs New Regime: Scenarios

Here are some example scenarios for the new and old income tax regimes:

Scenario 1: Moderate Income, No Deductions

• Income: 9lakh
• Deductions: None (except standard deduction)

Old Regime:

• 9L – 50K = 8.5L taxable
• Tax ≈ 85,800 (incl. cess)

New Regime:

• 9L – 75K = 8.25L taxable
• After slabs and Section 87A, zero tax

New regime saves ~85,800 when you have not used deductions.

Scenario 2: 12L Income, Some Deductions

• Income: 12L
• Old Regime Deductions: 2L (80C, 80D) + 50K std = 2.5L
• New Regime: 75K standard deduction only

Old Regime:

• Taxable income = 9.5L
• Tax ≈ 1.64L

New Regime:

• Taxable income = 11.25L → tax ≈ 7,500 after Section87A rebate

New regime wins: 156,500 savings over old.

Scenario 3: 18L Income, Large Deductions

• Income: 18L
• Old Regime Deductions: 5L (80C, 80D, home loan)
• New Regime: 75K standard deduction

Old Regime:

• Taxable = 13L → Total tax ≈ 2.10L

New Regime:

• Taxable = 17.25L → Tax ≈ 1.51L

New regime still beneficial: saves ~59,800

Scenario 4: 35L Income, Very High Deductions

• Income: 35L
• Old Regime Deductions: 7.75L (incl. 80C, home loan interest, rent, insurance)
• New Regime: 75K standard deduction

Old Regime:

• Taxable = 27.75L → sub-30% slab
• Likely lower tax due to huge deductions

New Regime:

• Taxable = 34.25L → high bracket at 30%

Old regime wins: For high-earners with lots of deductions, the old regime saves more.

Pros & Cons of the New Tax and Old Tax Regime

The details below include the pros and cons of each regime:

New Tax Regime

Pros:

• Zero tax up to 12 lakh (12.75 lakh for salaried): Thanks to the standard deduction and Section87A rebate, taxpayers up to this limit pay no income tax
• Simpler tax filing: With a single standard deduction of 75,000 and a few exemptions, there is less paperwork and fewer proofs to maintain
• More income in hand: Lower tax rates across new slabs mean individuals earn more take-home pay.

Cons:

• No deductions/exemptions: Popular benefits like HRA, 80C (PPF, ELSS), 80D (health insurance), LTA, and home loan interest are not available
• Higher tax for high earners: If your income surpasses 12 lakh and you forgo exemptions, you are taxed at slabs up to 30%, with less flexibility

Old Tax Regime

Pros:

• Wide deductions and exemptions: You can reduce taxable income using HRA, 80C (up to 1.5 lakh), 80D, home loan interest, and more.
• Better for big investors or homeowners: If your deductions exceed 5–6 lakh, the old regime often offers bigger tax savings
• Consistent for high incomes: Even at 25 lakh+ earnings, strategic deductions can lower taxes more than the simplified new regime.

Cons:

• Complexity and record-keeping: Multiple exemptions require documentation, receipts, and careful tax planning.
• Lower take-home for those with fewer deductions: Without full use of available exemptions, your net income may be lower than new regime filers.

Whether you choose the old or new tax regime, the goal is simple, where you pay less tax and keep more income. The new regime offers ease and speed, while the old one rewards smart saving. Understand your income, deductions, and financial goals before choosing. A wise decision today leads to better savings tomorrow. In this article, you learned about the new tax regime vs old tax regime in detail. To get assistance and support in filing an income tax return from professional experts, contact Online Legal India.