New Tax Regime vs Old - What Should You Pick? - Somu & Associates

Taxation

New Tax Regime vs Old - What Should You Pick?

Lower slab rates, but most of the deductions you're used to claiming disappear. Here's exactly what each regime gives up and keeps, for FY 2025-26.

Knowledge Centre

The New Tax Regime has been the default since FY 2023-24 - if you don't actively choose otherwise, this is the regime you're taxed under. Whether that's the right choice depends entirely on how much you currently claim under the Old Regime. For common questions about TDS, Form 26AS, and filing disclosures, see our Income Tax FAQs.

A Note on This Article: Some terminology, provisions, and references in this article may still reflect the Income-tax Act, 1961 framework. The Income-tax Act, 2025 came into force on 1 April 2026 and has renumbered sections and revised certain terms and forms - where this article hasn't yet been fully updated to the new framework, the 1961-era references still apply as written. See our Income Tax Act 2025 - Overview article for the full picture of what's changed.

What is the New Tax Regime?

Budget 2020 introduced the New Tax Regime, applicable to Individuals and HUFs starting FY 2020-21. It offers lower slab rates than the Old Regime, but in exchange, removes most of the deductions and exemptions available under the old system. Choosing it remains optional. The Income Tax Act, 2025 preserves the existing regime structure - both the New and Old regimes continue to apply from FY 2026-27 onwards.

Income Tax Slabs - Section 115BAC (FY 2025-26 / AY 2026-27)

These rates apply uniformly to all Individuals and HUFs under the New Tax Regime - resident or non-resident, senior citizen or otherwise, and whether the income is salaried, business, or from any other source.

Income Tax Slab	Income 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%

Rebate Under Section 87A - New Tax Regime

If your total taxable income is up to ₹12,00,000 and you've opted for the New Tax Regime, you're eligible for a rebate equal to the lower of:

The income tax payable on your total income, or
₹60,000

Marginal Tax Relief

An additional relief applies for individuals whose total income sits just above ₹12,00,000. If your income exceeds ₹12,00,000 and the tax payable on it exceeds the amount by which your income exceeds ₹12,00,000, the tax is capped at that excess - so you never pay more in tax than the amount you've crossed the threshold by.

Surcharge Rates Under the Two Tax Regimes

Net Total Income	Old Tax Regime	New Tax Regime
₹50 Lakh - ₹1 Crore	10%	10%
₹1 Crore - ₹2 Crore	15%	15%
₹2 Crore - ₹5 Crore	25%	25%
Above ₹5 Crore	37%	25%

Note: The enhanced surcharge of 25% and 37% is not levied on income chargeable under sections 111A, 112, 112A, and on dividend income. The maximum surcharge on such income is capped at 15% - except where the income is taxable under sections 115A, 115AB, 115AC, 115ACA, or 115E.

Default Regime Since FY 2023-24

The New Tax Regime has been the default option from FY 2023-24 onward. If you want to continue under the Old Regime instead, you must submit your return before the due date while making that choice. For filing timelines, see our guide on Essentials for Filing Income Tax Returns.

Old Regime tax slabs - including separate rates for senior citizens and super senior citizens - are set out in our Income Tax FAQs.

Opting Out of the New Regime - Full Rules

The rules for opting out differ depending on whether you have business or professional income.

Taxpayers Without Business or Professional Income (ITR-1, ITR-2)

Can opt for the Old Tax Regime simply by selecting the option directly in the ITR form at the time of filing.
This choice can be changed every year - no separate form is required.

Taxpayers With Business or Professional Income (ITR-3, ITR-4, ITR-5)

Must file Form 10-IEA on or before the due date under Section 139(1) to opt for the Old Tax Regime. Form 10-IEA filed after the due date is treated as invalid.
Form 10-IEA, once filed for a particular financial year, cannot be withdrawn or revised in the same year - the option is irrevocable for that assessment year.
It need not be filed every year. Once filed and valid, the Old Regime continues in subsequent years automatically, unless the taxpayer files Form 10-IEA again to re-enter the New Regime.
The option to switch back to the New Regime can be exercised only once in a lifetime. Once exercised, the Old Regime cannot be opted for again - unless income from business or profession ceases entirely.

Common Questions

Q. Can employees choose their regime at the start of the financial year?

Yes. The Income Tax Department permits employees to intimate their choice of regime to their employer at the start of the financial year. Once declared, the employer is required to calculate and deduct TDS in line with that choice.

If an employee doesn't communicate a choice, the employer can default to the New Regime for TDS purposes.

Q. Can the regime be changed at the time of filing the return?

Yes - irrespective of what was declared to your employer, you can change your regime when filing your Income Tax Return. Depending on the difference between what was deducted and what's actually due, this could mean additional tax payable, or a refund.

Q. What compliance is required to opt for the Old Regime?

Form No. 10-IEA must be filed before the due date of filing your return, as a mandatory step before opting for the Old Regime.

If you file ITR-1 or ITR-2, the option to choose the New Regime is built into the return itself - no separate form needed there. Form 10-IEA is mandatory only for assessees filing ITR-3, ITR-4, or ITR-5 (i.e. those with business or professional income) who wish to opt for the Old Regime. For more on Form 122 and change of employment, see our article on Form No. 122.

What You Keep and Lose: Exemptions & Deductions

This is usually where the decision actually gets made. The lower slab rates of the New Regime come at the cost of nearly every deduction below. Note that interest income from fixed deposits and savings accounts is also treated differently between regimes - for details, see our article on Income Tax on FD & Savings Interest.

Standard Deduction & Professional Tax
Item	Old Regime	New Regime
Standard Deduction	₹50,000	₹75,000
Professional Tax deducted from Salary	Yes	No

Exemptions Under Section 10 & 17
Item	Old Regime	New Regime
House Rent Allowance	Yes	No
Gratuity	Yes	Yes
Leave Encashment at Exit (Retirement/Resignation)	Yes	Yes
Children Education Allowance	Yes	No
Leave Travel Allowance	Yes	No
Uniform Allowance	Yes	No

Housing & Other Income
Item	Old Regime	New Regime
Other Income (Bank Interest, NSC Interest, etc.)	Yes	No
Interest on Housing Loan - Self-Occupied	Yes	No
Income from House Property - Let Out	Yes	Yes
Loss from House Property - Let Out	Yes	No
Interest on Housing Loan - Additional Exemption (80EE & 80EEA)	Yes	No

Chapter VI-A Deductions
Item	Old Regime	New Regime
Medical Insurance Premium (80D)	Yes	No
Handicapped Dependents (80DD)	Yes	No
Treatment of Specified Diseases (80DDB)	Yes	No
Interest Paid on Higher Education Loan (80E)	Yes	No
Permanent Disability (80U)	Yes	No
Employer's Contribution to NPS, up to 10% (80CCD)	Yes	Yes
Interest on Savings Bank Deposits (80TTA)	Yes	No
Interest Income for Senior Citizens (80TTB)	Yes	No
Loan for Electric Vehicle Purchase (80EEB)	Yes	No

Deductions Under Section 80C
Item	Old Regime	New Regime
Employees' Provident Fund	Yes	No
Voluntary Provident Fund	Yes	No
Public Provident Fund	Yes	No
Children's Education - Tuition Fees	Yes	No
National Savings Certificate (NSC)	Yes	No
Life Insurance Premium	Yes	No
Housing Loan Principal Repayment	Yes	No
Sukanya Samriddhi Scheme	Yes	No
Accrued NSC Interest	Yes	No
Mutual Funds / ULIP	Yes	No
Life Insurance Pension Scheme	Yes	No
Employees' Contribution to NPS	Yes	No
Senior Citizens Savings Scheme	Yes	No
Tax Saver FDs / Term Deposits / Senior Citizen Savings Scheme	Yes	No
Infrastructure / Tax-Saving Bonds	Yes	No
Flexi Benefits	Tax Free	Partially Tax Free

Pay Components
Item	Old Regime	New Regime
Leave Travel Allowance	Yes	No
Children Education / Hostel Allowance	Yes	No
Professional Development / Research Allowance	Yes	No
Non-cash gift voucher/gift card/token (up to ₹5,000)	If the total value of the gift vouchers/cards exceeds ₹15,000 in a financial year, the entire amount becomes taxable as a perquisite
Internet & Telephone Reimbursement	Yes	Yes
Fuel Reimbursement	Yes	Yes
Driver Salary	Yes	Yes
Car Maintenance / Insurance	Yes	Yes
Free Meal / Food Coupon	Yes	No

Section 115BAD: New Tax Rate for Co-operative Societies

Co-operative Societies have the option to opt for a New Tax Regime of their own under Section 115BAD - taxed at 22% in place of the existing 30% rate. This comes with a trade-off: the society must give up the following allowances and deductions:

Deduction under Section 10AA, 32(1)(iia), 33AB, 33ABA, or 35AD
Investment allowance under Section 32AD
Chapter VI-A deductions (80C, 80D, 80E, and so on), except 80JJAA
Exemption or deduction for any other perquisites or allowances
No set-off of brought-forward loss or unabsorbed depreciation from earlier years
No additional depreciation under Section 32(2)

Compliance for Section 115BAD: Form No. 10-IFA must be filed mandatorily before opting for the Old Regime, and it has to be filed before the due date of filing the tax return.

Picking a regime usually comes down to how much you're actually claiming under the Old Regime today - home loan interest, 80C investments, HRA, and medical insurance add up quickly. If you hold RSUs or foreign assets, the regime choice also interacts with how those are taxed - see our articles on RSU Taxation and Foreign Income Tax Compliance.