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.
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.
What is the New Tax Regime?
Budget 2020 introduced the New Tax Regime, under which Individuals and HUFs declare their choice at the time of filing the income tax return, 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.
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
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% |
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. You're free to switch between the two regimes each year, based on whichever works out better for you. For filing timelines, see our guide on Essentials for Filing Income Tax Returns.
Common Questions
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.
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.
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 or ITR-4 (i.e. those with business 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.
| Item | Old Regime | New Regime |
|---|---|---|
| Standard Deduction | ₹50,000 | ₹70,000 |
| Professional Tax deducted from Salary | Yes | No |
| Item | Old Regime | New Regime |
|---|---|---|
| House Rent Allowance | Yes | No |
| Gratuity | Yes | Yes |
| Leave Encashment | Yes | Yes |
| Children Education Allowance | Yes | No |
| Leave Travel Allowance | Yes | No |
| Uniform Allowance | Yes | No |
| Item | Old Regime | New Regime |
|---|---|---|
| Other Income (Bank Interest, NSC Interest, etc.) | Yes | Yes |
| 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 |
| 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 |
| 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 | Tax Free |
| Item | Old Regime | New Regime |
|---|---|---|
| Leave Travel Allowance | Yes | No |
| Children Education / Hostel Allowance | Yes | No |
| Professional Development / Research Allowance | Yes | No |
| Gift Vouchers (up to ₹5,000) | Yes | Yes |
| 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)
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'd like us to run the comparison against your actual numbers before you decide, share your current deductions and our Taxation team will work it out both ways.
