For FY 2025-26, the new tax regime is the default — you're automatically taxed under it unless you actively opt for the old regime. Following Budget 2025, income up to ₹12 lakh (₹12.75 lakh for salaried taxpayers, after the standard deduction) is effectively tax-free under the new regime because of the Section 87A rebate. That single change has made the new regime the better fit for a much larger group of taxpayers than before.
The trade-off, in one line
The new regime gives you lower rates and a bigger rebate, but takes away almost every deduction — no 80C, no HRA, no home loan interest benefit. The old regime keeps those deductions but taxes you at higher rates on a smaller tax-free slab.
| New Regime (FY 2025-26) | Old Regime | |
|---|---|---|
| Tax-free income | Up to ₹12L (₹12.75L salaried) via 87A rebate | Up to ₹5L via 87A rebate |
| Standard deduction | ₹75,000 | ₹50,000 |
| 80C, 80D, HRA, home loan interest | Not allowed | Allowed |
| Best for | Those with few deductions to claim | Those with significant 80C/HRA/home loan claims |
Rule of thumb
If your total eligible deductions (80C + 80D + HRA + home loan interest, etc.) add up to less than roughly ₹4–4.5 lakh a year, the new regime usually wins. Above that, run the numbers under both — it genuinely varies by individual.
Salaried employees can switch between regimes every year when filing. If you have business or professional income, switching back to the old regime after opting for the new one comes with restrictions — decide carefully in that case, ideally with an advisor.
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