Old or new tax regime for FY 2025-26: how to decide

Since FY 2023-24 the new tax regime has been the default. If you do nothing, your employer deducts TDS under it and your return is filed under it. Budget 2025 made it more generous again, so for FY 2025-26 (assessment year 2026-27) the question for most people is no longer "which is better?" but "do I have enough deductions to justify the old regime?".

What changed for FY 2025-26

Under the new regime, the slabs are:

The rebate under section 87A was raised so that no tax is payable on taxable income up to ₹12 lakh in the new regime. For a salaried person, the ₹75,000 standard deduction pushes that to a salary of ₹12.75 lakh. The rebate does not cover income taxed at special rates, such as capital gains on shares, so check those separately.

When the old regime can still win

The old regime keeps the deductions and exemptions the new one removes. It can come out ahead if you use several of them together:

• Section 80C investments and payments, up to ₹1.5 lakh (EPF, PPF, ELSS, life insurance premiums, children's tuition fees, principal on a home loan)
• Section 80D health insurance premiums for yourself, your family and your parents
• House rent allowance exemption if you pay rent and receive HRA
• Home loan interest on a self-occupied house under section 24(b), up to ₹2 lakh
• Other deductions such as 80CCD(1B) for NPS, 80E for education loan interest and 80G for donations

The old regime's standard deduction is ₹50,000 rather than ₹75,000, and its slabs are steeper, so the deductions have to be substantial to make up the difference.

A quick way to decide

1. Add up the deductions and exemptions you would actually claim under the old regime this year.
2. Work out tax under both regimes on your real numbers, including surcharge and cess where they apply.
3. Pick the lower figure.

In practice, if your deductions are modest (little more than EPF and a small insurance premium), the new regime almost always wins. If you pay significant rent with HRA, service a home loan and use the full 80C and 80D limits, run the numbers.

Switching between regimes

If you have no business or professional income, you can choose a regime every year when you file your return. Tell your employer at the start of the year if you want the old regime for TDS, but the final choice is made in the return.

If you have business or professional income, the rules are stricter: having opted out of the new regime, you can come back to it only once. Plan the choice rather than switching every year.

Before you file

Download your AIS and Form 26AS from the income tax portal and reconcile them with your Form 16, bank interest and any capital gains. Mismatches are the most common reason for notices after filing. The due date for most individuals without an audit is usually 31 July of the assessment year.

If you're not sure, ask your CA to compare both regimes on your actual figures. It usually takes minutes once your documents are in one place.