Individual taxpayers in India can choose between two income tax systems: the old regime with many deductions and the new regime with lower rates but fewer deductions. The choice can make a big difference to your tax bill. Here is a clear comparison.
The new tax regime
The new regime was introduced in 2020 and became the default from the financial year 2023-24. The Union Budget 2025 revised its slabs for the financial year 2025-26:
- Up to Rs 4 lakh: nil
- Rs 4 lakh to Rs 8 lakh: 5 percent
- Rs 8 lakh to Rs 12 lakh: 10 percent
- Rs 12 lakh to Rs 16 lakh: 15 percent
- Rs 16 lakh to Rs 20 lakh: 20 percent
- Rs 20 lakh to Rs 24 lakh: 25 percent
- Above Rs 24 lakh: 30 percent
A tax rebate means people with taxable income up to Rs 12 lakh pay no income tax under the new regime, not counting special rate income like capital gains. Salaried people also get a standard deduction of Rs 75,000, so salary income up to Rs 12.75 lakh can be tax free.
The old tax regime
The old regime has higher rates for many income levels but allows many deductions and exemptions:
- Section 80C: up to Rs 1.5 lakh for PPF, EPF, ELSS, life insurance and more.
- Section 80D: health insurance premiums.
- House rent allowance (HRA) exemption.
- Interest on a home loan for a self occupied house.
- Leave travel allowance and others.
Who may benefit from each
- New regime: people with few investments or deductions, young earners, and most taxpayers with income up to about Rs 12 lakh.
- Old regime: people with large deductions, such as a big home loan interest, full 80C use, HRA and health insurance.
The only way to know is to calculate tax under both. The Income Tax Department’s e-filing portal has a tax calculator that compares the two.
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Switching rules
- Salaried taxpayers without business income can choose either regime every year while filing their return.
- Those with business or professional income can switch back from the new regime only once.
Tell your employer
At the start of the year, tell your employer which regime you prefer, so TDS is deducted correctly. You can still choose differently when filing your return if you are salaried.
Check the latest budget
Tax slabs can change in every Union Budget, and the Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. Always check the slabs for the year you are filing for on the official website.
Bottom line
The new regime offers simple, lower rates, while the old regime rewards those with big deductions. Run both calculations each year and pick the one that leaves more money in your pocket.
Source / स्रोत: Income Tax Department, Union Budget, Press Information Bureau
