In the fiscal year 2025-26, starting from April 1, 2025, the New Tax Regime will see new income tax slabs, including a tax rebate of Rs 60,000 for income up to Rs 12 lakh (and Rs 12.75 lakh for salaried individuals) under Section 87A. This new tax slabs under the New Tax Regime makes the old tax system, with slabs of 5%, 20%, and 30%, less appealing, especially considering the deductions against investments in tax-saving schemes from gross taxable income.

From now on, many salaried workers will see greater tax savings under the new regime, unless they qualify for a considerable House Rent Allowance (HRA) exemption. The threshold for the old tax regime to be more advantageous has now been raised significantly.

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When should you choose the New Tax Regime?

The new tax regime is ideal for taxpayers who:

Individuals with an annual income of up to Rs 12 lakh are eligible for a full rebate under Section 87A.
Those who do not avail deductions under Section 80C (e.g., Provident Fund, PPF, life insurance, or housing loan principal repayment) or Section 80D (medical insurance premium).
Individuals who prefer a simplified tax filing process with minimal compliance requirements.

Opting for the new tax regime could be advantageous for individuals who do not claim significant deductions and seek a straightforward tax filing procedure. This regime offers lower tax rates without the need for extensive documentation.

The new tax slabs under the New Tax Regime are:

Income Tax Slabs - FY 2025–26

Income Range	Tax Rate
₹0 – ₹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%

Is Old Tax Regime favourable for any?

The traditional tax system is better suited for individuals who are eligible for substantial deductions, such as:

Section 80C: Contributions to PF, PPF, life insurance premiums, repayment of the housing loan principal, etc.
Section 80D: Medical insurance premiums for self and family.
House Rent Allowance (HRA) and Leave Travel Allowance (LTA).
Home loan interest deductions.

Old Tax Regime - Income Tax Slabs

Income Range	Tax Rate
Up to ₹2,50,000	0%
₹2,50,001 – ₹5,00,000	5%
₹5,00,001 – ₹10,00,000	20%
Above ₹10,00,000	30%

By maximising these deductions, taxpayers can significantly reduce their taxable income under the old tax regime. However, to determine if this system is more advantageous than the new tax regime, individuals must ensure that their total deductions exceed the break-even threshold for their income level.

According to experts, individuals earning over Rs 24 lakh annually may need to claim deductions exceeding Rs 8 lakh in order to make the old tax regime more advantageous for them. In other words, common deductions like those allowed under sections 80C (up to Rs 1.5 lakh for tax-saving investments), 80D (up to Rs 1 lakh for health insurance premiums), and 24B (up to Rs 2 lakh for home loan interest) may not be sufficient to outweigh the benefits offered by the new tax regime.

Break-even analysis

For individuals with a total taxable income of Rs 12 lakh or less, the new tax regime is the recommended option, as no tax is owed thanks to the rebate.

If your deductions surpass the minimum break-even amount for your income bracket (refer to the last column of the table), then the old tax regime is the better choice.

In cases of minimal deductions, selecting the new tax regime will lead to lower tax obligations and a more straightforward filing procedure.

Consider transitioning to the new tax regime if you have lower deductions in order to take advantage of the lower tax rates and simplified paperwork. Additionally, salaried individuals should take note of the standard deduction of Rs 75,000, which is exclusive to the new tax regime.