Old Tax Regime vs New Tax Regime: What is the breakeven point that can help taxpayers which regime to choose?

The upcoming tax season is just 10 days away, and taxpayers may be deliberating on which tax regime to select for the next fiscal year. The Union Budget FY26 introduced significant tax benefits for the middle class. Finance Minister Nirmala Sitharaman announced an increase in the income tax rebate under the New Tax Regime, enabling resident individuals with total income up to Rs 12,00,000 to be exempt from paying taxes. Additionally, marginal relief will continue to be available for individuals whose income slightly surpasses this threshold. 

In a YouTube podcast, CA Nitesh Buddhadev discussed the break-even thresholds at which the old tax regime becomes advantageous for individuals at various income levels. The break-even amount comprises all deductions and allowances accessible to employees, such as 80C, 80D, HRA, donations, LTA, housing loan interest, and education loan interest. Surcharge considerations come into play for individuals with annual incomes exceeding Rs 50 lakh.

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"The previous tax regime, known as the old regime, was in place before the new regime was introduced. It offered over 70 exemptions and deductions, such as HRA and LTA, which could help individuals reduce their taxable income and lower their tax payments. The new regime, on the other hand, simplifies tax slabs, making it beneficial for many taxpayers. The tax slabs under the new regime were updated in Budget 2025. For example, a salaried individual with an annual income of up to Rs 4 lakh will pay zero tax. In the Rs 4 lakh to Rs 8 lakh bracket, a 5% income tax rate will be applied, which increases to 10% in the Rs 8 lakh to Rs 12 lakh bracket. The tax rates for the brackets of Rs 12 lakh to Rs 16 lakh, Rs 16 lakh to Rs 20 lakh, and Rs 20 lakh to Rs 24 lakh are 15%, 20%, and 25%, respectively," Buddhadev said in the podcast.

Taking about the Budget 2025 and taxation, Buddhadev said: "Effective April 1, 2025, individuals with an income of up to Rs 12,00,000 will not incur any tax liabilities thanks to an enhanced rebate of Rs 60,000. Additionally, salaried individuals can benefit from a zero tax liability for incomes up to Rs 12,75,000, attributable to the Rs.75,000 standard deduction. If compare it with the New Regime 2024-25, a salaried person earning Rs 12 lakh will straight away shave Rs 83,200."

He added: "Similarly, a salaried person earning Rs 15 lakh in 2024-25, would have paid Rs 1,30,000 as tax. From April 1, 2025, he will pay Rs 97,600. For Rs 20 lakh salary, the 2024-25 tax would be Rs 2.78 lakhs, whereas in 2025-26 it would come down to Rs 1,92,400. For Rs 24.75 lakhs and above, the payable tax in 2024-25 will be Rs 4,26,400. This would come down to Rs 3,12,000 in 2025-26 under New Tax Regime." 

Which regime to choose in FY2025-26

Your financial situation and the number of exemptions you are eligible for in the current regime will influence your choice of transitioning to the new tax regime. 

Buddhadev said the choice will regime will depend on two things -- CTC (cost to company) and investments. For instance, if your annual income is Rs 16 lakh and you claim exemptions of Rs 4 lakh, your taxable income will be Rs 12 lakh. Under the existing tax slabs, you will owe a total of Rs 1,72,500 in income tax - which is Rs 52,000 more than what you would pay under the new regime.

"If your income is less Rs 12.75 lakh, you must choose New Tax Regime. It your CTC is Rs 13 lakh, you need exemptions and deductions of minimum Rs 5.44 lakh to be in Old Tax Regime. The tax in this case will be same under both the regimes," he said.

According to Kushal Lodha, the founder of KAGR, who hosted the podcast, the recent budget changes may cause over 90% of taxpayers to switch to the new tax regime. However, in certain scenarios, sticking with the old regime could result in greater tax savings. To determine whether the old regime is more beneficial for you, consider the following guidelines:

If your deductions and exemptions exceed the amounts below, the Old Regime may be more advantageous for you:
Annual CTC of 20 LPA: More than Rs 7.58 Lakhs in deductions
Annual CTC of 13 LPA: More than Rs 5.44 Lakhs in deductions
Annual CTC of 24 LPA: More than Rs 8.37 Lakhs in deductions