Old vs new tax regime FY 2025-26: which is better for salaried employees?

Which tax regime is better for most salaried Indians in FY 2025-26?

For most salaried Indians earning up to ₹15–20 lakh with modest deductions, the new tax regime wins. The old regime still beats it — but only if your deductions are large enough. This article shows you exactly how to run the numbers.

Old regime income tax slabs for FY 2025-26

Source: Income Tax Act 1961, Schedule to Finance Act 2025 — IT Department guide, AY 2026-27

Old regime rebate: Section 87A gives a rebate of up to ₹12,500 if taxable income does not exceed ₹5 lakh (Income Tax Department — Salaried Individuals, AY 2026-27). This makes income up to ₹5L effectively tax-free in the old regime too.

Old regime standard deduction: ₹50,000 for salaried employees (Section 16(ia) — Income Tax Department, AY 2026-27).

4% cess applies on top of final tax liability under both regimes (Income Tax Department — Salaried Individuals, AY 2026-27).

New regime income tax slabs for FY 2025-26

Source: Section 115BAC — Income Tax Department guide, AY 2026-27

New regime rebate: Section 87A gives a rebate of up to ₹60,000 if taxable income does not exceed ₹12 lakh (Income Tax Department — Salaried Individuals, AY 2026-27).

New regime standard deduction: ₹75,000 for salaried employees (Section 16(ia) — Income Tax Department, AY 2026-27).

Old vs new tax regime: income tax comparison at ₹8L, ₹10L, ₹15L, ₹20L, ₹25L gross salary

Assumes salaried employee, no deductions beyond standard deduction, FY 2025–26.

Old regime: after ₹50,000 standard deduction. New regime: after ₹75,000 standard deduction. Section 87A applied where applicable. Cess included. Surcharge excluded (income below ₹50L).

◇ Key observation: Without any deductions, the new regime wins at every salary level shown. The gap is largest at ₹10–15L — this is where the old regime's 20% slab hits hardest.

How the old regime tax calculation works at ₹15L gross salary

So you can verify the table above:

Gross salary: ₹15,00,000

Standard deduction: −₹50,000

Taxable income: ₹14,50,000

Rounded to ₹2,60,000 in the table (₹2,500 rounding). The new regime at ₹15L is ₹97,500 — a saving of about ₹1.62L. To close that gap entirely with deductions, you'd need to claim about ₹5.4L in qualifying deductions.

At what total deduction amount does the old regime beat the new tax regime?

The old regime only beats the new regime when your eligible deductions are large enough to offset both the steeper slab rates and the ₹25,000 lower standard deduction. Here's what it takes:

Break-even = total eligible deductions (HRA + 80C + 80D + home loan interest + own NPS + others) at which old and new regime taxes are equal. Above this threshold, old regime is better.

These are significant numbers. Most salaried employees — especially those who don't pay high rent, don't have a home loan, or haven't maxed their 80C — don't reach their break-even threshold.

⚠ Common mistake: Many people assume they should keep the old regime because they "have lots of deductions." The question isn't whether you have deductions — it's whether your deductions exceed your specific break-even threshold. Run the actual numbers.

Which deductions can tip the balance in favour of the old regime?

Only deductions available under the old regime matter for this comparison — and only the ones you actually claim.

High-impact deductions that could tip the balance:

Worked example: old regime wins (₹15L salary with HRA and home loan)

Scenario: Gross salary ₹15L, living in a metro, significant home loan

Deductions:

• HRA exemption: ₹1,80,000 (pays ₹20,000/month rent, metro city)
• Section 80C: ₹1,50,000 (EPF + ELSS)
• Section 24(b) home loan interest: ₹2,00,000
• Section 80D: ₹25,000 (self + family health insurance)
• Own NPS 80CCD(1B): ₹50,000
• Total deductions: ₹6,05,000

Old regime taxable income: ₹15,00,000 − ₹50,000 (std) − ₹6,05,000 = ₹8,45,000

Old regime tax:

• ₹0–₹2.5L: Nil
• ₹2.5L–₹5L: 5% × ₹2.5L = ₹12,500
• ₹5L–₹8.45L: 20% × ₹3.45L = ₹69,000
• Tax: ₹81,500 + 4% cess (₹3,260) = ₹84,760

New regime tax (₹97,500 from table above)

Old regime saves: ₹97,500 − ₹84,760 = ₹12,740

This taxpayer is above the break-even — but only just. Remove the HRA or the home loan interest, and the new regime pulls ahead again.

Worked example: new regime wins (₹15L salary with minimal deductions)

Scenario: Gross salary ₹15L, rents employer-provided accommodation (no HRA), no home loan

Deductions actually claimable:

• Section 80C: ₹1,00,000 (only EPF contribution — hasn't invested the full ₹1.5L)
• Section 80D: ₹15,000 (basic health policy)
• Total deductions: ₹1,15,000

Old regime taxable income: ₹15,00,000 − ₹50,000 − ₹1,15,000 = ₹13,35,000

Old regime tax:

• ₹0–₹2.5L: Nil
• ₹2.5L–₹5L: ₹12,500
• ₹5L–₹10L: ₹1,00,000
• ₹10L–₹13.35L: 30% × ₹3.35L = ₹1,00,500
• Tax: ₹2,13,000 + 4% cess (₹8,520) = ₹2,21,520

New regime tax: ₹97,500 (from table)

New regime saves: ₹2,21,520 − ₹97,500 = ₹1,24,020

This is the far more common scenario for someone who doesn't have a home loan and doesn't max their deductions.

Is employer NPS contribution (Section 80CCD(2)) available in the new tax regime?

Yes — and this is one of the most commonly misunderstood points. Employer NPS contribution under Section 80CCD(2) is available in both old and new regimes (Income Tax Department — new vs old tax regime FAQs). It lets your employer contribute up to 14% of your salary tax-free, regardless of which regime you choose.

Because you get this deduction in either regime, it shouldn't influence your old vs new comparison — don't count it in your break-even calculation. Ask your HR team whether your employer offers this benefit.

How to compare old vs new tax regime for your own salary and deductions

Step 1. List every deduction you actually claim — not aspirationally, but actually:

• HRA you received and qualify for (not the full HRA if rent paid doesn't support it)
• 80C: your actual EPF contribution + any PPF, ELSS, or insurance premiums paid
• 80D: premium you actually paid for health insurance
• Home loan interest on self-occupied property (not let-out)
• Own NPS contribution

Step 2. Use the Income Tax Department's official comparison tool — it lets you enter your deductions and shows both regimes side by side.

Step 3. Tell your employer before the April declaration deadline. Missing it means your employer defaults you to the new regime and deducts TDS accordingly.

Step 4. Remember: salaried employees can switch every year (IT Department FAQ — new vs old regime). You are not locked in.

Old vs new tax regime FY 2025-26: which should you choose?

• The new regime wins for most salaried Indians with limited deductions — especially at ₹10–20L gross.
• The old regime wins when total deductions exceed ₹3.75–7.75L depending on salary level.
• The most common deductions that tip the balance: metro HRA + home loan interest + full 80C.
• Employer NPS contribution (Section 80CCD(2)) is available in both regimes — don't count it in your comparison.
• Run the actual numbers. The IT Department's calculator does the math for you in minutes.

Frequently asked questions: old vs new tax regime

Q: Can I switch between old and new regime every year?

A: Yes, if you are a salaried employee with no business income, you can switch regimes every financial year. Inform your employer at the start of the year (IT Department FAQ — new vs old regime). If you have business income, once you opt out of the new regime, switching back has restrictions — consult a CA.

Q: Is the old regime being phased out?

A: No official phaseout has been announced. The Finance Act 2025 made the new regime more attractive, but the old regime remains available. However, the government has consistently reduced incentives to stay in the old regime since FY 2023–24.

Q: My EPF contribution is ₹1.2L — does that count toward 80C in the old regime?

A: Yes. Your own EPF contribution qualifies under Section 80C — Income Tax Department, AY 2026-27. If your EPF contribution plus other qualifying investments (PPF, ELSS, insurance premiums) reaches ₹1.5L, you've maxed the 80C deduction.

Q: I have a home loan. Does it automatically mean old regime is better?

A: Not necessarily. A home loan gives you two deductions in the old regime: interest under Section 24(b) (up to ₹2L) and principal under Section 80C (which counts toward the ₹1.5L limit). But unless these, combined with your other deductions, exceed your break-even threshold, the new regime can still win.

Q: What if I just started working — which regime should I pick?

A: Typically the new regime is better early in your career: lower salary, no home loan, minimal investments. As income grows and you accumulate a home loan, family insurance, and maxed 80C — revisit the comparison. There's no permanent answer.

Old vs new tax regime FY 2025-26: key takeaways

• New regime wins by default for most salaried employees with income up to ₹12.75L — the ₹75,000 standard deduction and ₹12L rebate under Section 87A mean zero tax liability at that level
• The break-even is roughly ₹4.25–4.75L in total deductions above the ₹75,000 standard deduction, for incomes between ₹15L and ₹20L. If your 80C + HRA + 80D + home loan interest adds up to more than this, model both regimes
• What tips the balance toward the old regime: a home loan with substantial interest deduction (Section 24(b)), HRA in a metro city on high basic, or maxed 80C + 80D + NPS contributions simultaneously
• What keeps most people in the new regime: the combination of lower rates, simplified compliance, and the fact that most early-career employees don't yet have a home loan or family insurance premium large enough to bridge the gap
• Review every year — at salary increment, at the start of every FY, or when a major life event (home purchase, child's birth, salary jump) changes your deduction profile
• The employer NPS contribution (Section 80CCD(2)) is available in both regimes — if your employer offers this, take it regardless of which regime you choose

Sources

• Income Tax Department — Salaried Individuals, AY 2026–27 (tax slabs, Section 87A, Section 80C, Section 24(b), Section 16(ia))
• Income Tax Department — New vs Old Tax Regime FAQs (Section 80CCD(2) in new regime, switching between regimes)
• PFRDA — National Pension System overview (Section 80CCD(1B) own NPS contribution)
• ClearTax — Old vs New Tax Regime Comparison FY 2025-26 (secondary reference)

Last verified: May 2026. Tax rules change with each Budget — confirm current slabs at incometax.gov.in before filing.