A side-by-side comparison of both regimes for FY 2025-26, and a simple framework for deciding which one actually saves more tax.

By Kanoons · 6 min read · Last verified 2025-08-01

The new tax regime is now the default: it uses more, lower-rate slabs (5% from ₹4-8 lakh up to 30% above ₹20 lakh), a ₹75,000 standard deduction for salaried taxpayers, and a section 87A rebate that makes income up to ₹12 lakh effectively tax-free — but it disallows most common deductions, including 80C, 80D, HRA and home loan interest. The old regime keeps those deductions available but taxes income at higher slab rates (20% from ₹5 lakh, 30% above ₹10 lakh) with a smaller ₹50,000 standard deduction and a lower tax-free threshold of ₹5 lakh under its own 87A rebate.

The deciding factor is almost always how much a taxpayer actually claims in deductions: someone with a home loan, high rent (claiming HRA), and full 80C/80D utilisation will typically still come out ahead under the old regime, while someone with minimal deductions — no home loan, no significant 80C investments — is usually better off under the new regime's lower rates and larger standard deduction. Because the difference can run into tens of thousands of rupees either way, the only reliable way to decide is to actually compute the tax liability under both regimes using real income and deduction figures rather than assuming based on general rules of thumb.

Getting this choice wrong is a common and avoidable source of overpayment each filing season — a side-by-side calculation before filing, rather than defaulting to whichever regime was used last year, is the one step most taxpayers skip that would save them the most.