Since the new tax regime became the default, the big question every salaried Indian asks is: should I stay on the old regime or switch to the new one? The honest answer is — it depends entirely on how many deductions you claim. This guide breaks down both regimes for FY 2025-26 (AY 2026-27) so you can decide with confidence.
The new tax regime slabs (FY 2025-26)
| Income slab | Tax rate |
|---|---|
| Up to ₹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% |
The "Rs 12 lakh zero tax" explained
This headline confuses many people. The slabs above still apply, but a Section 87A rebate wipes out the tax for resident individuals whose taxable income is up to ₹12,00,000. For salaried employees there is also a standard deduction of ₹75,000, which effectively pushes the tax-free ceiling to around ₹12.75 lakh. Earn a rupee more than the rebate limit, though, and tax is calculated on the slabs from ₹4 lakh upward.
What the old regime still offers
The old regime keeps higher rates but lets you claim a long list of deductions and exemptions, including:
- Section 80C (up to ₹1.5 lakh): EPF, PPF, ELSS, life insurance, home loan principal, etc.
- Section 80D: health insurance premiums
- HRA exemption and LTA
- Home loan interest under Section 24(b) (up to ₹2 lakh)
- Section 80CCD(1B): extra ₹50,000 for NPS
If you use most of these, your taxable income can drop sharply — sometimes enough to beat the new regime.
How to decide
The rule of thumb: the more deductions you claim, the more attractive the old regime becomes.
- Choose the new regime if you have few deductions — for example a young earner with no home loan, little 80C investment and no HRA. It's simpler and usually cheaper.
- Consider the old regime if you claim large deductions: a home loan, full 80C, HRA on a high rent, NPS and health insurance.
The break-even depends on your exact numbers, which is why the easiest way to decide is to run both side by side. Use our Old vs New Tax Regime Comparator to see your tax under each in seconds.
Can you switch every year?
Salaried individuals without business income can generally choose afresh each financial year. Those with business or professional income face stricter switching rules, so check the current provisions before opting.
Disclaimer: Slabs, rebates and the standard deduction are revised in the Union Budget and can change each year. Always confirm the latest figures on the Income Tax Department website before filing.