Which tax regime is better for me - old or new?

The choice depends on your total deductions. The new regime is generally better if your combined deductions under 80C, HRA, 80D (health insurance), home loan interest under 24(b), and NPS are less than approximately ₹3.75 lakh. Above that, the old regime can save more. At ₹15 lakh income with ₹3.25 lakh deductions (₹1.5L 80C + ₹1.5L HRA + ₹25K 80D), the old regime typically wins. At ₹15 lakh with only ₹1.5 lakh in 80C and no HRA, the new regime saves significantly more. There is no universal answer - use our Tax Regime Comparison Calculator to compare precisely with your real income and deduction numbers.

What is the standard deduction in FY 2025-26?

Standard deduction is an automatic flat deduction available to all salaried employees and pensioners without requiring any investment proof. Under the new regime for FY 2025-26, it is ₹75,000 (raised from ₹50,000 in Budget 2024). Under the old regime it remains ₹50,000. This means a salary of ₹12,75,000 under the new regime results in a taxable income of ₹12,00,000 after deducting ₹75,000 - which falls within the Section 87A rebate limit, effectively making salaries up to ₹12.75 lakh tax-free under the new regime in FY 2025-26. No documents or declarations are required to claim standard deduction - your employer applies it automatically.

What is the Section 87A rebate and who gets it?

Section 87A provides a rebate that reduces your computed income tax to zero if your taxable income does not exceed a threshold. Under the new regime for FY 2025-26, the rebate is ₹60,000 - eliminating all tax for taxable income up to ₹12 lakh. Under the old regime, the 87A rebate is ₹12,500 and applies up to ₹5 lakh taxable income. The rebate works like this: if your taxable income is ₹12 lakh under the new regime, the computed tax (before rebate) based on slabs equals exactly ₹60,000 (0+20,000+40,000). The ₹60,000 87A rebate offsets this entirely, leaving zero tax payable before cess. Taxable income of ₹12.01 lakh starts paying tax again - the rebate is a cliff, not a phase-out.

What are the new regime tax slabs for FY 2025-26?

The new tax regime slabs for FY 2025-26 are: ₹0 to ₹4 lakh - Nil; ₹4 to ₹8 lakh - 5%; ₹8 to ₹12 lakh - 10%; ₹12 to ₹16 lakh - 15%; ₹16 to ₹20 lakh - 20%; ₹20 to ₹24 lakh - 25%; above ₹24 lakh - 30%. A 4% Health and Education Cess is added on the total tax. Example: ₹15 lakh CTC, ₹75,000 standard deduction = ₹14.25 lakh taxable. Tax = ₹0 (0-4L) + ₹20,000 (4-8L at 5%) + ₹40,000 (8-12L at 10%) + ₹33,750 (12-14.25L at 15%) = ₹93,750 + 4% cess = ₹97,500 annual tax, or approximately ₹8,125 per month TDS. The 87A rebate does not apply since taxable income exceeds ₹12 lakh.

Is HRA exempt under the new tax regime?

No - House Rent Allowance (HRA) exemption is not available under the new tax regime. If you choose the new regime, your entire HRA received from the employer is treated as taxable salary. Only the flat ₹75,000 standard deduction applies; there is no exemption for actual rent paid. This is a significant factor for employees in metro cities paying high rent. For example, a Mumbai employee with ₹50,000 monthly basic salary paying ₹25,000 monthly rent may have an HRA exemption of ₹2 lakh or more per year under the old regime. If this HRA exemption plus 80C deductions exceed approximately ₹3 to 4 lakh, the old regime often saves more tax despite its higher slab rates.

Can I switch between old and new tax regime every year?

For salaried employees with no business income, yes - you can choose a different regime each financial year. You inform your employer at the start of the year, and TDS is deducted accordingly. If you change your mind mid-year or after year-end, you can select the correct regime when filing your Income Tax Return (ITR). For self-employed individuals and those with income from business or profession, switching is more restrictive: once you opt out of the new regime, you can only switch back once in your lifetime. The flexibility for salaried employees is valuable - it lets you optimise each year based on actual deductions made. Always run the comparison with real numbers before finalising your choice.

How does the Rs. 12,500 agricultural income affect tax calculation?

Agricultural income is exempt from central income tax under Section 10(1) of the Income Tax Act - but it is used for rate purposes when you have other taxable income. The partial integration method: first, compute tax on (non-agricultural income + agricultural income), then compute tax on (agricultural income + basic exemption limit), subtract the second from the first to get tax payable. This ensures agricultural income pushes your non-agricultural income into higher tax slabs even though the agricultural income itself is untaxed. States can independently tax agricultural income under their own statutes. Most Indian farmers with income only from agriculture pay no central income tax. However, if you earn Rs. 5 lakh in salary and Rs. 3 lakh in agricultural income, your effective slab rate on the salary is higher than if the Rs. 3 lakh did not exist.

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Income Tax Calculator

Calculate income tax under old and new regime for FY 2025-26.

About the Income Tax Calculator

India operates two parallel income tax regimes for individuals: the new regime introduced in Budget 2020 and restructured significantly in Budget 2025, and the old regime that has been in place for decades. The new regime offers lower slab rates and a generous zero-tax threshold, but gives up most deductions. The old regime has higher rates but lets you claim deductions under 80C (PPF, ELSS, LIC), HRA, 80D (health insurance), home loan interest under 24(b), and more. The right choice depends entirely on your income level and how much you actually invest in eligible instruments.

Budget 2025 made the new regime the clear default for most salaried Indians. The standard deduction was raised to ₹75,000, the Section 87A rebate was increased to ₹60,000 (covering all tax up to ₹12 lakh taxable income), and a new zero-slab was added for income up to ₹4 lakh. The practical effect: anyone earning up to ₹12.75 lakh gross pays zero income tax under the new regime in FY 2025-26. For those earning above that threshold, the calculation gets more nuanced and depends heavily on deductions.

This calculator computes your tax under both regimes simultaneously, shows the exact rupee difference, and tells you which regime saves more based on your actual inputs. Enter your income, add your deductions in the Old Regime tab, and compare in real time.

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New Regime

Zero tax up to ₹12.75L gross · ₹75K std deduction · No other deductions

Default from FY 2025-26

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Old Regime

80C up to ₹1.5L · HRA · 80D · Home loan interest up to ₹2L

Better if deductions > ₹3.5L

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Section 87A Rebate

New: ₹60,000 rebate if taxable ≤ ₹12L · Old: ₹12,500 if taxable ≤ ₹5L

Zero tax cliff at ₹12L

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Surcharge

10% on tax if income ₹50L-1Cr · 15% up to ₹2Cr · 25% up to ₹5Cr · 37% above ₹5Cr

Marginal relief available

New Regime Tax Slabs (FY 2025-26 / AY 2026-27)

₹0-4L: 0% · ₹4-8L: 5% · ₹8-12L: 10% · ₹12-16L: 15% · ₹16-20L: 20% · ₹20-24L: 25% · Above ₹24L: 30%

Standard deduction: ₹75,000 (new) / ₹50,000 (old) · 87A rebate: ₹60,000 for new regime (zero tax if taxable ≤ ₹12L), ₹12,500 for old (zero tax if taxable ≤ ₹5L) · Cess: 4% on total income tax + surcharge · Old regime slabs: ₹0-2.5L: 0%, ₹2.5-5L: 5%, ₹5-10L: 20%, above ₹10L: 30%

Worked Example

Salaried employee with ₹15 lakh gross annual income in FY 2025-26

Gross Annual Income:₹15,00,000

80C Investments (old regime):₹1,50,000

HRA Exemption (old regime):₹1,20,000

80D Health Insurance (old):₹25,000

New Regime: Taxable = ₹15L - ₹75K std deduction = ₹13.25L. Tax on slabs = ₹0 + ₹20K + ₹40K + ₹48,750 = ₹1,08,750. After 4% cess = ₹1,13,100. Old Regime: Taxable = ₹15L - ₹50K std - ₹1.5L (80C) - ₹1.2L (HRA) - ₹25K (80D) = ₹11.55L. Tax = ₹1,12,500 + ₹11K = ₹1,23,500. After 4% cess = ₹1,28,440. Result: New Regime saves ₹15,340 for this income and deduction profile.

Tips & Insights

1
The crossover point is roughly ₹3.5-4 lakh in total deductions. If your combined 80C + HRA + 80D + home loan interest + NPS is above this, old regime is worth comparing carefully. Below this, new regime almost always wins.
2
Employer NPS contribution under 80CCD(2) is deductible in BOTH regimes, up to 10% of basic+DA. This is the only employer-contributed deduction available in the new regime and is often overlooked by employees. It reduces taxable income without you investing anything extra.
3
The Section 87A rebate at ₹12L taxable income is a sharp cliff, not a gradual phase-out. Someone with ₹12L taxable income pays zero tax; someone with ₹12.01L pays roughly ₹1,500 in tax. This makes structuring your salary to stay at or just below ₹12.75L gross meaningful if possible.
4
Salaried employees can choose their regime each financial year when filing the ITR, even if they declared one option to their employer for TDS purposes. If you switched to new regime mid-year but want old regime benefits, claim them at ITR filing and get a TDS refund. Self-employed individuals have more restricted switching rules.
5
HRA exemption is not available in the new regime. If you pay high rent in a metro city, HRA can be a significant deduction under old regime. The HRA exemption is the lowest of: actual HRA received, rent paid minus 10% of basic salary, or 50% of basic (metro) / 40% (non-metro). Calculate this before dismissing old regime.
6
If your income exceeds ₹50 lakh, surcharge significantly raises your effective tax rate. At ₹60L income, a 10% surcharge adds roughly ₹40,000 to ₹60,000 in additional tax. Both regimes levy surcharge, but the base tax calculation differs. Always factor in surcharge when planning at higher income levels.
7
Standard deduction difference: the new regime gives ₹75,000 while the old regime gives ₹50,000. This ₹25,000 gap partially offsets the loss of other deductions for lower-income earners who do not have significant 80C or HRA claims. For someone with only ₹1.5L in 80C, the net deduction advantage of old regime over new is just ₹1.25L (₹1.5L 80C + ₹50K std - ₹75K new std), which rarely justifies old regime's higher slab rates.
8
Filing ITR is mandatory even if you have zero tax liability, if your gross income exceeds the basic exemption limit or you have specific income types. Zero tax does not mean zero filing obligation. Use the tax saved to invest in a step-up SIP or prepay a home loan for compounding wealth over time.

Why this matters for you

India's income tax regime choice is one of the most consequential annual financial decisions for salaried employees, yet most people either stick to old regime out of habit or switch to new regime without checking if it actually saves them money. The difference can be ₹20,000 to ₹80,000 or more per year at incomes between ₹15L and ₹30L, which is a significant amount that compounds meaningfully if invested.

Budget 2025 was a watershed moment. For the first time, the government made the new regime genuinely attractive for a broad range of taxpayers, not just those with no deductions. The raise in standard deduction to ₹75,000 and the ₹60,000 87A rebate together create a practical zero-tax zone up to ₹12.75L gross salary. This means roughly 1.5 to 2 crore salaried Indians who previously paid tax now owe nothing under the new regime in FY 2025-26.

For those earning above ₹12.75L, the decision requires real calculation. The old regime's deduction architecture rewards disciplined investors who max out 80C, contribute to NPS, and claim HRA. The new regime rewards everyone else with lower rates and no paperwork. Use this calculator every April when you submit your regime declaration to your employer, and again in March to verify your TDS matches your expected liability before filing your ITR.