Old vs New Tax Regime: Which One to Choose in FY 2025–26?
Every April, salaried employees face a recurring question—should you opt for the Old Tax Regime or switch to the New Tax Regime?
Understanding the Two Tax Regimes
Old Tax Regime:
- Standard slabs with various deductions
- Claim benefits under Section 80C, HRA, 80D, etc.
- Suitable for people with structured financial planning
New Tax Regime:
- Lower tax rates but fewer exemptions
- Simpler filing with minimal documentation
- Best for those with few or no deductions
Sample Case: ₹12,00,000 Income
Let’s compare the tax liability for someone earning ₹12,00,000 annually.
Deductions (Old Regime):
- Standard Deduction: ₹50,000
- Section 80C: ₹1,50,000
- 80D Medical Insurance: ₹25,000
- Total Deductions: ₹2,25,000
So, taxable income is ₹9,75,000 (Old) and ₹12,00,000 (New).
Step-by-Step Tax Comparison
Old Regime:
- 0 – ₹2.5L: 0%
- ₹2.5L – ₹5L @ 5% = ₹12,500
- ₹5L – ₹10L @ 20% on ₹4.75L = ₹95,000
Subtotal = ₹1,07,500 + 4% cess = ₹1,11,800
New Regime:
- 0 – ₹2.5L: 0%
- ₹2.5L – ₹5L @ 5% = ₹12,500
- ₹5L – ₹7.5L @ 10% = ₹25,000
- ₹7.5L – ₹10L @ 15% = ₹37,500
- ₹10L – ₹12L @ 20% = ₹40,000
Subtotal = ₹1,15,000 + 4% cess = ₹1,19,600
What This Means for You
If you claim deductions worth ₹2,25,000, the Old Regime gives you a lower tax liability (₹1,11,800 vs ₹1,19,600). But if you don’t have many exemptions to claim, the New Regime could still be simpler and close in cost.
Key Tip:
Before deciding for FY 2025–26, use a tax calculator with your actual data. It’s the best way to see which regime saves you more!