New vs Old Tax Regime for FY 2025-26: The Honest Comparison
The new tax regime is no longer the "simple but expensive" option. After the July 2024 tweaks and the February 2025 Finance Bill refinements, the new regime is the default and is better for most salaried taxpayers. The old regime survives as a niche choice for people with large deductions. This article walks through the FY 2025-26 numbers and shows exactly where the break-even sits.
Slabs for FY 2025-26
New regime (default):
| Income slab | 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% |
Standard deduction: ₹75,000. Section 87A rebate: up to ₹60,000 for income up to ₹12,00,000 (this is what makes income up to ₹12.75 lakh effectively tax-free in the new regime). Employer's NPS contribution up to 14% of basic + DA is deductible.
Old regime:
| Income slab | Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Standard deduction: ₹50,000. 87A rebate: ₹12,500 up to ₹5 lakh income. All common deductions retained — 80C, 80D, 80CCD(1B), 24(b) home loan interest, HRA, LTA.
The break-even, by income level
Assumption: salaried, ₹50,000 HRA exemption claimable, married, no home loan. Compare total tax owed under each regime for various gross incomes:
| Gross salary | New regime tax | Old regime tax (with full 80C+80D+HRA) | Better regime |
|---|---|---|---|
| ₹8 lakh | ₹0 | ₹26,000 | New |
| ₹12 lakh | ₹0 | ₹72,800 | New |
| ₹15 lakh | ₹1,05,000 | ₹1,45,600 | New |
| ₹20 lakh | ₹2,35,000 | ₹2,32,700 | Old (marginally) |
| ₹25 lakh | ₹3,85,000 | ₹4,10,000 | New |
| ₹35 lakh | ₹6,85,000 | ₹7,10,000 | New |
The break-even where old regime wins is a narrow band around ₹18–22 lakh gross, and only if you are maxing out 80C (₹1.5 lakh), 80D (₹50,000 incl. parents), 80CCD(1B) (₹50,000), HRA, and home-loan interest. Remove any of those and new regime wins.
What this means for your mutual fund investing
Three practical shifts for FY 2025-26:
- ELSS lost most of its appeal. ELSS is only tax-deductible in the old regime under 80C. If you are in the new regime, there is no tax reason to buy ELSS over a cheaper flexi-cap or large-cap fund. Choose on merit (track record, expense ratio, AUM stability), not on the lock-in.
- NPS Tier-1 becomes more attractive in the new regime. Employer NPS contribution up to 14% of basic + DA is now deductible. If your employer offers it, this is almost always a free deduction on top of your regular salary.
- Below ₹12 lakh income = optimise for growth, not deductions. Your entire equity MF income (via tax harvesting) and capital gains can now be absorbed by the rebate in many cases. Focus on compounding, not tax planning.
Switching regimes
Salaried individuals can switch every year at the time of filing. Business/professional income earners can switch once from new to old, and then back — after that, they are locked.
Run your own numbers with our tax regime comparison calculator. This article is for educational purposes and not investment or tax advice. Consult a qualified Chartered Accountant for decisions specific to your situation.
Ojasvi Malik
Founder, AMFI ARN-317605
AMFI Registered · ARN-317605
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Content is for educational purposes only. Not investment advice. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.