INCOME TAX SLAB – OLD vs. NEW TAX REGIME

In the 2020 budget, the Indian government introduced a new tax regime to simplify the tax system. Taxpayers have the option to choose between the old and new tax regimes under the existing tax system. Both regimes use different methods for calculating income taxes, and their tax slabs and deductions differ; each tax system has unique advantages over the others.

The old regime permitted several exemptions and deductions. The new regime, on the other hand, aims for a simple process of filing by eliminating most of these deductions while offering reduced tax rates. A major advantage of the new system for FY 2025–2026 is that the tax burden is zero for incomes up to ₹12,00,000.

Old Tax Regime

The traditional Indian tax system is referred to as the “old tax regime”. The HRA, LTA, Sections 80C and 80D, and other exemptions and deductions are available to taxpayers under this regime to reduce their taxable income and, consequently, their tax liabilities. The old and new tax systems are offered to the taxpayers according to their choice.

New Tax Regime

In 2020, the new tax system went into effect. Tax rates are lowered for all income levels. Most exemptions and deductions, including HRA, LTA, 80C, 80D, and others, are eliminated, somehow. This led to a lack of interest in the new tax system. Currently, the default tax system is the new one as well. In Budgets 2023 and 2024, the government made a few changes to increase the regime’s stability.

Features	Old Tax Regime	New Tax Regime (FY 2025-2026)
Tax slabs	Higher	Lower
Deductions/Exemptions	Numerous deductions and exemptions for various investments, expenses, and savings. These include deductions under Sections 80C, 80D, 80E, LTA, and house rent allowances.	Restricted major deductions or exemptions.
Standard Deduction	₹50,000	₹75000
Income eligibility for rebate u/s 87A	Up to ₹5,00,000 Rebate: 12,500	Up to ₹12,00,000 Rebate: 60,000
Complexity	Complex due to various deductions	Simplified tax filing
Best for	People who are claiming and paying home loan interest, HRA, etc.	People who do not claim HRA, House property loss due to loan repayment, etc.

Which regime is best to choose?

You should consider several criteria while deciding between the new and old tax regimes:

• Level of Income: Determine your yearly income and compare it to the tax slabs under the two regimes.
• Financial Objectives: Think about your financial goals. This can involve making a long-term investing plan or setting aside money for retirement. Through deductions, the previous administration promoted smart saving.
• Financial responsibilities: The old regime might have been preferable if planning for home loan, the income structure consists of HRA, where Sukanya samriddhi scheme is found more appropriate to investment for girl child, or any other financial planning.
• Tax Deductions: Speak with a financial counsellor or use a tax calculator. Before choosing, you can use this to compare the actual taxes due under the two regimes.

Tax slab for financial year 2025 – 2026

New Tax Regime

The revised tax slabs under the new regime that are applicable from 1st April 2025 are as follows:

Tax Slab	Tax Rate
Upto  Rs. 4,00,000	Nil
Rs. 4,00,001 – Rs. 8,00,000	5%
Rs. 8,00,001 – Rs. 12,00,000	10%
Rs. 12,00,001 – Rs. 16,00,000	15%
Rs. 16,00,001 – Rs. 20,00,000	20%
Rs. 20,00,001 – Rs. 24,00,000	25%
More than 24,00,000	30%

Old Tax Regime

The tax slabs under the old regime is unchanged for AY 2025-26 and AY 2026-27 are as follows:

Tax Slab	Tax Rate
Upto  Rs. 2,50,000	Nil
Rs. 2,50,001 – Rs. 5,00,000	5%
Rs. 5,00,001 – Rs. 10,00,000	20%
Rs. 10,00,001 – Rs. 15,00,000	30%
More than 15,00,000	30%

How to chose which Regime is better for you?

Taxpayers must know that NEW TAX REGIME has been set as default for all eligible taxpayers. One who wants to opt for the OLD TAX REGIME for tax computation, must select “OPT OUT” option within the due date of the return.

Also, the Taxpayer must mention Date of filing and Acknowledgement Number of the FORM 10-IEA for the same.

Disclaimer: The content here is only for reference and is subject to update time to time. To get to know the tax liability, consult your professional advisor or connect to our operation team via 91-9267970588 or taxacumen.consultancy@gmail.com