New Tax Regime vs. Old Regime: A Quick Guide for Salaried Individuals in FY 2025-26

With the new Financial Year 2025-26 starting April 1, 2025, and the income tax slab and rate changes from Budget 2025-26 now in effect, salaried employees face the important decision of choosing between the old and new tax regimes. This choice impacts their monthly tax deductions. While the new regime is appealing to many due to the changed tax slabs and rates, the old regime may still be more beneficial for some. Here’s a guide to help you decide:

1. Understanding the Key Differences

  Allows tax deductions on investments in schemes like NPS, PPF, SCSS, ELSS, and tax-saver FDs. Deductions are also available for health insurance premiums, charitable donations, and children’s tuition fees. Home loan interest (up to ₹2 lakh), HRA, and Standard Deduction are also claimable.

  Generally, no deductions are permitted. However, salaried individuals can still claim exemptions on employer contributions to NPS and EPF, and a standard deduction of ₹75,000 is available.

Choose the old regime if you want to claim tax exemptions and deductions. Otherwise, the new regime is the default option.

2. The ₹12 Lakh Taxable Salary Sweet Spot

If your taxable salary is ₹12 lakh or less under the new tax regime in FY 2025-26, you’ll pay no tax.

Your taxable salary is calculated by subtracting exemptions and deductions (only the ₹75,000 standard deduction, and employer’s NPS/EPF contributions are allowed in the new regime) from your total salary. If the remaining amount is ₹12 lakh or less, the new regime is likely the simpler choice. A salary package up to ₹15 lakh or even more can attract zero tax under the new regime in FY 2025-26 under certain conditions.

3. Taxable Salary Above ₹12 Lakh? Do the Math!

Compare your tax liability under both regimes using an Income-tax Calculator to see which one benefits you most. In many cases, the new regime is expected to be the better option in FY 2025-26.

For individuals with income from multiple sources (not just salary), seeking advice from a tax expert is recommended.