Comparing Old vs. New Tax Regime: Which One Suits You Best in FY 2025-26? Experts Explain

With the new financial year 2025-26 underway, taxpayers must decide between the old and new tax regimes. The revised tax slabs introduced in the Union Budget 2025 have made the new tax regime more attractive for certain salaried individuals. But is it the right choice for you? Experts break it down.

Key Differences Between Old and New Tax Regimes

The fundamental difference between the two regimes lies in tax slab rates and the availability of deductions. The old tax regime allows taxpayers to claim exemptions under sections like 80C, 80D, HRA, and home loan interest, which significantly reduce taxable income. The new tax regime, on the other hand, offers lower tax rates but removes most deductions, making it simpler and more straightforward.

According to Dhruv Chopra, Managing Partner at Dewan P. N. Chopra & Co., individuals with minimal deductions may benefit more from the new tax regime due to its revised rebate structure. For instance, a salaried person with a net taxable income of Rs. 12 lakh (post-standard deduction) can claim a rebate of Rs. 75,000 under Section 87A, effectively bringing their tax liability to zero.

New Tax Slabs Under the New Regime for FY 2025-26

The new tax regime features multiple slabs, ensuring lower tax outgo compared to the old structure. The reduced slab rates make it a viable option for those who prefer a hassle-free taxation process without engaging in investment-linked deductions.

Which Tax Regime Works Best for You?

CA Manish Mishra, Founder of GenZCFO, explains that the choice between the two regimes depends on an individual’s financial habits. Those who actively invest in tax-saving instruments like EPF, PPF, NPS, or insurance may find the old tax regime more beneficial due to deductions. However, individuals who prefer liquidity and do not invest in tax-saving options might benefit from the new tax regime’s lower rates and simplified structure.

Are Tax Deductions Like 80C, 80D, HRA, and Home Loan Interest Allowed in the New Regime?

One of the significant drawbacks of the new tax regime is the elimination of most deductions. Taxpayers cannot claim benefits for house rent allowance (HRA), home loan interest, or deductions under Sections 80C to 80U. However, one exception remains—Section 80CCD(2), which allows deductions for employer contributions to an employee’s National Pension Scheme (NPS) account.

Choosing between the old and new tax regimes depends on your financial strategy. If you rely on tax-saving investments , the old regime may still be the better option. However, if you prefer lower tax rates and a simplified structure without the need for deductions, the new regime could be the right fit. Carefully assess your expenses and investments before making a decision for FY 2025-26.