Old tax regime vs new tax regime with revised slabs: What to choose in 2025-26?

Though the new income tax regime will feature revamped tax slabs from April 1, 2025 onwards, the old regime offers a slew of deductions and exemptions.

The new income tax regime will feature the revamped tax slabs from April 1, 2025 onwards, with individuals not requiring to pay any tax if their income does not exceed ₹12 lakh.

Many of those who use the old regime may consider switching to the new one since the Union Budget 2025 has substantially brought down the slab rates for incomes up to ₹24 lakh.(Pixabay)

However, this is only if the person chooses the new regime. Some people opt for the old tax regime due to the slew of deductions and exemptions it offers in certain cases.

Despite this, many of those who use the old regime may consider switching to the new one since the Union Budget 2025 has substantially brought down the slab rates for incomes up to ₹24 lakh.

What are the deductions available in the old tax regime?

a) Employee's contribution to the Employees Provident Fund under Section 80C.

b) Exemption on leave travel allowance (LTA) up to a certain extent.

c) Exemption on house rent allowance (HRA) if living on a rented apartment.

d) Employer's contribution to the National Pension System (NPS) under Section 80CCD (2).

e) Food coupon vouchers such as Sodexo of ₹2,200 per month or annually of ₹26,400.

f) Other investments and expenses under Section 80C.

g) Deduction of ₹50,000 for NPS investment under Section 80CCD (1b).

h) Section 80D deduction for health insurance premium paid for self, family and parents.

i) Section 80TTA deduction on interest earned from savings account.

Cases of disability, donations to exempted institutions and so on can also allow for deductions.

What about the new tax regime?

The new tax regime offers limited deductions, but has a standard deduction from salary income and Deduction under Section 80CCD (2) for the employer's contribution to NPS.

On top of this, telephone and conveyance reimbursements are exempt from tax under both tax regimes, similar to car leasing.

Which tax regime is best?

The tax regime to choose entirely depends on the taxpayer's source of income and eligibility for deductions.

The employer's contribution to the National Pension System (NPS) account will be different in the two regimes, with up to 10 per cent of the basic salary in the old tax regime being allowed as a deduction under Section 80CCD (2).

On the other hand, 14 per cent of the basic salary is allowed as a Section 80CCD(2) deduction in the new tax regime.

In cases where taxpayers have limited means of claiming deductions or exemptions, the new tax regime with the revised tax slab will definitely offer higher tax saving for the financial year 2025-26.

Similarly those who have exhausted their options for deductions and exemptions can switch to new tax regime, as it will both save more income tax and also keep things hassle free since there is no need to arrange proofs and records for claiming deductions and exemptions.