Old Vs New Tax Regime Comparison: Which One Works Best For You In FY 2025-26? Experts Weigh In
Union Budget 2025 introduces new tax slabs effective April 1, 2025, offering financial savings for salaried individuals under the new tax regime. Experts' guide to choose which one - old tax regime or new tax regime for FY2025-26.
Old Vs New Tax Regime Comparison: New tax slabs in the New Tax Regime as announced in the Union Budget 2025 have become effective from April 01, the beginning of the new financial year 2025-26. There are new benefits that will turn into financial savings under new tax regime for salaried persons.
Dhruv Chopra, Managing Partner, Dewan P. N. Chopra & Co said compared to previous years, opting for new tax regime in FY 2025-26 will result in greater financial savings for salaried individuals who are eligible for minimal deductions or exemptions under the old tax regime. For instance, he explained, a salaried person with net taxable income of Rs. 12 lakh (post standard deduction) under the new tax regime will be eligible for a rebate of ₹75,000 under Section 87A of the Income Tax Act, effectively reducing their tax liability to zero.
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Key Differences Between Old And New Tax Regimes For FY 2025-26?
The primary distinction between the old and the new tax regime is the allowance of deduction under various provisions of the Act as well as the rebate limit under section 87A of the Act in addition to difference in tax slabs and tax slab rates.
While in the new tax regime, there exists multiple number of tax slabs with aggregate tax amount payable upto last slab is comparatively lower than the tax payable upto last slab under the old tax regime, Dhruv Chopra explained.
On the other hand, Chopra added, the old tax regime allows taxpayers to claim various deductions and exemptions (such as deduction u/s 80C to 80U, deduction for home loan interest, HRA etc.) against their income. These deduction or exemptions are, however, are not available under the new tax regime, which offers the advantage of lower tax slab rates.
New Tax Slabs Under New Tax Regime For FY 2025-26:
New vs. Old Tax Regime: Which One To Choose In FY 2025-26?
CA Manish Mishra, Founder of GenZCFO said that the decision between older and newer tax regime lies entirely upon one’s spending habits, whether one invests or doesn’t not rely on tax-saving investments.
The old regime enjoys some tax-saving exemptions, such as Section 80C (1.5 lakh), 80D (health insurance), home loan interest (2 lakh), contributions to NPS, and HRA, which will benefit those who regularly invest in EPF, PPF, insurance, and other tax-saving instruments, he explained.
Mishra said the opposite is that the new tax regime has lower tax rates and the withdrawal of almost all the deductions.
“It is a simpler structure without taxpayers’ worries about keeping track of various
deductions throughout the year. This regime is attractive for individuals who emphasize liquidity and want a simple tax calculation without engaging in intricate planning," he added.
Are Deductions Like 80C, 80D, HRA, And Home Loan Interest Applicable Under The New Tax Regime?
Under the new tax regime, taxpayers are not eligible to claim any deduction or exemption in respect of house rent allowance (HRA), home loan interest or under any provision of section 80C to 80U (which relates to payment by a taxpayer for life or medical insurance, PPF, donation, tuition fees, etc.), Chopra explained.
However, he added, one exception for salaried individual is Section 80CCD(2) which allows deductions for contributions made by an employer to the employee’s National Pension Scheme (NPS) account.
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