New Tax Regime vs Old Tax Regime: Slabs, rates and key differences to know before Budget 2026

Ever since the new tax regime was introduced in Budget 2020, taxpayers have faced a choice: the old tax regime or the new tax regime? What should they opt for? In Budget 2023, the government made the new tax regime the default regime from FY 2023-24.

This means that the taxpayers who won’t opt out of the default regime will have their tax liability calculated under the new tax regime.

Tax slabs: Old vs new tax regime

New tax regime

Old tax regime

Key changes in the new tax regime

The standard deduction of ₹75,000 means even less taxable income for you. The family pension deduction has also been increased to ₹25,000. The old tax regime offers a standard deduction of ₹50,000

From FY 2025-26, individuals with a taxable salary of up to ₹12.75 lakh can benefit under the new tax regime. Even those earning up to ₹25 lakh are expected to save over ₹1 lakh by choosing the new regime. Additionally, lower surcharge rates mean that high earners with incomes above ₹50 lakh can also gain from the new regime. You can use an income tax calculator to estimate exactly how much you could save by switching to it.

Income Tax Calculator

1

Basic details

2

Income details

3

HR & other allowances

4

Deductions

5

Summary

Basic details

Financial year

FY 2025 - 2026

New

Age group

0 - 59 yrs

My city is a

Metro

Continue

What are the deductions available under the old and new tax regime?

Under the old tax regime, taxpayers can claim a wide range of deductions, including Section 80C investments (like ELSS, PPF, life insurance), medical insurance under Section 80D, HRA, home loan interest, and more.

In contrast, the new tax regime offers lower tax rates but limited deductions, mainly the standard deduction, employer’s NPS contribution (80CCD(2)), and certain retirement-related exemptions. Tax-saving options like ELSS, HRA, and home loan interest are currently not available.

Does the old tax regime offer more benefits?

The old tax regime, in place before 2020, offers a range of deductions and exemptions, including HRA, LTA, and Section 80C investments. It is generally more beneficial for taxpayers who have significant tax-saving investments.

Choosing the old regime depends on the total deductions and exemptions you can claim. Tax experts suggest that if your income falls in a higher bracket and you can fully utilise available deductions, the old tax regime may be the better option.

On the other hand, the new tax regime could be more advantageous for those who cannot claim many deductions, thanks to its lower tax rates and simpler structure. It’s always a good idea to consult a tax expert.