The Union Budget 2023 made the New Tax Regime the default for all salaried taxpayers, and Budget 2025 substantially widened the gap between the two regimes by revising the New Regime's slabs and raising its rebate threshold. "Default" still does not mean "better" for everyone — but the calculation has shifted significantly in the New Regime's favour for most people since Budget 2025. Here is how to decide with current figures.
The two regimes at a glance
Old Tax Regime: Higher slab rates, but you can claim deductions (80C up to ₹1.5L, HRA, home loan interest under Section 24, 80D medical insurance, LTA, etc.). Standard deduction is ₹50,000. Works best for those with significant investments and deductions.
New Tax Regime (FY 2025-26 slabs, per Budget 2025):
Up to ₹4 lakh — Nil
₹4L–8L — 5%
₹8L–12L — 10%
₹12L–16L — 15%
₹16L–20L — 20%
₹20L–24L — 25%
Above ₹24L — 30%
Standard deduction of ₹75,000 is available under the New Regime. No other deductions. Crucially, Budget 2025 also raised the Section 87A rebate so that taxable income up to ₹12 lakh under the New Regime pays zero tax — for a salaried employee, that means gross income up to ₹12.75 lakh (₹12L + ₹75,000 standard deduction) is effectively tax-free under the New Regime, regardless of any other deductions.
Worked example — ₹12 lakh CTC
Old Regime: 80C = ₹1.5L, HRA exemption = ₹1L, 80D = ₹25,000, standard deduction = ₹50,000. Total deductions = ₹3.25L. Taxable income = ₹8.75L. Tax ≈ ₹91,000 (including cess).
New Regime: Standard deduction = ₹75,000. Taxable income = ₹11.25L — under the ₹12L rebate threshold. Tax = ₹0.
At this income level, the New Regime wins decisively — by the full ₹91,000 — because ₹11.25L taxable income falls entirely within the New Regime's zero-tax rebate zone. This is a complete reversal from pre-Budget-2025 rules, where the New Regime's rebate only covered taxable income up to ₹7 lakh. Use our Income Tax Calculator to run the comparison with your exact figures.
When the Old Regime still wins
The Old Regime remains better mainly at higher incomes with substantial deductions — particularly a home loan (Section 24b interest, up to ₹2L) stacked with HRA and full 80C, since the New Regime allows none of these. Below roughly ₹12.75L gross, the New Regime's zero-tax zone is very hard for the Old Regime to beat even with maximum deductions, since the Old Regime still owes tax on income above its much lower ₹2.5L exemption.
Worked example — ₹18 lakh CTC with a home loan
Old Regime: 80C = ₹1.5L, home loan interest (Sec 24b) = ₹2L, HRA exemption = ₹1.5L, 80D = ₹25,000, standard deduction = ₹50,000. Total deductions = ₹5.75L. Taxable income = ₹12.25L. Tax ≈ ₹1,87,200 (including cess).
New Regime: Standard deduction = ₹75,000. Taxable income = ₹17.25L — above the ₹12L rebate threshold, so full slab tax applies. Tax ≈ ₹1,50,800 (including cess).
Even with a home loan, full 80C, and HRA stacked together, the New Regime still comes out ahead here by roughly ₹36,400 — a direct consequence of Budget 2025's slab widening. Under the pre-2025 rules this same scenario favoured the Old Regime; that is no longer reliably true. The gap does close, and can flip to the Old Regime, at higher incomes with even larger deductions (a bigger home loan, for instance) — which is exactly why running your own numbers through the calculator matters more than following a rule of thumb.
Can you switch regimes every year?
Salaried individuals without business income can switch between the Old and New Regime every financial year when filing their return — you're not locked in. This means you can genuinely calculate both ways each year and pick whichever is lower, rather than committing long-term. Those with business or professional income face more restrictions: they can switch back to the Old Regime only once after opting for the New Regime.
What most people get wrong
The most common mistake right now is still comparing regimes using pre-Budget-2025 assumptions — a lot of advice and old spreadsheets circulating online still reference the old ₹7L rebate threshold and the old New Regime slabs, which understate how favourable the New Regime became after Budget 2025. If your last regime comparison is more than a year old, it's worth re-running it with current figures rather than trusting last year's conclusion.