New Tax Regime vs Old Tax Regime

A note on the law: section numbers here are from the Income tax Act, 1961, the operative law for the current filing cycle. The Income tax Act, 2025 renumbers Section 115BAC, the new regime’s own section, as Section 202, from returns filed for Tax Year 2026-27 onward.

The new regime’s actual slabs for FY 2025-26

The new regime under Section 115BAC has been the default since AY 2024-25, you are filing under it automatically unless you actively opt for the old regime instead.

Income	Rate
Up to 4 lakh rupees	Nil
4 to 8 lakh rupees	5%
8 to 12 lakh rupees	10%
12 to 16 lakh rupees	15%
16 to 20 lakh rupees	20%
20 to 24 lakh rupees	25%
Above 24 lakh rupees	30%

The old regime’s slabs, for comparison

Income	Rate
Up to 2.5 lakh rupees	Nil
2.5 to 5 lakh rupees	5%
5 to 10 lakh rupees	20%
Above 10 lakh rupees	30%

These old regime slabs look punishing next to the new ones, the 20% band starts at just 5 lakh rupees instead of 12. The old regime only competes at all because of the deductions below, not because of its own rate structure.

The number that changes everything: the Section 87A rebate (tax rebate for lower incomes) under the new regime was raised to 60,000 rupees, wiping out tax entirely for taxable income up to 12 lakh rupees. Add the new regime’s 75,000 rupee standard deduction for salaried people, and gross salary up to 12.75 lakh rupees becomes effectively tax free.

The old regime’s rebate is far smaller. Under the old regime, Section 87A still exists, but only up to 5 lakh rupees taxable income, with a maximum rebate of 12,500 rupees, a fraction of the new regime’s generosity. This gap alone explains why lower income taxpayers overwhelmingly benefit from the new regime.

A standard deduction gap most people miss: the old regime’s standard deduction stayed at 50,000 rupees, while the new regime’s was raised to 75,000 rupees. That 25,000 rupee difference quietly favours the new regime before you have even compared any other deduction.

Marginal relief exists near the 12 lakh cliff. If your income is just slightly above 12 lakh rupees, a marginal relief provision ensures your tax does not jump disproportionately compared to someone earning just under that threshold, the increase in tax is capped to the amount by which your income exceeds 12 lakh rupees.

What the old regime lets you claim that the new regime does not

The new regime’s low rates come at the cost of nearly every itemised deduction. These stay available only under the old regime:

• Section 80C, up to 1.5 lakh rupees for PPF, ELSS, life insurance premiums, principal repayment on a home loan, and similar investments
• House Rent Allowance (HRA), if you actually pay rent and receive HRA as part of your salary structure
• Home loan interest on a self-occupied property, up to 2 lakh rupees under Section 24
• Section 80D health insurance premiums, for yourself, your family, and your parents
• Leave Travel Allowance (LTA), if it forms part of your salary structure
• Most other Chapter VI-A deductions, 80E education loan interest, 80G donations, 80TTA/80TTB savings and deposit interest

The new regime does keep a handful of exceptions: the standard deduction, employer’s NPS contribution under Section 80CCD(2), and a few others, but the bulk of what most salaried taxpayers actively plan around each year is old-regime-only.

Two worked examples

When the new regime wins: someone earning 12.75 lakh rupees in salary with no other deductions pays zero tax under the new regime. The same person under the old regime, with no HRA or 80C claims, pays a real tax bill, the old regime only wins if their actual deductions are substantial enough to offset both the rate difference and the smaller standard deduction and rebate.

When the old regime wins: someone earning 18 lakh rupees in salary who claims the full 1.5 lakh rupees under 80C, 2 lakh rupees of home loan interest, HRA of roughly 3 lakh rupees, and 25,000 rupees of health insurance premium is bringing their taxable income down by close to 7 lakh rupees before applying the old regime’s slabs. At that level of genuine deduction, the old regime typically works out cheaper despite its steeper rates, this is exactly the kind of taxpayer, with a home loan, dependent parents, and rent to claim, for whom the old regime still makes sense.

Surcharge at higher incomes: the exact tiers

Surcharge applies on top of the slab tax under both regimes once income crosses 50 lakh rupees, plus the 4% health and education cess on top of tax plus surcharge either way. The two regimes diverge sharply at the top end:

Income	Old regime surcharge	New regime surcharge
Up to 50 lakh rupees	Nil	Nil
50 lakh to 1 crore rupees	10%	10%
1 crore to 2 crore rupees	15%	15%
2 crore to 5 crore rupees	25%	25% (capped here)
Above 5 crore rupees	37%	25% (stays capped)

The new regime’s surcharge caps at 25% and never climbs to the old regime’s 37% top tier. This is a genuinely material difference for high net worth individuals specifically, someone with income well above 5 crore rupees carries a materially lower maximum surcharge under the new regime, independent of anything to do with deductions. Worth flagging to any client whose income sits in that top bracket, this alone can tip the comparison even where old-regime deductions would otherwise look attractive.

Switching between regimes: what Form 10-IEA actually covers

Form 10-IEA is not something every taxpayer needs to file, and assuming otherwise is a common, avoidable mistake. It’s required only for taxpayers with business or professional income, filing ITR-3 or ITR-4, who want to opt for the old regime, or who previously opted out and want to switch back. Salaried, pension, and capital-gains-only filers using ITR-1 or ITR-2 don’t file any separate form at all, they simply tick the regime option directly within the return itself, every year, with no standing election to manage.

This is exactly where the one-time-switch-back rule in the FAQs below actually bites, a business or professional filer who moves to the old regime via Form 10-IEA gets only one lifetime opportunity to file it again to move back to the new regime. A salaried filer with no business income never faces that constraint at all, since they were never filing the form in the first place.