Old vs New Tax Regime: Which Should You Choose for FY 2025–26?

The new tax regime is now the default, but it's not always the better choice. Here's a practical breakdown to help salaried individuals and business owners decide — with real numbers.

Every April, the same question lands in my inbox: "CA sir, which regime should I pick?" After 27 years of practice, my honest answer is — it depends. But let me give you a framework that makes the decision
straightforward.

What Changed from April 2025

The new regime is now the default. If you do nothing, your employer deducts TDS under the new regime. You have to actively opt into the old regime when filing your return. The new regime also raised the basic
exemption to ₹3 lakh and restructured the slabs — income up to ₹7 lakh effectively attracts zero tax after the rebate.

Stick with the Old Regime if You Have These Deductions

The old regime makes sense when your total deductions exceed roughly ₹3.75 lakh. This typically means: you are servicing a home loan (Section 24 interest up to ₹2 lakh), you max out 80C investments (₹1.5 lakh
via PPF, ELSS, or LIC), and you pay health insurance premiums (Section 80D). Add HRA exemption if you are in a metro — that alone can be ₹1–1.5 lakh for most salaried professionals in Chennai.

The New Regime Wins in These Situations

If you rent a company-provided home, have no home loan, and invest mainly in NPS through your employer, the new regime's lower slab rates will likely beat the old one. It also eliminates the compliance burden
of collecting and submitting proofs — a genuine relief for those who miss the February deadline every year.

A Quick Rule of Thumb

For income between ₹10–15 lakh: if your deductions under the old regime exceed ₹3.75 lakh, stay old. Below that, switch new. For income above ₹15 lakh: run an actual computation — the slab savings in the new
regime are larger, so the break-even deduction threshold shifts higher. We do this calculation free of charge for our clients every March.

One Thing Most People Miss

Business owners and professionals who have opted out of the new regime in a prior year cannot switch back and forth freely — they are locked in until they stop having business income. Salaried individuals have
more flexibility and can switch every year. If you are unsure which category applies to you, please call us before July.