New vs Old Tax Regime FY 2025-26 — Which One Should You Choose? 

Every salaried individual in India faces the same question before filing their ITR, should I go with the new tax regime or stick with the old one? For FY2025-26, this decision is more important than ever because the new regime is now the default regime under the Income Tax Act. If you do not actively choose the old regime, the new regime will apply automatically. This post explains the key differences, who benefits from each, and how to make the right choice before the March 31 deadline. 

The new tax regime was made the default regime from FY2023-24 onwards. For FY2025-26, the Finance Act 2025 has made it even more attractive by raising the basic exemption limit to Rs 4 lakh, introducing a rebate under Section 87A that makes income up to Rs 12 lakh effectively tax free for resident individuals (as per the Finance Act 2025, the Section 87A rebate is not available against special rate incomes like short term capital gains under Section 111A and long term capital gains under Section 112 So the "zero tax up to Rs 12 lakh" statement has a caveat for people with capital gains income) , and reducing surcharge for high income earners. The new regime offers lower slab rates but does not allow most deductions and exemptions. 

• Income up to Rs 4 lakh — Nil

• Rs 4 lakh to Rs 8 lakh — 5 percent

• Rs 8 lakh to Rs 12 lakh — 10 percent

• Rs 12 lakh to Rs 16 lakh — 15 percent

• Rs 16 lakh to Rs 20 lakh — 20 percent

• Rs 20 lakh to Rs 24 lakh — 25 percent

• Above Rs 24 lakh — 30 percent

The new regime removes most popular deductions that salaried individuals have relied on for years. You cannot claim Section 80C deductions for PPF, ELSS, LIC premiums, or home loan principal repayment. HRA exemption is not available. Leave Travel Allowance is not available. Standard deduction was introduced at Rs 75,000 for salaried individuals and pensioners but that is the only major relief. If you have made significant investments under 80C or are paying rent and claiming HRA, the old regime may still work better for you. 

The old regime works better for individuals who have large deductions to claim. If your total deductions including 80C investments, HRA, home loan interest under Section 24, NPS contributions under 80CCD, and health insurance under 80D add up to more than Rs 3.75 lakh, the old regime will typically result in lower tax. Salaried employees with a home loan in a metro city, significant LIC or PPF investments, and HRA claims are the most likely candidates for whom the old regime still makes financial sense. 

The new regime is clearly better for individuals with income up to Rs 12 lakh since the rebate under Section 87A makes their tax liability zero (as per the Finance Act 2025, the Section 87A rebate is not available against special rate incomes like short term capital gains under Section 111A and long term capital gains under Section 112 So the "zero tax up to Rs 12 lakh" statement has a caveat for people with capital gains income) . It is also better for individuals who do not have large deductions; for example, someone who does not invest in 80C instruments, does not pay rent, and does not have a home loan. Young professionals early in their careers who have not yet built up their investment portfolio will generally benefit from the new regime. 

Many salaried taxpayers in Hyderabad have received income tax notices because their consultant filed under the wrong regime, claimed deductions that were not available, or switched regimes incorrectly. Under the new regime, claiming HRA or 80C deductions is not permitted, and doing so can trigger a defective return notice or a demand for excess refund recovery with interest under Section 234B and 234C. At Obaid Khan and Associates, we analyse your salary structure, investment proofs, and Form 16 before recommending the right regime. We do not file first and fix later.

Salaried individuals can switch between regimes every year at the time of filing their ITR. However, individuals with business income can switch only once. If you want to opt for the old regime for FY2025-26, you must inform your employer before the end of the financial year so that TDS is deducted accordingly. If your employer has already deducted TDS under the new regime but you want to file under the old regime, you can still do so while filing your ITR before July 31, 2026 and claim any excess TDS as a refund. 

If you are unsure which regime is better for your specific income and investment situation, call or WhatsApp us at 9160091660. We serve salaried professionals across Hyderabad including Madhapur, Gachibowli, Hitech City, Kondapur, Banjara Hills, Jubilee Hills, Ameerpet, Kukatpally, and Secunderabad. Our team will review your Form 16 and give you a clear recommendation within 24 hours.