The Union Budget 2025 revised the new tax regime slabs significantly — making the new regime even more attractive for most salaried taxpayers. Here's a complete, updated comparison of both regimes with worked ₹ examples at three income levels so you know exactly which one saves you more.
The Union Budget 2025 (presented February 2025) introduced significant changes to the new tax regime effective from FY 2025-26 (AY 2026-27):
The most important change: Income up to ₹12 lakh is now effectively zero-tax under the new regime (₹12.75 lakh for salaried employees after the ₹75,000 standard deduction). This makes the new regime the obvious choice for most taxpayers below this threshold.
| Income Range | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Plus 4% Health & Education Cess on tax payable. Rebate under Section 87A makes effective tax nil for income up to ₹12 lakh (₹12.75 lakh for salaried with standard deduction).
| Income Range | Tax Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Old regime allows: standard deduction ₹50,000, Section 80C ₹1.5L, 80D ₹25K, HRA exemption, home loan interest ₹2L, NPS 80CCD(1B) ₹50K, and many other deductions.
| Income | New Regime Tax | Old Regime Tax* | Verdict |
|---|---|---|---|
| ₹8 lakh | ₹0 (87A rebate) | ₹25,480 (after 80C ₹1.5L) | New regime wins |
| ₹12 lakh | ₹0 (87A rebate) | ₹93,600 (after 80C+HRA+80D) | New regime wins |
| ₹20 lakh | ₹2,02,800 | ₹1,82,520 (with full deductions) | Old regime wins |
*Old regime figures assume maximum deductions: 80C ₹1.5L, HRA ₹1.2L, 80D ₹25K, standard deduction ₹50K, NPS ₹50K (where applicable). Actual savings depend on your specific deductions.
Crossover point: For most salaried taxpayers, the old regime becomes more beneficial only when total deductions exceed approximately ₹4–5 lakh. Use ToolLoom's Income Tax Calculator to find your exact crossover point.
| Income Level | Surcharge (New Regime) | Surcharge (Old Regime) |
|---|---|---|
| Up to ₹50 lakh | Nil | Nil |
| ₹50L – ₹1 Cr | 10% | 10% |
| ₹1 Cr – ₹2 Cr | 15% | 15% |
| ₹2 Cr – ₹5 Cr | 25% | 25% |
| Above ₹5 Cr | 25% (capped) | 37% |
The 4% Health & Education Cess applies on (tax + surcharge) for all taxpayers. Marginal relief is available to prevent the effective rate from exceeding 100% at surcharge thresholds.
Salaried employees can declare their preferred regime to their employer at the start of each financial year. They can switch every year — new regime one year, old regime the next, based on their deduction profile that year.
Business owners who have opted out of the new regime cannot return to it in future years, except under specific conditions. This is an important consideration for self-employed professionals and partners in firms.
Default regime: If you don't declare your preference to your employer or choose a regime in your ITR, the new regime is applied automatically. Always make an active choice based on your actual deductions.