ITR Filing: Old Tax Regime Vs New Tax Regime for FY 25-26
ITR Filing: Old Tax Regime Vs New Tax Regime for FY 25-26
INTRODUCTION
As the due dates are approaching, it’s necessary to understand what the tax benefits are that one can avail to save taxes to the maximum. For that purpose, it’s important to know how tax is actually calculated.
For Individual/HUF/AOP/BOI/AJP, there are normally two regimes: one is the OLD tax Regime (Normal Provisions) & another is the New Tax regime (us 115BAC)
So, the question arises: what are the differences among them, & which one is beneficial for you in FY 25-26? So, if you want the answers, then this article is for you
TAX SLABS COMPARISONS: FY: 25-26, AY: 26-27
NORMAL PROVISIONS
Different basic exemption limits apply based on age: General (Rs 2.5L), Senior Citizens 60-80 years (Rs 3L), Super Senior Citizens 80+ years (Rs 5L)
| Income Slab (General) | Tax Rate |
| Up to Rs 2,50,000 | NIL |
| Rs 2,50,001 – Rs 5,00,000 | 5% |
| Rs 5,00,001 – Rs 10,00,000 | 20% |
| Above Rs 10,00,000 | 30% |
Note:
- Senior Citizens (60-80 years): Nil up to Rs 3,00,000 & other rates will remain same i.e. 3L to 5L: 5%, Above 5L to 10L: 20% & Above 10L: 30%
- Super Senior Citizens (80+ years): Nil up to Rs 5,00,000 & other rates will remain the same, i.e. Above 5L to 10L: 20% & Above 10L: 30%
- Any Resident Individual whose 60th/80th birthday falls on 1st April 2026 will be treated as having completed the age of 60/80 years on 31-3-2026, i.e. for FY 25-26 & will be eligible for a higher exemption limit.
NEW TAX REGIME (SECTION 115BAC, AS AMENDED BY FINANCE ACT 2025)
Under the New Regime, a UNIFORM basic exemption limit of Rs 4,00,000 applies to ALL individuals regardless of age (General, Senior Citizens, and Super Senior Citizens alike).
| Income Slab [Sec. 115BAC – AY 2026-27] | Tax Rate |
| Up to Rs 4,00,000 | NIL |
| Rs 4,00,001 – Rs 8,00,000 | 5% |
| Rs 8,00,001 – Rs 12,00,000 | 10% |
| Rs 12,00,001 – Rs 16,00,000 | 15% |
| Rs 16,00,001 – Rs 20,00,000 | 20% |
| Rs 20,00,001 – Rs 24,00,000 | 25% |
| Above Rs 24,00,000 | 30% |
Key Highlight: Special income (u/s 111A, 112, 112A, etc.) remains taxable at special rates even under Section 115BAC.
Zero Tax Benefit: With Rebate u/s 87A (Rs 60,000), a Resident Individual with total income up to Rs 12,00,000 pays ZERO income tax under Section 115BAC
SURCHARGE & HEALTH EDUCATION CESS
There is a significant benefit for taxpayers with higher incomes under the new regime:
| Total Income | Old Regime Surcharge | New Regime Surcharge |
| Above Rs 50 Lakh up to Rs 1 Crore | 10% | 10% |
| Above Rs 1 Crore up to Rs 2 Crore | 15% | 15% |
| Above Rs 2 Crore up to Rs 5 Crore | 25% | 25% |
| Above Rs 5 Crore | 37% | 25% (Capped) |
Note: The HEC at 4% is the same under both regimes, & it should be calculated over and above the tax calculated, including the surcharge.
REBATE US 87A & MARGINAL RELIEF
Rebate u/s 87A is available only to Resident Individuals. It reduces the income tax payable as follows:
| Regime | Section | Income Limit | Rebate Amount |
| Old Regime | u/s 87A | ≤ Rs 5,00,000 | Lower of: 100% of tax or Rs 12,500 |
| New Regime (115BAC) | u/s 87A | ≤ Rs 12,00,000 | Lower of: 100% of tax or Rs 60,000 |
NOTE: Rebate u/s 87A is available ONLY against tax calculated at normal rates under Sec 115BAC. It is NOT available against tax on special rate income (u/s 111A, 112, 112A, etc.).
MARGINAL RELIEF
Its benefit is given under the new tax regime, that if when Total Income slightly exceeds Rs 12,00,000. The tax payable on such income cannot exceed the amount by which Total Income exceeds Rs 12,00,000, which can be understood by following the example.
| Total Income | Tax (115BAC) | Rebate u/s 87A | Tax Payable | HEC @ 4% | Total Tax |
| Rs 12,00,000 | Rs 60,000 | Rs 60,000 | Nil (after rebate) | – | Rs 0 |
| Rs 12,10,000 | Rs 61,500 | Rs 51,500 | Rs 10,000 | Rs 400.00 | Rs 10,400 |
| Rs 12,30,000 | Rs 64,500 | Rs 34,500 | Rs 30,000 | Rs 1,200.00 | Rs 31,200 |
| Rs 12,60,000 | Rs 69,000 | Rs 9,000 | Rs 60,000 | Rs 2,400.00 | Rs 62,400 |
| Rs 12,70,585 | Rs 70,588 | Rs 3 | Rs 70,585 | Rs 2,823.40 | Rs 73,408 |
| Rs 12,71,000 | Rs 70,650 | Nil (No Rebate) | Rs 70,650 | Rs 2,826.00 | Rs 73,476 |
COMPREHENSIVE FEATURE-BY-FEATURE COMPARISON
The table below covers all major aspects to help you make an informed decision between the two regimes, as under the new regime, there are various deductions & allowances which are not available due to the lower slab rate; hence, it’s important to choose wisely.
| Particulars | Old Tax Regime | New Tax Regime (115BAC) [Finance Act 2025 – AY 2026-27] |
| Governed by | Regular provisions of IT Act | Section 115BAC (Default from AY 2024-25) |
| Applicable to | Individuals, HUF, AOP, BOI, AJP | Individuals, HUF, AOP/BOI (not co-op society), AJP |
| Basic Exemption | Rs 2.5L / Rs 3L (SC) / Rs 5L (SSC) | Rs 4,00,000 (Uniform for all) |
| Rebate u/s 87A | Rs 12,500 (income ≤ Rs 5L) | Rs 60,000 (income ≤ Rs 12L) |
| Marginal Relief (87A) | NA | Available |
| Standard Deduction Salary | Rs 50,000 | Rs 75,000 |
| HRA u/s 10(13A) | Available | Not allowed |
| LTA u/s 10(5) | Available | Not allowed |
| Entertainment Allowed u/s 16(ii) | Available | Not allowed |
| Professional Tax u/s 16(iii) | Available | Not allowed |
| Interest on Self-Occupied Prop. u/s 24(b) | Up to Rs 2Lakh | Not allowed |
| Interest on a Let-Out Property u/s 24(b) | Available | Available |
| Set-off of HP Loss | Up to Rs 2Lakh | Not allowed (not even c/f) |
| Chapter VI-A: Deductions (80C etc.) | Available | NOT allowed |
| 80CCD(2) – Employer NPS | Available | Available (14%/10%) |
| 80CCH (2) – Agniveer | Available | Available |
| 80JJAA, 80LA | Available | Available |
| PGBP deductions (Sec 10AA etc.) | Available | Most not allowed |
| Surcharge on income > Rs 5 Crore | 37% | 25% (Capped) |
| Health & Education Cess | 4% on tax + surcharge | 4% on tax + surcharge |
| Default Regime | Opt-in required | DEFAULT (from AY 2024-25) |
| Switching option (Salary) | Every year | Every year |
| Switching option (PGBP) | Anytime | Only ONCE back to the Old Regime |
SECTION 115BAC DEDUCTIONS & EXEMPTIONS ALLOWED
Under Section 115BAC(1A), only specific deductions and exemptions are permitted to be set off against total income as follows:
| Nature of Benefit | Section Reference | Limit/Description |
| Standard Deduction (Salary) | Sec 16(ia) | Rs 75,000 (increased from Rs 50k) |
| Standard Deduction (Pension) | Sec 16(ia) | Rs 75,000 |
| Standard Deduction (Family Pension) | Sec 57(iia) | Lower of Rs 25,000 or 1/3rd of pension |
| Employer’s NPS Contribution | Sec 80CCD (2) | Up to 14% of Salary (Basic + DA) |
| Tax Rebate | Sec 87A | 100% Tax Relief for income up to Rs 12,00,000 & Marginal Relief |
| Home Loan Interest (Let-out) | Sec 24(b) | Actual interest paid (No limit for rented property) |
| Gratuity | Sec 10(10) | Up to Rs 20,00,000 (Non-Govt) |
| Leave Encashment | Sec 10(10AA) | Up to Rs 25,00,000 (Non-Govt) |
| Agniveer Corpus Fund | Sec 80CCH | Amount contributed to the Seva Nidhi |
| Additional Employee Cost | Sec 80JJAA | For businesses/professions |
Exempt Allowances under Section 10
| Allowance Name | Section Reference | Exemption Limit |
| Conveyance Allowance | Sec 10(14)(i) | Actual amount spent for official duty |
| Tour/Travel Allowance | Sec 10(14)(i) | Cost of travel/transfer for official work |
| Daily Allowance | Sec 10(14)(i) | Ordinary daily charges during official absence |
| Transport Allowance | Sec 10(14)(ii) | Rs 3,200/month (Only for Divyang/specially-abled) |
| Official Perquisites | Sec 17(2) | Vouchers, phones/internet, and office-use items |
HOW TO CHOOSE A REGIME
After knowing all about both regimes its critical to decide which one is beneficial, so below are some points under both regimes by which you can make a decision:
Why Choose Old Regime
- You have a self-occupied home loan with significant interest payment (up to Rs 2L u/s 24(b))
- You receive substantial HRA and live in rented accommodation
- You are a Senior / Super Senior Citizen with higher exemption limits
- You pay significant health insurance premiums (80D)
- You have more investments for which you can avail deductions under Chapter VI-A. Then it’s advisable to compare both
Why choose New Regime
- Your total income is Rs 12,00,000 or below — ZERO tax after 87A rebate
- You are a young professional or new earner with limited investments
- Your employer contributes to NPS (80CCD (2) is still available in the New Regime)
- You prefer a simpler, hassle-free tax filing without tracking multiple exemptions
- Income above Rs 5 Crore — surcharge capped at 25% vs 37% in Old Regime
- You do not claim HRA (living in your own house or your parents’ house)
CONCLUSION
The Finance Act 2025 has made the New Tax Regime under Section 115BAC significantly more attractive for FY 2025-26 (AY 2026-27) with a raised exemption limit of Rs 400,000; an enhanced rebate of Rs 60,000, making up to Rs 12 Lakh tax-free; and a higher standard deduction of Rs 75,000.
However, the Old Regime remains relevant for taxpayers with high deductions, home loans, HRA claims, and significant Chapter VI-A investments. The ‘best’ regime is entirely personal. Hence, one should choose wisely to evaluate the best.