1. Introduction
The introduction of the New Tax Regime under Section 115BAC by the Government of India in the Union Budget 2020 marked a significant shift in the country’s income tax framework. This reform aimed to simplify the tax system by offering taxpayers a choice between the Old Tax Regime, which follows higher slab rates but allows multiple deductions and exemptions, and the New Tax Regime, which offers lower slab rates in exchange for foregoing most tax benefits. From the financial year 2023–24 (assessment year 2024–25), the New Regime has been made the default tax option, although individuals and Hindu Undivided Families (HUFs) still retain the right to opt for the Old Regime if it proves more advantageous.
2. Comparison of Slab rates under both Regimes:
Slab rates for Old tax regime Same Rates for AY 25-26 / AY 26-27 :
| Income Range | Tax Rate |
| Up to Rs 2.5 lakh | Nil |
| From Rs 2.5 lakh upto Rs 5 lakh | 5% |
| From Rs 5 lakh upto Rs 10 lakh | 20% |
| Above Rs 10 lakh | 30% |
Slab rates for new tax regime for AY 2025-26
| Income Range | Tax Rate |
| Up to Rs. 3,00,000 | Nil |
| From Rs. 3,00,001 upto Rs. 7,00,000 | 5% |
| From Rs. 7,00,001 upto Rs. 10,00,000 | 10% |
| From Rs. 10,00,001 upto Rs. 12,00,000 | 15% |
| From Rs. 12,00,001 upto Rs. 15,00,000 | 20% |
| Above Rs. 15,00,000 | 30% |
Slab rates for new tax regime for AY 2026-27
| Income Range | Tax Rate |
| Up to Rs 4 lakh | Nil |
| From Rs 4 lakh upto Rs 8 lakh | 5% |
| From Rs 8 lakh upto Rs 12 lakh | 10% |
| From Rs 12 lakh upto Rs 16 lakh | 15% |
| From Rs 16 lakh upto Rs 20 lakh | 20% |
| From Rs 20 lakh upto Rs 24 lakh | 25% |
| Above Rs 24 lakh | 30% |
3. Features of Old Tax Regime:
Under the Old Tax Regime, taxpayers can avail themselves of various deductions and exemptions, significantly reducing their taxable income. Popular benefits include deductions under Section 80C for investments in instruments such as the Public Provident Fund (PPF), Employees’ Provident Fund (EPF), Life Insurance Premiums, and Equity-Linked Savings Schemes (ELSS); Section 80D for medical insurance premiums; exemptions for House Rent Allowance (HRA) and Leave Travel Allowance (LTA); interest on home loans under Section 24(b); and the standard deduction. This structure encourages savings and investment behaviour but requires careful tax planning and documentation to maximize benefits.
4. Features of New Tax Regime:
Conversely, the New Tax Regime features reduced slab rates and a higher basic exemption limit, accompanied by a streamlined approach to tax computation. Most deductions and exemptions are eliminated, with only a limited set—such as the standard deduction, employer’s contribution to the National Pension System (NPS) under Section 80CCD(2), and certain allowances for government employees—remaining available. The rebate under Section 87A is also more generous in the New Regime, exempting individuals with total income up to ₹7 lakh for AY 2025-26 and upto ₹12 Lakh for AY 2026-27 from any tax liability, compared to ₹5 lakh under the Old Regime. This regime is designed to reduce complexity and compliance burden, particularly for taxpayers who do not invest in tax-saving instruments or claim multiple exemptions.
5. Choosing the right regime:
The choice between the two regimes is not one-size-fits-all and should be based on an individual’s specific income profile, expenditure pattern, and investment behaviour. The Old Tax Regime generally benefits those with substantial eligible deductions, allowing them to significantly reduce their taxable income through planned investments and expenses. The New Tax Regime, on the other hand, may be more suitable for those who prefer simplicity, have limited deductions to claim, and seek a higher take-home salary without being tied to prescribed savings schemes.
6. Impact on Salaried vs. Non-Salaried Individuals
Salaried individuals often receive structured income with benefits like House Rent Allowance (HRA), Leave Travel Allowance (LTA), standard deduction, and employer contributions to Provident Fund or National Pension Scheme (NPS). These components are eligible for deductions/exemptions under the Old Tax Regime, making it often more tax-efficient for salaried taxpayers who actively claim them.
Self-employed or business professionals typically have more variable income and fewer eligible deductions like HRA or standard deduction (if not opted under New Regime).
For them, the New Tax Regime—with lower tax rates and simplified structure—can offer greater predictability and less compliance burden, especially if they don’t invest in many tax-saving instruments.
7. Treatment of Senior and Super Senior Citizens
Under the Old Tax Regime, senior citizens (60–79 years) benefit from a higher basic exemption limit of ₹3 lakh, and super senior citizens (80+ years) enjoy an even higher ₹5 lakh exemption limit.
In contrast, the New Tax Regime treats all individuals equally, regardless of age. It offers a flat exemption limit of ₹3 lakh, meaning no additional tax relief based on age for senior citizens.
8. Importance of Annual Evaluation
Given that the financial impact can vary widely based on personal circumstances, it is prudent for taxpayers to undertake a detailed comparison of both regimes before filing their income tax return. Using an official income tax calculator or consulting a qualified tax professional can ensure that the decision is backed by accurate computations. Careful evaluation each year is advisable, as changes in income, investments, or tax laws can alter the outcome and potentially shift the more beneficial choice from one regime to the other.
Hence advisable to prefer Professionals to conclude the suitable Slab rate .!
