Taxation of Wages and Salaries in India (FY 2025–26): Old vs New regime 

The financial year 2025–26 brings important updates to how individuals’ salary income is taxed in India. The Union Budget 2025 has significantly revised tax slabs under the new tax regime, aiming to reduce the tax burden on middle-class taxpayers. At the same time, individuals can still opt for the old tax regime, which allows various deductions and exemptions. This comprehensive guide explains the treatment of wages and salaries under the Income Tax Act, 1961, the differences between wages and salary for tax purposes, the latest tax slabs and rules under both regimes, key deductions (like Section 80C, 80D, HRA, standard deduction, etc.), and provides illustrative tax calculations for incomes of ₹6 lakh, ₹12 lakh, and ₹20 lakh. We’ll also discuss how to choose between the old and new regimes based on your income and investment profile.

Wages vs Salary – What’s the Difference for Taxation?

In everyday language, “wages” often refer to hourly or daily pay (commonly for labor or casual work), whereas “salary” typically means a fixed periodic payment (usually monthly) for employees. However, for income-tax purposes, there is essentially no distinction between wages and salary – both are treated as salary income received from an employer. The Income Tax Act broadly defines “salary” to include “any payment received by an employee from an employer”, whether it’s called wages, salary, remuneration, or by any other name. In other words, whether you’re a daily-wage earner or a monthly salaried employee, your employment income falls under the head “Income from Salaries” and is taxed similarly. The term “wages” is encompassed within “salary” in Section 17(1) of the Income Tax Act, which lists wages, annuities, pensions, gratuities, commissions, perquisites, etc., all as components of taxable salary. Bottom line: for tax purposes, wages and salaries are subject to the same rules and tax rates.

(Note: In this article, we use the terms “salary income” or “salary” to include wages as well, since tax law treats them alike.)

Taxation of Salary Income under the Income Tax Act, 1961

Salary income is one of the five heads of income under the Income Tax Act, 1961. Here are the key points about how wages/salaries are taxed in India:

• Chargeability: Salary income is taxable in the year in which it is earned (on due or receipt basis, whichever is earlier, as per Section 15 of the Act). Employers are required to deduct tax at source (TDS) on salaries under Section 192. This means your employer withholds income tax from your paycheck according to your projected annual taxable salary and deposits it with the government.

• Salary Components: Salary isn’t just your basic pay – it often includes allowances (like House Rent Allowance, transport allowance, etc.), perquisites (benefits or non-cash perks such as a company car, accommodation, etc.), bonuses, commissions, and other components. For tax purposes, most allowances and bonuses are fully taxable and included in gross salary. Certain allowances, however, enjoy exemptions (full or partial) under the law – for example, House Rent Allowance (HRA) and Leave Travel Allowance (LTA) can be partly tax-free subject to conditions (explained shortly). Perquisites provided by the employer (such as free housing or car, concessional loans, etc.) are also taxed as part of salary income, either at actual value or a value determined by specific rules. The Income Tax Act’s Section 17 provides an inclusive definition of salary covering all these elements.

• Standard Deduction: From your gross salary, the tax law allows a standard deduction – a flat amount deducted from salary income without needing any proof of expenses. For FY 2025–26, the standard deduction is ₹50,000 under the old regime and ₹75,000 under the new regime. This deduction is automatically available to all salaried taxpayers (and pensioners) and reduces your taxable salary income. For example, if your annual salary is ₹6,00,000, you can subtract ₹50,000 (old regime) or ₹75,000 (new regime) from it, bringing the taxable amount down to ₹5,50,000 or ₹5,25,000 respectively.

• Taxable Salary Calculation: To compute taxable salary, start with your gross salary (basic pay + allowances + bonuses, etc.), then subtract exempt allowances and perquisites, and subtract deductions allowed under Section 16 (which include the standard deduction and any professional tax paid to a state). The remainder is your net taxable salary. This taxable salary is then added to your other income (if any from other heads) to determine your total taxable income, which is taxed as per the applicable slab rates (explained in the next section).

Key Deductions and Exemptions for Salaried Individuals (FY 2025–26)

One major advantage of salary income is that certain portions of it can be tax-exempt or deducted, reducing your tax burden. Under the old tax regime, taxpayers can claim a variety of deductions and exemptions. Below are the most relevant ones for salaried persons:

• House Rent Allowance (HRA) Exemption: If you receive HRA as part of your salary and you pay rent for housing, you can claim an HRA exemption under Section 10(13A) (available only in the old regime). The exempt amount is the minimum of the following three values: (1) actual HRA received, (2) rent paid minus 10% of salary, or (3) 50% of salary if living in a metro city (Delhi, Mumbai, Chennai, Kolkata) or 40% of salary for non-metro cities. Any HRA amount above this exempt portion is taxable. For example, if your basic salary is ₹30,000/month and HRA is ₹15,000/month, and you pay rent of ₹12,000/month in a non-metro city, your HRA exemption would be the least of: a) ₹1,80,000 actual HRA annually, b) Rent minus 10% of salary = ₹1,44,000 – ₹36,000 = ₹1,08,000, c) 40% of salary = ₹1,44,000. The least is ₹1,08,000 – that portion of HRA is tax-free, and the remaining HRA is taxable. (If you opt for the new regime, note that HRA exemption cannot be claimed – the entire HRA amount becomes taxable.)

• Leave Travel Allowance (LTA): LTA, if provided in your CTC, is an allowance for travel expenses when you take leave. Under Section 10(5), you can claim exemption for LTA (old regime only) for the cost of travel for you and your family, subject to certain conditions: it covers only domestic travel, and is limited to travel fare (air, rail, or bus) for two journeys in a block of four years. Any amount of LTA received beyond the exempt travel cost is taxable. (LTA exemption is not available in the new regime, similar to HRA.)

• Deduction for Professional Tax: If you pay any professional tax to your state (a nominal tax some states levy on salaried individuals, typically ₹2,500 per year maximum), that amount is allowed as a deduction from your salary income under Section 16 (this is in addition to the standard deduction). Your Form-16 from the employer usually accounts for this if applicable.

• Section 80C – Investments/Expenses Deduction (Old Regime): This is the most popular tax deduction. Section 80C allows you to deduct up to ₹1.5 lakh per year from your gross income for certain investments or expenditures. Eligible 80C items include contributions to Employee Provident Fund (EPF) or Public Provident Fund (PPF), life insurance premiums, National Saving Certificates (NSC), tax-saving fixed deposits (5-year bank FDs), Equity-Linked Saving Scheme (ELSS) mutual funds, principal component of a home loan repayment, tuition fees for children’s education, Senior Citizens’ Saving Scheme (SCSS), Sukanya Samriddhi Yojana, etc. You can mix and match investments to utilize the ₹1.5 lakh limit fully. For instance, a common combination is an EPF contribution (automatically deducted from salary) + some PPF or ELSS investments + life insurance premium to reach the limit. (Only old regime taxpayers can use Section 80C; the new regime does not allow 80C deduction.)

• Section 80CCD(1B) – NPS Additional Deduction: Beyond 80C, if you invest in the National Pension System (NPS), you can claim an additional ₹50,000 deduction under Section 80CCD(1B). This is over and above the ₹1.5 lakh 80C limit. Notably, Budget 2025 introduced a new “NPS Vatsalya” scheme which also qualifies under this section – for example, contributions by a parent towards a child’s NPS may avail this benefit. If you are an NPS subscriber (Tier I account), it’s an excellent way to get extra deduction. (Old regime only; new regime does not allow this deduction.)

• Section 80D – Medical Insurance Deduction: Section 80D provides deduction for health insurance premiums and preventive health checkups. You can claim up to ₹25,000 per year for premiums paid for yourself, your spouse, and dependent children. Additionally, you can claim another ₹25,000 if you pay for health insurance for your parents (if they are below 60 years of age), or ₹50,000 if your parents are senior citizens (60 or above). In case you are a senior citizen, the self + family limit is ₹50,000 as well. Within these overall limits, up to ₹5,000 per year spent on preventive health check-ups is allowed (this ₹5,000 is not an extra deduction but included in the respective ₹25k/₹50k limit). Moreover, if a senior citizen (you or your parent) does not have health insurance, actual medical expenditures for them can be claimed under 80D up to ₹50,000 in lieu of an insurance premium. (Again, 80D is usable only in the old regime; the new regime disallows it.)

• Other Deductions (Old Regime): There are several other deductions that certain taxpayers can claim, for example:

  • Section 80E: Deduction for interest paid on an education loan (no upper monetary limit, available for 8 years from the loan start). This benefits those paying off student loans for higher studies.

  • Section 80TTA/80TTB: Deduction for interest on bank accounts. 80TTA allows up to ₹10,000 deduction on interest from savings accounts (for non-senior individuals). Senior citizens get a bigger benefit under 80TTB – they can deduct up to ₹50,000 of interest from bank deposits (savings or fixed deposits) in a year.

  • Section 80G: Deduction for certain charitable donations. Donations to eligible charities/funds can be deducted by 50% or 100% of the amount (with or without caps) depending on the institution. For example, donations to the PM National Relief Fund are 100% deductible without limit, whereas donations to other specified charities may be 50% deductible subject to 10% of income limit, etc. Proper receipts and the charity’s 80G certificate are needed to claim this.

  • Sections 80EE and 80EEA: Additional deductions on home loan interest for first-time homebuyers (beyond the normal Section 24 home-interest deduction under house property). These sections have specific conditions (e.g. loan sanctioned date, property value) and limits (commonly ₹50,000 under 80EE, or ₹1.5 lakh under 80EEA for affordable housing loans) – applicable if you meet those conditions.

  • Section 80U / 80DD: Deductions for disability – if you have a disability, or you have a dependent with a disability, you can claim a fixed deduction (₹75,000 for normal disability, ₹1,25,000 for severe disability) under these sections.

  • Interest on Home Loan (Section 24): Though not under Chapter 80, it’s worth mentioning that if you have a housing loan for a self-occupied house, up to ₹2 lakh of interest paid per year is deductible under the “Income from House Property” head. This is often a significant deduction for salaried homeowners under the old regime. (In the new regime, you can still claim the interest deduction under Section 24 for a rented or second home because that’s under a different head of income, but you cannot set off loss from house property against salary in the same way as before due to limits on loss set-off. The intricacies of house property taxation are beyond this article’s scope, but be aware that the new regime doesn’t allow you to take a loss from housing interest to reduce salary income.)

Important: All the above deductions (80C, 80D, etc.) and allowances (HRA, LTA) are available only if you opt for the old tax regime. Under the new tax regime (Sec 115BAC), most exemptions and deductions are not allowed – the idea is you pay tax at lower rates on the full income without needing to do investment gymnastics. In the new regime for FY 2025–26, the only major deductions you can claim are: the standard deduction (₹75,000) and employer’s contribution to NPS up to 14% of salary (which is exempt in both regimes). You cannot claim HRA, 80C, 80D, or most other deductions if you choose the new regime. Therefore, taxpayers need to carefully weigh the benefit of lower tax rates in the new system versus the tax-saving investments/exemptions they utilize under the old system.

Old vs New Tax Regime: Tax Slabs and Rates (FY 2025–26)

India currently has two parallel income tax frameworks for individuals: the old (existing) tax regime and the new tax regime (introduced from FY 2020–21, and made more attractive in recent budgets). They differ in tax rates, slab thresholds, and availability of deductions. Let’s break down the key differences:

• Basic Exemption Limit: Under the old regime, the basic exemption limit is ₹2.5 lakh (for individuals below 60 years). This means the first ₹2.5L of income is not taxed. Senior citizens get a higher basic exemption (₹3 lakh if age 60–79, and ₹5 lakh if age 80+) in the old regime. In the new regime (for FY 2025–26), the basic exemption limit has been increased to ₹4 lakh for all individuals, regardless of age. So, under new regime, income up to ₹4,00,000 is tax-free by default, giving a broader zero-tax slab for everyone. (There are no extra age-based increases in the new system – even senior citizens have ₹4L base, though as we’ll see, the new regime’s rebate effectively covers a large amount of income for all ages.)

• Income Tax Slabs and Rates: The old regime has four slabs: 0%, 5%, 20%, and 30%. The new regime (post Budget 2025 changes) has seven slabs, with more gradation from low to high income. The table below compares the slab structure for FY 2025–26:

(The above rates are for individuals under 60. Surcharges (10% to 37%) apply on incomes above ₹50 lakh as per both regimes, and 4% health & education cess is added to the final tax.)

As shown, the old regime jumps from 5% to 20% tax at ₹5 lakh, and to 30% at ₹10 lakh. The new regime has smaller increments: 5% tax kicks in at ₹4 lakh, and the highest 30% rate now applies only beyond ₹24 lakh. These revised new slabs were introduced in Budget 2025 to ensure a gentler tax rise for middle incomes. In fact, under the new regime no one with income under ₹12 lakh will pay any tax thanks to a rebate (more on that next). The government’s goal was to make the new system rewarding for middle-class earners by substantially raising the tax-free threshold.

• Tax Rebate (Section 87A): A crucial provision that effectively zeroes out tax for low/middle incomes is Section 87A rebate. This rebate directly reduces your tax liability if your total taxable income is within a certain limit. Under the old regime, if your taxable income does not exceed ₹5 lakh, you get a rebate equal to your calculated tax, up to a maximum of ₹12,500 – resulting in zero tax payable up to ₹5,00,000 income. (This ₹5L threshold and ₹12,500 rebate in old regime remain unchanged in FY 2025–26.) The new regime now offers a much larger rebate: for FY 2025–26, if your taxable income is up to ₹12 lakh, you are eligible for a rebate up to ₹60,000 which covers the entire tax on ₹12L income. This is a major enhancement from the previous ₹7 lakh/₹25k rebate limit. In effect, an individual with income (after deductions) up to ₹12,00,000 will owe zero tax under the new regime. For example, an income of ₹12 lakh would incur some tax by slabs, but that tax (up to ₹60k) gets wiped out by the 87A rebate. For salaried persons, this threshold is even a bit higher: since you get ₹75k standard deduction, a salary of about ₹12.75 lakh gross becomes roughly ₹12 lakh taxable, meaning even ₹12.75 lakh salary can be tax-free in the new regime after rebate. This is a huge relief for middle-class earners in FY 2025–26.

• Deductions and Exemptions: As noted earlier, the regimes differ fundamentally here. The old regime allows you to utilize all the common deductions (80C, 80D, HRA, etc.) to reduce taxable income. The new regime generally does not allow those deductions – you trade them off for lower tax rates. In the new regime for FY 2025–26, the only deductions/exemptions allowed are: standard deduction (₹75k) and certain employer contributions (e.g. employer’s NPS contribution up to 14% of salary remains non-taxable, which is the same as old). Everything else – Section 80C investments, 80D insurance, HRA/LTA, home loan interest (for self-occupied property), etc. – cannot be claimed if you opt new regime. In summary, the old regime = higher rates + many deductions; the new regime = lower rates + almost no deductions.

• Default Option and Switching: As of AY 2024–25 onwards, the new tax regime is the default for taxpayers. That means, unless you specify otherwise, your tax will be computed under new regime. However, you are free to choose the old regime when filing your income tax return. If you have only salary (no business income), you can decide each year which regime to go with, depending on what yields less tax. If you have business/professional income, note that the option to switch regimes is more restricted – one can switch from new to old only once in a lifetime in that case. For the majority of salaried employees (with no independent business income), you have the flexibility to evaluate both regimes each financial year and pick the one beneficial to you. Employers will typically ask for your regime choice at the start of the year for TDS calculation, but even if you chose new regime for TDS, you can still switch to old (or vice-versa) at the time of filing the tax return.

Calculation Examples under Old vs New Regime

To better understand the impact of these rules, let’s look at illustrative tax calculations for three different annual income levels: ₹6 lakh, ₹12 lakh, and ₹20 lakh (assuming these are gross salary figures). We will compare the tax payable in the old and new regimes for each, under certain typical conditions.

Example 1: Annual Salary Income = ₹6,00,000

Situation: A taxpayer earns ₹6 lakh in salary for FY 2025–26. Let’s assume this person has not made significant tax-saving investments (except mandatory PF) – we will consider only the standard deduction.

• Old Regime: Gross ₹6,00,000 minus standard deduction ₹50,000 = ₹5,50,000 taxable. Tax is calculated slab-wise as follows:

– ₹0–₹2.5L: 0% tax on ₹2,50,000 → ₹0

– ₹2.5L–₹5L: 5% tax on the next ₹2,50,000 → ₹12,500

– ₹5L–₹5.5L: 20% tax on the remaining ₹50,000 → ₹10,000

– Total before rebate = ₹22,500. Now, since the taxable income (₹5.5L) exceeds ₹5L, Section 87A rebate does not fully cover the tax (rebate is only available if income ≤ ₹5L in old regime). So the tax payable remains ₹22,500, plus 4% cess = ₹23,400 (approx).
However, if this individual had managed to invest enough to bring taxable income down to ₹5 lakh (for example, put ₹50k in 80C investments, reducing taxable to ₹5,00,000), then they would get the ₹12,500 rebate and end up paying zero tax. Old regime thus incentivizes using deductions; without them, even moderate income above ₹5L faces some tax.

• New Regime: Gross ₹6,00,000 minus standard deduction ₹75,000 = ₹5,25,000 taxable. Slab-wise tax:

– ₹0–₹4L: 0% tax on ₹4,00,000 → ₹0

– ₹4L–₹5.25L: 5% tax on the next ₹1,25,000 → ₹6,250

– Total before rebate = ₹6,250. Now, under the new regime, since the taxable income ₹5.25L is well within the ₹12L rebate limit, the Section 87A rebate (up to ₹60k) will completely cancel out this ₹6,250 tax. Therefore, tax payable = ₹0. In fact, even if this person had the full ₹6L as taxable (say no standard deduction, hypothetically), they’d still be under ₹12L and owe zero tax due to the rebate. So in the new regime, ₹6 lakh income results in no tax liability – without needing any investments or extra deductions – which is a big benefit of the 2025 changes.

Verdict for ₹6L: The new regime clearly yields zero tax straightforwardly. In the old regime, one would pay some tax (~₹23k) if they hadn’t done any tax-saving investments, or also zero if they managed to invest ~₹50k to get taxable income to ₹5L. For a ₹6L earner who isn’t investing much, the new regime is very advantageous. If they are willing and able to invest in 80C options to bring income below ₹5L, the old regime can also be made tax-free. But new regime achieves zero tax with no effort in this case.

Example 2: Annual Salary Income = ₹12,00,000

Situation: Salary of ₹12 lakh for the year. We’ll consider two scenarios for the old regime – one where the person uses some deductions, and one with none – to see the difference.

• Old Regime: Gross ₹12,00,000. Suppose the individual maximizes Section 80C investments to ₹1,50,000 (and has no other major deductions for simplicity). Also subtract standard deduction ₹50,000. Taxable income = ₹12,00,000 – ₹1,50,000 – ₹50,000 = ₹10,00,000. Now compute tax:

– ₹0–₹2.5L: 0% on ₹2.5L → ₹0

– ₹2.5L–₹5L: 5% on ₹2.5L → ₹12,500

– ₹5L–₹10L: 20% on ₹5L → ₹1,00,000

– Total = ₹1,12,500. Income is above ₹5L, so no rebate. Adding 4% cess, tax ≈ ₹1,17,000. If the person had no deductions apart from standard deduction (taxable = ₹11.5L), the tax would be higher: for ₹11.5L, tax = ₹1,57,500 (calculation: 5% on 2.5L = 12,500, 20% on next 5L = 1,00,000, plus 30% on remaining ₹1.5L = 45,000; total ₹1,57,500) + cess ≈ ₹1,64,800. So, investing ₹1.5L in 80C saved around ₹45,000 of tax in this case (₹1.17L vs ₹1.62L). Old regime tax for ₹12L salary thus might range roughly from ₹1.2L (if you used deductions fully) to ₹1.6L (no deductions). There’s no 87A rebate here because income > ₹5L.

• New Regime: Gross ₹12,00,000 minus standard deduction ₹75,000 = ₹11,25,000 taxable. Let’s calculate slab-wise tax under new rates:

– ₹0–₹4L: 0% on ₹4,00,000 → ₹0

– ₹4L–₹8L: 5% on ₹4,00,000 → ₹20,000

– ₹8L–₹11.25L: 10% on ₹3,25,000 → ₹32,500

– Total = ₹52,500. Now, crucially, since the taxable income (₹11.25L) is within ₹12L, the Section 87A rebate of up to ₹60,000 will wipe out this entire ₹52,500 tax. So the net tax payable = ₹0. Yes, even at a ₹12 lakh income, the new regime results in zero tax due to the enhanced rebate! This is a dramatic difference introduced in FY 2025–26 (previously, a ₹12L income under new regime would have owed about ₹80k in tax). Now, the rebate makes it completely tax-free. For a salaried person, ₹12L after the ₹75k standard deduction gets you to ₹11.25L – safely under the 87A limit. Even a slightly higher salary could benefit: e.g. at ₹12.5L gross, taxable ~₹11.75L, still no tax. It’s only once your taxable income crosses ₹12L that you start paying tax in the new regime (and then it applies on the entire taxable amount without rebate).

Verdict for ₹12L: Under the new regime, zero tax (thanks to the ₹12L rebate). Under the old regime, there will be a tax outgo (around ₹1.2L even after decent 80C investments, or ~₹1.6L if no investments). This makes the new regime extremely attractive at this income level – it’s essentially tax-free whereas the old regime would require significant planning and still a six-figure tax payment. Only if someone had very large deductions (for example, also paying a home loan interest ₹2L, etc., in addition to 80C) could the old regime tax be somewhat reduced further – but even then, it cannot beat zero. So for ₹12L income, new regime is likely the better choice for most, unless special circumstances apply.

(It’s worth noting that ₹12L is roughly an average urban middle-class salary. By setting the tax-free limit so high in the new regime, the government has effectively eliminated income tax for a vast majority of salary earners in this bracket.)

Example 3: Annual Salary Income = ₹20,00,000

Situation: Salary of ₹20 lakh in the year. This is a higher-income scenario where the 87A rebate in the new regime will no longer cover the full tax, so we’ll see actual tax outgo in both regimes. Let’s assume the individual claims the standard deduction in both regimes. We will also see the impact of some deductions in the old regime.

• Old Regime: Gross ₹20,00,000. Assume this person uses Section 80C (₹1.5L) and also contributes to NPS under 80CCD(1B) (₹50k), for a total of ₹2,00,000 in deductions. Standard deduction ₹50,000 additionally. Taxable income = ₹20L – ₹2L – ₹50k = ₹17,50,000. Tax calculation:

– ₹0–₹2.5L: 0% on ₹2.5L → ₹0

– ₹2.5L–₹5L: 5% on ₹2.5L → ₹12,500

– ₹5L–₹10L: 20% on ₹5L → ₹1,00,000 (bringing cumulative tax to ₹1,12,500 up to ₹10L)

– ₹10L–₹17.5L: 30% on ₹7.5L → ₹2,25,000

– Total = ₹3,37,500. After 4% cess, ~₹3.51 lakh tax. If the person had no deductions beyond standard (taxable = ₹19.5L), the tax would be higher: For ₹19.5L, tax ≈ ₹3,97,500 (calculation: ₹1,12,500 on first ₹10L as above, plus 30% on remaining ₹9.5L = ₹2,85,000, totaling ₹3,97,500) + cess ≈ ₹4.13 lakh. So using ₹2L of deductions saved roughly ₹62k of tax here (tax came down to ₹3.51L from ₹4.13L). We can imagine if this individual also had a home loan interest of ₹2L, that could further reduce taxable income and save another ₹60k tax (30% of 2L), potentially bringing tax under ₹3L. Nonetheless, there will be a substantial tax to pay in the old regime at ₹20L income – the exact amount varies with deductions utilized.

• New Regime: Gross ₹20,00,000 minus standard deduction ₹75,000 = ₹19,25,000 taxable. Compute tax under new slabs:

 ₹0–₹4L: 0% on ₹4L → ₹0

– ₹4L–₹8L: 5% on ₹4L → ₹20,000

– ₹8L–₹12L: 10% on ₹4L → ₹40,000 (cumulative ₹60k up to ₹12L)

– ₹12L–₹16L: 15% on ₹4L → ₹60,000 (cumulative ₹1,20,000 up to ₹16L)

– ₹16L–₹19.25L: 20% on ₹3.25L → ₹65,000

– Total = ₹1,85,000. Since taxable income here exceeds ₹12L, no 87A rebate applies (rebate drops to zero once income > ₹12L). So ₹1.85L is the final tax before cess; adding 4% cess gives about ₹1.925 lakh payable. If the person had the full ₹20L taxable (no standard deduction, hypothetically), the tax would have been ₹2,00,000 (since ₹20L covers all slabs fully) + cess = ₹2.08L. So roughly ₹1.9–2.0L is the tax range for ₹20L income in new regime.

Verdict for ₹20L: The new regime tax (~₹1.9–2.0 lakh) is significantly lower than the old regime tax (~₹3.5–4.1 lakh) in this scenario, especially if the individual doesn’t have huge deductions. Even if the person had a home loan and maximized all deductions (maybe they could bring old regime taxable down to ~₹15L or less), the old regime tax would still be around ₹2.8–3.0L at best, which is higher than the new regime’s ₹1.9L. This indicates that for high-income earners who cannot substantially reduce their taxable income through deductions, the new regime’s lower rates are very beneficial. On the other hand, someone with ₹20L salary who is an aggressive tax planner – for example, availing 80C, 80D, home loan interest, etc. – might narrow the gap. But given the 2025 slab revisions, the new regime tends to come out ahead for many in this bracket as well.

One must also consider other factors: e.g. if an individual with ₹20L salary has a big HRA exemption (living in rented accommodation in a metro with high rent), the old regime could shelter a good portion via HRA. Or if they have large charitable donations (80G) or other specific deductions, those only count in old regime. Thus, it’s not a one-size-fits-all – it requires calculation of both scenarios.

Choosing Between the Old and New Tax Regimes

With the examples above, it’s clear that the new regime (FY 2025–26) is extremely taxpayer-friendly for low and middle incomes (practically zero tax up to ₹12L). The old regime’s strength lies in the deductions it offers, which can benefit those who have planned investments or expenses that qualify. Here are some guidelines on how to choose:

• If your income is up to ~₹7–8 lakh: The new regime will most likely be better, especially after Budget 2025. Previously, up to ₹5L was tax-free in old regime (with rebate) and up to ₹7L in new regime (with rebate). Now, up to ₹12L is tax-free in new regime. So in this range, new regime almost guarantees zero tax without any effort. In the old regime, ₹7–8L income would require significant deductions to reduce tax. For instance, at ₹7L income, old regime tax is ~₹52k before rebate, which only becomes zero if you invest enough to bring taxable income ≤₹5L. New regime at ₹7L is automatically zero tax (since ≤₹12L). Thus, for most individuals in the lower income brackets, the new regime is a clear winner in 2025–26.

• If your income is around ₹10–15 lakh: This is a borderline range where both regimes could be considered. With ₹12L now tax-free in new regime, even up to ₹15L the new regime tax will be modest (e.g. at ₹15L salary, taxable ~₹14.25L after std ded, tax ~₹32k as per new slabs after rebate – because rebate covers up to 12L, you’d only pay tax on the portion above that). Under old regime, a ₹15L income can be brought down with deductions, but unless you have over ₹3–4L of deductions, you might still pay more tax than new. Rule of thumb: if you cannot utilize a lot of deductions, lean towards the new regime. If you have substantial deductions (for example, you max 80C, 80D, have home loan interest, etc., totaling say ₹3L+ in deductions), then the old regime might yield a comparable or slightly lower tax. You should calculate both. Many online tax calculators allow inputting your income and deductions to compare regimes.

• If your income is very high (₹20 lakh and above): At higher incomes, the relative benefit of the new regime’s rebate fades (since it caps at ₹12L). Both regimes will impose tax in the 20–30% range on marginal income. The old regime’s 30% rate hits at ₹10L itself, whereas the new regime’s 30% rate now starts at ₹24L. This means for a ₹20–30L earner with minimal deductions, the new regime usually results in a lower tax bill (as we saw in the ₹20L example). However, high earners often also have more capacity for investments – e.g. contributing to PF/NPS, paying housing loan interest, etc. If those deductions are very large, they can tilt the balance. Another consideration: super-rich individuals (income > ₹50L) face surcharges. The surcharge rates (10%, 15%, 25%, 37% on tax for different income slabs above ₹50L) are the same in both regimes. But the new regime’s broader slabs can mitigate hitting the highest surcharge bracket as quickly. For example, the 37% surcharge applies beyond ₹5 crore income – not directly relevant to most salary cases. In general, for high incomes, one should tally total deductions they can claim versus the benefit of lower slab rates in new regime. Often, unless deductions are extraordinarily high, new regime might still come out ahead due to its gentle rate progression.

• Profile-based advice:

– Salaried with no major tax-saving investments: Likely better in new regime – you enjoy low tax rates and the generous rebate without missing anything.

– Salaried with moderate tax-saving (PF, some insurance) but no home loan: Still likely new regime is beneficial in FY25–26, because the ₹75k standard deduction and 87A rebate up to ₹12L cover a lot. If your income is above 12L, compare how much tax you save via 80C/80D, etc. If that saved amount is less than the extra tax you’d pay under old higher rates, then new regime is better.

– Salaried with home loan (large interest) and investments: This might lean towards old regime. For example, a person earning ₹15L with ₹2L home interest, ₹1.5L 80C, ₹50k NPS, ₹25k 80D – they could reduce taxable income by ₹4.25L, which in old regime significantly cuts tax (and also old regime still gets rebate if after deductions income is ₹5L or less). In new regime that person loses all those deductions and might pay more net tax. It needs calculation – but if one is fully utilizing all available deductions and exemptions, the old regime rewards that.

– Young earner, renting house (HRA), not keen on forced savings: The new regime’s simplicity and low rates are attractive – you don’t need to lock money in long-term schemes for tax reasons. However, note that you can still voluntarily invest (like in PPF, ELSS) even if you choose new regime – you just won’t get a tax break for it. If flexibility and higher take-home (with lower TDS) is your goal, new regime fits well.

– Senior citizens: Interestingly, the new regime’s high rebate threshold can benefit seniors too. Under old, a senior (60+) has ₹3L basic exemption, and up to ₹5L tax-free via rebate. Under new, they get ₹4L basic and up to ₹12L rebate-covered. So a senior with say ₹8L pension would pay zero in new regime, whereas in old regime they’d also pay zero (because ₹8L –₹3L =5L taxable, then rebate covers it). At higher incomes, consider if the senior has large medical expenditures (80D) or interest income (80TTB) – those are only deductible in old regime. If not, new regime could be fine. Super senior citizens (80+) particularly had ₹5L basic exemption in old regime, but new regime anyway covers up to ₹12L now, so many might shift to new.

Final advice: Do the math for your situation. List all deductions and exemptions you qualify for and are willing to claim (some might require investments or expenses you choose to make). Calculate tax under the old regime (apply deductions then slabs) and under the new regime (ignore most deductions, just standard ded and new slabs with rebate). The government has made the new regime the default and quite beneficial for a broad segment, but it hasn’t eliminated the old regime precisely because one size doesn’t fit all. If you’re a taxpayer who maximizes tax-saving avenues (e.g., investing ₹1.5L in 80C instruments, paying insurance and home loan, etc.), check if the old regime actually yields less tax. On the other hand, if you prefer simplified compliance and higher in-hand income throughout the year, the new regime is appealing – you won’t need to provide proof of investments to your employer and your TDS will be lower upfront.

Finally, remember that you can switch between regimes year-on-year if you’re a salaried individual (no business income) – so you have the flexibility to adapt as your income and deduction circumstances change. Many taxpayers might find that at younger ages (when investments are lower and needs are different) the new regime suits them, and perhaps later when they have a home loan or other commitments, the old regime could be revisited, or vice versa. Always stay updated with the latest budget changes, as thresholds and benefits can change (for instance, the massive jump in rebate limit to ₹12L in Budget 2025 has altered the equation significantly in favor of the new regime). Use reliable tax calculators or consult a tax advisor if needed to make an informed choice each year. The good news for FY 2025–26 is that, whichever regime you choose, the tax burden on salaried individuals has been moderated in recent years – either through lower rates or through generous deductions – making it a relatively friendly landscape for tax planning.

Sources: The information above is based on the Income Tax Act, 1961 (as amended by Finance Act, 2024) and official announcements. Key changes from Union Budget 2025–26 (applicable for FY 2025–26) have been incorporated, such as the revised new regime slabs and higher rebate. For further reading, refer to Press Release on Budget 2025, Income Tax Department guidelines, and detailed comparisons by financial experts.