Old vs New Tax Regime for AY 2025-26: Pros, Cons & Salary-Based Employee Guide

The Government of India offers two personal income tax regimes: the Old Tax Regime and the New Tax Regime under Section 115BAC. For Assessment Year (AY) 2025–26, the New Regime is the default choice unless you opt out and select the Old Regime while filing your Income Tax Return (ITR). Choosing the right regime can significantly affect your tax liability, especially for salaried employees.

Difference Between Old and New Regime:

• The Old Regime allows you to claim popular deductions such as 80C (LIC, PPF, ELSS), 80D (health insurance), HRA (house rent), LTA, home loan interest, and more.
• The New Regime offers lower tax slab rates but removes the majority of these exemptions and deductions.
• Both regimes offer a standard deduction of ₹50,000 for salaried individuals.
• The Old Regime requires proof submission and tax planning, while the New Regime simplifies filing but may increase taxes if you have eligible deductions.

Pros of the New Tax Regime:

• Lower income tax rates for those with minimal or no deductions
• No need to maintain or submit investment proofs
• Simplified filing and calculations
• Ideal for new earners, gig workers, or those not investing in traditional tax-saving instruments

Cons of the New Tax Regime:

• Most deductions like 80C, 80D, and HRA are not allowed
• Home loan interest deduction under Section 24(b) is not available
• Higher tax liability if you have significant deductions and exemptions

Pros of the Old Tax Regime:

• Full access to all major deductions and exemptions
• Suitable for salaried individuals with home loans, rent, children’s tuition fees, medical insurance, and investments
• Helps lower taxable income through structured tax planning

Cons of the Old Tax Regime:

• Requires keeping track of documents and proofs
• Involves more effort in tax planning and paperwork

Can You Switch Regimes While Filing ITR?

• Salaried employees can switch from the regime chosen with their employer while filing ITR.
• This flexibility is allowed every year for salaried individuals.
• Business or professional income earners can only switch once.

Example Comparison (Salary ₹12 lakh annually):

• Old Regime: 80C ₹1.5L, 80D ₹25K, HRA ₹1L, standard deduction ₹50K → Taxable income: ₹8.75L → Tax: ₹76,500
• New Regime: Only standard deduction ₹50K → Taxable income: ₹11.5L → Tax: ₹98,800
• Old regime saves around ₹22,000 in this example

FAQs for Salaried Employees:

• I chose the new regime with my employer. Can I change it while filing my ITR? Yes. You can choose a different regime while filing your return.
• How often can I switch regimes? Salaried individuals can switch every financial year. Business professionals can switch only once.
• What deductions are allowed under the new regime? Only standard deduction, NPS employer contribution, and EPF employer share are allowed.
• Is home loan interest allowed under the new regime? No, deduction under Section 24(b) is not permitted.
• Is the new regime mandatory? No. It is set as default, but you can opt out and choose the Old Regime during ITR filing.

Conclusion: The New Tax Regime is ideal for those with a simple salary structure and limited deductions. The Old Regime is better suited for taxpayers who invest strategically and can benefit from exemptions. Salaried employees can make a final decision at the time of filing their income tax return for AY 2025–26, regardless of the declaration made to their employer earlier. Choose wisely based on your actual deductions and tax-saving potential.