Understanding Old vs New Tax Regime: A Guide Ahead Of Union Budget 2026

As Finance Minister Nirmala Sitharaman is scheduled to present the Union Budget 2026 on February 1, the income tax slabs are once again in the spotlight. Taxpayers are anticipating announcements on potential tax rebates, but before that, let's take a look at the existing old and new slabs.

The government introduced the new tax regime in the 2020 Budget, aiming to simplify the tax structure. Now, people can choose between the old tax regime and the new one, each with distinct approaches to calculating income tax.

The New Tax Regime

The new tax regime offers lower tax rates across multiple income levels but removes most exemptions and deductions. It is the default tax regime and has been updated in recent Budgets to make it more attractive for taxpayers. Budget 2025 saw a notable relaxation in tax slabs, impacting annual tax planning significantly.

Income Tax Slabs For FY 2025-26 Under The New Regime

Income up to Rs 4 lakh: Tax-free

Rs 4 lakh to Rs 8 lakh: 5 per cent

Rs 8 lakh to Rs 12 lakh: 10 per cent

Rs 12 lakh to Rs 16 lakh: 15 per cent

Rs 16 lakh to Rs 20 lakh: 20 per cent

Rs 20 lakh to Rs 24 lakh: 25 per cent

Above Rs 24 lakh: 30 per cent

A rebate of up to Rs 60,000 under the new regime effectively reduces the tax liability to zero for those earning up to Rs 12 lakh. The new regime does not provide concessional slabs for senior citizens.

The Old Tax Regime

The old tax regime allows taxpayers to reduce their taxable income through various deductions and exemptions, including investments in schemes like the Public Provident Fund (PPF), National Pension Scheme (NPS), insurance premiums and House Rent Allowance (HRA), among others. Tax rates rise progressively with income under this regime.

Income Tax Slabs For FY 2025-26 Under The Old Regime

Income up to Rs 2.5 lakh: Tax-free

Rs 2.5 lakh to Rs 5 lakh: 5 per cent

Rs 5 lakh to Rs 10 lakh: 20 per cent

Above Rs 10 lakh: 30 per cent

Popular Deductions Available

Taxpayers opting for the old regime can claim a range of deductions to reduce their taxable income. These include benefits under Sections 80C, 80D, 80G, and 80TTA, as well as allowances such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), and home loan interest under Section 24. In addition, interest paid on education loans is eligible for deduction under Section 80E.

Income Tax For Super Senior Citizens

For those over 80 years, the exemption limit is higher under the old regime:

Income up to Rs 5 lakh: Tax-free

Rs 5 lakh to Rs 10 lakh: 20 per cent

Above Rs 10 lakh: 30 per cent

Choosing The Right Tax Regime: Old Or New?

Deciding between the old and new tax regimes for FY 2025-26 ultimately depends on your income, available deductions, and exemptions.

For salaried individuals with few deductions, the new regime may be more beneficial due to its relaxed tax slabs and the rebate available up to Rs 12 lakh.

Taxpayers who claim significant deductions through Sections 80C, 80D, HRA or home loan interest may find the old regime more beneficial, potentially offering greater tax savings.

Choosing the most suitable tax regime is the first step in income tax planning and filing. Understanding the slabs and exemptions under each system will help you optimise your liabilities before submitting returns.