Switching to the Old Tax Regime: What You Need to Know

When the new financial year starts, every taxpayer faces a single, high‑impact decision: stay with the old tax regime or switch to the new one. The choice determines how much tax you pay, which deductions you can claim, and how your investments affect your liability. This article walks you through the FY 2025‑26 slabs, compares the two regimes side‑by‑side, shows you how to decide based on your financial profile, and gives a step‑by‑step example that uses real numbers. By the end, you will know exactly how to file your return under the regime that saves you the most money.

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FY 2025‑26 Income‑Tax Slabs – Old Regime

*Rebate under section 87A is available only for individuals whose taxable income does not exceed ₹5,00,000.*

Key points

• Deductions under sections 80C, 80D, 80E, 80G, 80TTA, 80U, 80V, and HRA are still available.
• The surcharge and health & education cess (4 %) apply to the tax computed above.
• The old regime remains the default; you can claim deductions by furnishing proof of investments.

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FY 2025‑26 Income‑Tax Slabs – New Regime

*Rebate under section 87A is not available. A flat rebate of ₹12,000 (₹12,750 for salaried persons) is available only if taxable income does not exceed ₹12,00,000.*

Key points

• All deductions and exemptions are removed.
• The rebate threshold is higher for salaried individuals (₹12,75,000).
• The surcharge and cess remain unchanged.

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Comparative Analysis – What Changes Matter

Why the new regime can still be attractive

• Even without deductions, the lower slab rates reduce tax for many middle‑income groups.
• The rebate threshold is higher for salaried persons, giving a cushion for those earning up to ₹12,75,000.
• For individuals who already meet the rebate threshold under the old regime, the new regime may offer a marginal saving.

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Tax‑Planning Strategies – Choosing Wisely

1. Assess Your Investment Profile

If your total deductions exceed ₹2,00,000, staying with the old regime is almost always cheaper.

2. Calculate the Taxable Income After Deductions

*Example*: Salary: ₹18,00,000 Deductions: ₹1,50,000 (PPF) + ₹1,50,000 (ELSS) + ₹25,000 (Health) + ₹1,00,000 (HRA) = ₹4,25,000 Taxable Income (Old) = ₹18,00,000 – ₹4,25,000 = ₹13,75,000

3. Compute Tax Liability Under Both Regimes

*Result*: Old regime saves ₹39,000.

4. Consider the Rebate Threshold

If your taxable income after deductions is below ₹12,00,000 (salaried) or ₹12,75,000 (non‑salaried), the new regime’s rebate can offset a portion of the tax. However, the rebate is capped at ₹12,000 (₹12,750), so it rarely outweighs the benefit of deductions.

5. Plan for Future Years

• If you anticipate higher income in FY 2026‑27, you may want to lock in deductions now to reduce the tax base.
• If you plan to invest in tax‑saving instruments (PPF, ELSS, NPS), the old regime remains advantageous.
• If you have minimal investments and your income stays below ₹12,75,000, the new regime may be simpler and still cheaper.

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Worked Example – ₹18 Lakh Salary

Scenario A salaried employee earns ₹18,00,000 per annum. He has the following investments:

Step‑by‑Step Calculation

Result Choosing the old regime reduces tax liability by ₹39,000. Even after accounting for the surcharge (none in this case), the old regime remains cheaper.

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How to Opt for a Regime – Practical Steps

1. Log into the Income Tax e‑Filing portal (https://www.incometaxindiaefiling.gov.in). 2. Select “Return/Form” → “Income Tax Return (ITR)” and choose the appropriate ITR form (ITR‑1 for salaried). 3. Enter your personal details and income information. 4. In the “Deductions” section, fill in the amounts under 80C, 80D, HRA, etc. 5. In the “Tax Regime” section, tick the box that corresponds to the regime you wish to adopt.

• If you tick “Old Regime”, the system will automatically apply your deductions.
• If you tick “New Regime”, all deduction fields will be ignored.

6. Review the tax calculation displayed on the screen. 7. Submit the return and pay any tax due via net banking, UPI, or a bank branch. 8. Keep a copy of the filed return and the acknowledgement (ITR‑6) for future reference.

Tip: If you are unsure, file under the old regime first, then file a revised return (ITR‑1) under the new regime within 30 days of filing the original. The tax department will automatically calculate the difference and refund or charge accordingly.

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Frequently Asked Questions

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Conclusion

Choosing between the old and new income‑tax regimes for FY 2025‑26 hinges on a clear comparison of your deductions, income level, and future investment plans. The old regime offers substantial tax relief for those who invest in PPF, ELSS, NPS, health insurance, and claim HRA. The new regime simplifies filing and can be cheaper for middle‑income earners with minimal deductions. By following the step‑by‑step example and using the tables above, you can calculate your exact tax liability and decide which regime saves you the most money. File your return confidently, knowing you have chosen the most advantageous tax structure for the year.