Old vs New Tax Regime (FY 2025–26): Which Is Better for Salaried Individuals?

The biggest tax shift in 64 years just went live. From 511 rules to 333 rules and 399 forms to 190 forms, the new income tax became more structural and clean. With the introduction of the Income-tax Act, 2025, the tax system has been simplified significantly, reducing provisions, forms, and introducing a unified ‘Tax Year’ instead of the earlier FY/AY system.

But the question rises among salaried individuals is: Does it relate to us?,  does it change what I actually pay? If you're a salaried employee earning anywhere between ₹3 lakh and ₹25 lakh or above, this breakdown is for you. 

In this guide we will discuss everything about the new income tax 2025, old vs new regime salaried employees, which tax regime is better for you, tax saving tips for salaried employees and many more. 

What are Income Tax Slabs?

Income tax slabs are the income ranges defined by the government to determine how much tax an individual must pay in India.

Under the new tax regime, income up to ₹4 lakh is tax-free, compared to ₹2.5 lakh under the old regime. The new regime introduces more granular tax slabs, reducing the marginal tax burden across income levels  

The old tax regime continues as an optional system that allows deductions such as Section 80C, HRA and home loan benefits but has different slab limits. The government kept most of the core logic but restructured everything so it's actually readable.

Income Tax Slabs for FY 2025–26 (New Tax Regime)

The new tax regime is the default option for FY 2025-26 under the new tax regime framework (earlier Section 115BAC). It offers lower tax rates with fewer deductions, along with a basic exemption limit of ₹4 lakh. The applicable income tax slabs under this regime are as follows:

• Salaried employees can claim standard deduction of Rs. 75,000
• Income up to Rs. 12 lakh is effectively tax-free due to tax rebate under Section 87A
• Deductions such as HRA, 80C, 80D etc., are disallowed under the new tax regime

Income Tax Slabs for FY 2025–26 (Old Tax Regime)

• Salaried employees can claim standard deduction of Rs. 50,000
• Income up to Rs. 5 lakh is tax-free due to Section 87A rebate

Structural Effect on Salaried Employees

• No more FY/AY confusion: Now, there's now a single "Tax Year" (April–March)
• New ITR forms: New forms are being rolled out to reduce compliance friction
• Single Section 393: TDS provisions have been streamlined and consolidated under the new law structure (Section 393)
• Medical Loan Exemption: Employer medical loan exemption raised from ₹20,000 to ₹2 lakh

Old vs New Tax Regime (FY 2025-26)

Here’s the difference between both the tax regime 

Which Regime Wins? (Old vs New)

Stop guessing which regime is better for you. Use this table to orient yourself quickly, then calculate precisely.

Things Founders and HR Teams Should Know Under New Regime

If you run a startup or manage payroll, this transition has practical implications for your team:

1. Default TDS is now a new regime: If your employees haven't submitted a declaration opting for the old regime, payroll systems will deduct TDS under the new regime. Make sure your team knows they can declare their preference at the start of the year and update it once during the year if their situation changes.
2. Salary restructuring opportunities: The enhanced employer NPS deduction (14% of basic) is one of the few powerful levers available in the new regime. CTC restructuring to increase employer NPS contributions is a legitimate, employee-friendly way to reduce tax outgo without any investment lock-in.
3. Employer Medical Loan Exemption: The employer medical loan exemption jumped from ₹20,000 to ₹2 lakh. This is a meaningful change for healthcare-related benefits. If your employee benefits policy hasn't been updated since 2023, it's worth revisiting.