Old Regime vs New Regime:Which One Saves You More Tax?
- Bhagya Lakshmi
- Apr 22
- 13 min read
A note on the Income Tax Act 2025: The new Income Tax Act 2025 comes into force on 1 April 2026. However, FY 2025-26 (AY 2026-27) returns are filed under the existing Income Tax Act 1961 — your ITR due 31 July 2026 is entirely governed by the 1961 Act. The new Act is a recodification: the tax rates, slabs, deductions and rebates are substantively unchanged. From FY 2026-27 (Tax Year 2026-27) onwards, the new Act applies — but you will not see a different tax on the same income. Think of it as the same music in a new playlist.
The Question Every Salaried Professional Is Asking Right Now
Filing your income tax return for FY 2025-26 (AY 2026-27)? The single most impactful decision you will make is the one you likely submitted to your employer in April 2025: old regime or new regime? Get it wrong, and you could be paying tens of thousands more in tax than necessary.
Budget 2025 fundamentally reset this decision by introducing a ₹60,000 rebate under Section 87A, making income up to ₹12 lakh tax-free under the new regime. For many professionals, the new regime became the obvious choice overnight. But for those with a combination of home loans, insurance premiums, NPS contributions, HRA and — critically — an electric vehicle loan, the old regime can still deliver significantly lower tax well into the ₹30 lakh income bracket.
This guide tells you exactly where the two regimes equalise — and why the EV deduction under Section 80EEB shifts that breakeven point by nearly ₹10 lakhs.
The Regulatory Context: Income Tax Act 2025 — What It Means for Your AY 2026-27 Return
This is the question every CA is being asked by clients right now. Here is the definitive answer:
Aspect | Position |
Which law governs FY 2025-26 (AY 2026-27)? | Income Tax Act, 1961 — in full |
When does Income Tax Act 2025 apply? | From 1 April 2026 (Tax Year 2026-27 onwards) |
Do slabs or rates change? | No — identical under both Acts |
Do deductions (80C, 80D, HRA, 80EEB) change? | No — all deductions continue under same provisions |
What actually changes under IT Act 2025? | Terminology, structure, section numbering — not the tax math |
New term replacing Financial Year? | Tax Year (but FY 2025-26 still filed as AY 2026-27) |
ITR due date for FY 2025-26? | 31 July 2026 for salaried / non-audit taxpayers |
Bottom line: Your FY 2025-26 return is governed by the Income Tax Act 1961. The Income Tax Act 2025 is not relevant to this filing season. It becomes your framework from the return you file in July 2027 for Tax Year 2026-27.
New Regime Slabs — FY 2025-26 (AY 2026-27)
The new regime under Section 115BAC is the default regime. If you did not opt out, this is what applies to you.
Taxable Income Slab | Tax Rate | Tax on Slab | Cumulative Tax |
Up to ₹4,00,000 | Nil | — | — |
₹4,00,001 – ₹8,00,000 | 5% | ₹20,000 | ₹20,000 |
₹8,00,001 – ₹12,00,000 | 10% | ₹40,000 | ₹60,000 |
₹12,00,001 – ₹16,00,000 | 15% | ₹60,000 | ₹1,20,000 |
₹16,00,001 – ₹20,00,000 | 20% | ₹80,000 | ₹2,00,000 |
₹20,00,001 – ₹24,00,000 | 25% | ₹1,00,000 | ₹3,00,000 |
Above ₹24,00,000 | 30% | 30% on balance | ₹3,00,000 + 30% |
Standard deduction: ₹75,000 for salaried employees and pensioners | Rebate u/s 87A: Full rebate (up to ₹60,000) if taxable income does not exceed ₹12,00,000 — tax is NIL
Effective zero-tax salary: ₹12,75,000 gross (₹12,00,000 taxable after ₹75,000 standard deduction)
Marginal relief: If taxable income slightly exceeds ₹12L, excess tax is capped at income above ₹12L — preventing a cliff-edge jump.
Old Regime Slabs — FY 2025-26 (AY 2026-27)
Unchanged since FY 2017-18. Must be actively opted into by submitting Form 10-IEA (or declaration to employer).
Taxable Income Slab | Tax Rate | Notes |
Up to ₹2,50,000 | Nil | — |
₹2,50,001 – ₹5,00,000 | 5% | 87A rebate → NIL up to ₹5L |
₹5,00,001 – ₹10,00,000 | 20% | — |
Above ₹10,00,000 | 30% | — |
Standard deduction: ₹50,000 Rebate u/s 87A: ₹12,500 rebate if taxable income ≤ ₹5,00,000 — tax is NIL
Senior citizens (60–79 years): Basic exemption ₹3,00,000 Super senior citizens (80+): Basic exemption ₹5,00,000
Old Regime — All Available Deductions for a Salaried Individual
The old regime's power lies in the deductions it allows. Here is the complete picture for a maximally tax-efficient salaried profile:
Deduction | Section | Maximum (₹) | Conditions / Notes |
Standard deduction | — | 50,000 | Available to all salaried/pensioners |
Investments (PF, ELSS, LIC, PPF, home loan principal, tuition fees) | 80C | 1,50,000 | Combined ceiling |
Health insurance — self, spouse & children | 80D | 25,000 | ₹50,000 if self is senior citizen |
Health insurance — parents (below 60 years) | 80D | 25,000 | — |
Health insurance — parents (senior citizens, 60+) | 80D | 50,000 | Replaces the ₹25K limit |
NPS contribution by individual | 80CCD(1B) | 50,000 | Over and above 80C ceiling |
HRA exemption — non-metro cities | 10(13A) | 40% of basic salary | Basic = 50% of gross assumed |
HRA exemption — metro cities* | 10(13A) | 50% of basic salary | *From FY 2026-27, Hyderabad qualifies for 50% |
Electric vehicle loan interest | 80EEB | 1,50,000 | Loan sanctioned between 01.04.2019 and 31.03.2023 ONLY — closed for new loans |
Home loan interest (self-occupied) | 24(b) | 2,00,000 | Self-occupied property; pre-construction interest amortised over 5 yrs |
Employer NPS contribution | 80CCD(2) | 10% of basic salary | No upper ceiling — not subject to 80C limit; available under both regimes |
Total fixed deductions (excl. HRA, 24b, 80CCD2) | — | 4,75,000 | Std + 80C + 80D + NPS(1B) + 80EEB |
Important — Hyderabad HRA from FY 2026-27: Under the Income Tax Rules 2026, Hyderabad has been added to the list of cities qualifying for 50% HRA exemption (alongside Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Pune, Ahmedabad). This benefit applies from Tax Year 2026-27 onwards — not for the current FY 2025-26 return, where 40% still applies for Hyderabad-based employees.
Section 80EEB — No extension: Multiple tax publications incorrectly state the 80EEB sanction window was extended to 31.03.2026. This is not correct. No Finance Act or CBDT circular has extended this date. The eligible window closed on 31.03.2023 and the section is functionally closed for new borrowers.
Section 80EEB — Electric Vehicle Loan Interest: What the Law Actually Says
Section 80EEB, introduced by Finance Act 2019, allows individual taxpayers to claim a deduction of up to ₹1,50,000 per annum on interest paid on a loan taken for the purchase of an electric vehicle. It was one of the more targeted green-mobility incentives in the Income Tax Act — and it is still relevant for taxpayers who took loans within the eligible window. However, it is critical to understand its precise scope and current status before claiming it.
The Loan Sanction Window — The Most Important Condition
Section 80EEB(2) specifies that the loan must be sanctioned by a financial institution or NBFC between 1 April 2019 and 31 March 2023. This is the eligibility window as enacted by Finance Act 2019 and it has never been extended.
Correction and important clarification: Some publications and advisors have stated that the 80EEB sunset date was extended to 31 March 2026. This is incorrect. No Finance Act, CBDT circular, or notification has extended the loan sanction window beyond 31 March 2023. Budget 2023 was widely expected to extend this date — but it did not. The deduction is closed for any loan sanctioned on or after 1 April 2023. Taxpayers and advisors should not rely on any purported extension without citing the specific legislative provision.
Who Can Still Claim Section 80EEB in FY 2025-26?
The deduction remains fully claimable by taxpayers who took an EV loan within the eligible window. The deduction is not a one-time claim — it is available every year on the interest paid, until the loan is fully repaid. So if you took an EV loan in, say, FY 2021-22, you can claim 80EEB in FY 2025-26 (AY 2026-27) on the interest paid during the year — provided all other conditions are met.
Key Conditions — Section 80EEB
• Deduction is on interest paid during the year — not principal repayment
• Loan must have been sanctioned between 01.04.2019 and 31.03.2023 — CLOSED for loans after this date
• Loan must be from a financial institution or NBFC registered with RBI
• Only individual taxpayers are eligible — HUFs, firms, companies cannot claim
• Vehicle must be an electric vehicle as defined under the Central Motor Vehicles Rules (exclusively electric motor, traction battery, regenerative braking system)
• Deduction under 80EEB cannot be claimed simultaneously under any other provision of the Act
• Not available under the new tax regime — old regime only
Business Use: Additional Deduction Available
If the electric vehicle is used for business purposes and the interest exceeds ₹1,50,000 in a year, the excess above ₹1.5L is still deductible as a business expense under the head 'Profits and Gains of Business or Profession' — provided the vehicle is registered in the name of the owner or business. This makes 80EEB a floor deduction, not a ceiling for business users.
Impact on Breakeven: Old vs New Regime
Since 80EEB is now effectively closed for new loans (post March 2023), its impact on the regime breakeven analysis is relevant only for taxpayers with existing EV loans taken before 31.03.2023. For all other taxpayers, the breakeven should be computed without this deduction. The following section presents breakeven analysis under both scenarios — with and without 80EEB — so you can apply the correct figure to your situation.
The Employer EV Perk — Rule 3(2): Available Under Both Regimes
Separate from Section 80EEB, Rule 3(2) of the Income Tax Rules provides that where an employer provides a company-owned electric car and meets the charging expenses, the perquisite value is treated as NIL. Compare this with ₹1,800–₹2,400 per month attributed as perquisite for petrol/diesel company cars. For a senior executive with a high CTC, restructuring the car component from a petrol to an electric vehicle can result in tax-free income of ₹21,600–₹28,800 per annum. This benefit is available under both old and new regimes, making it one of the few salary-structure optimisations that works regardless of regime choice.
Section 24(b) — Home Loan Interest: The Single Largest Deduction
For taxpayers with an active home loan, Section 24(b) provides a deduction of up to ₹2,00,000 per annum on interest paid on a loan for a self-occupied property. This is the largest single deduction available outside of 80C — and it alone can shift the breakeven between regimes by ₹6–8 lakhs in gross salary.
Key Conditions — Section 24(b)
• Deduction limited to ₹2,00,000 per annum for self-occupied property
• For let-out property, the full interest is deductible (without the ₹2L cap) — but net loss from house property that can be set off against salary is capped at ₹2,00,000
• Loan must be taken for purchase or construction of a residential property
• Construction must be completed within 5 years from the end of the financial year in which loan was taken
• Pre-construction interest: deductible in 5 equal instalments starting from the year of completion — often missed by taxpayers
• Not available under new tax regime — old regime only
Section 24(b) + 80EEB Together: The Maximum Deduction Stack
When both a home loan and an EV loan are in play, the combined deduction impact is substantial:
Deduction Component | Section | Annual Deduction (₹) |
Standard deduction | — | 50,000 |
Investments — PF, ELSS, LIC, PPF etc. | 80C | 1,50,000 |
Health insurance — self & family | 80D | 25,000 |
Health insurance — senior citizen parents | 80D | 50,000 |
NPS contribution | 80CCD(1B) | 50,000 |
HRA exemption (non-metro, 40% of basic) | 10(13A) | ~20% of gross salary |
EV loan interest | 80EEB | 1,50,000 |
Home loan interest | 24(b) | 2,00,000 |
Total fixed deductions (excl. HRA) | — | 6,75,000 |
With home loan interest (Section 24b) added to the full deduction stack, the breakeven salary rises further to approximately ₹38–40 LPA gross — making the old regime attractive well into what many assume is exclusively new regime territory.
Employer NPS Contribution — Section 80CCD(2): Works Under Both Regimes
Unlike most deductions, the employer's contribution to NPS under Section 80CCD(2) is deductible even under the new regime. Up to 10% of basic salary contributed by the employer to NPS is fully deductible — with no upper rupee ceiling. For high-income earners, this can be a significant tax-neutral salary restructuring opportunity regardless of regime choice. Many employers offer this as part of the CTC — employees should specifically request it if not already structured.
The Breakeven Analysis — At Which Salary Are Both Regimes Equal?
The table below assumes all old regime deductions are fully utilised including 80EEB (₹1.5L). Basic salary = 50% of gross. HRA exempt = 40% of basic (non-metro). All figures include 4% health and education cess. Surcharge applies above ₹50 lakhs.
Gross Salary | Old — Taxable Income | Old Regime Tax (incl. cess) | New — Taxable Income | New Regime Tax (incl. cess) | Verdict |
₹10,00,000 | ₹2,25,000 | Nil (87A) | ₹9,25,000 | Nil (87A) | Both nil |
₹12,00,000 | ₹4,25,000 | Nil (87A) | ₹11,25,000 | Nil (87A) | Both nil |
₹12,75,000 | ₹5,00,000 | Nil (87A) | ₹12,00,000 | Nil (87A) | Both nil |
₹13,00,000 | ₹5,25,000 | ~₹1,560 | ₹12,25,000 | ~₹3,640 | Old better |
₹15,00,000 | ₹7,25,000 | ~₹26,000 | ₹14,25,000 | ~₹1,04,000 | Old better |
₹18,00,000 | ₹10,25,000 | ~₹96,200 | ₹17,25,000 | ~₹1,56,000 | Old better |
₹20,00,000 | ₹12,25,000 | ~₹1,23,500 | ₹19,25,000 | ~₹1,87,200 | Old better |
₹25,00,000 | ₹17,75,000 | ~₹2,69,100 | ₹24,25,000 | ~₹3,18,500 | Old better |
₹30,00,000 | ₹22,75,000 | ~₹4,18,600 | ₹29,25,000 | ~₹4,55,000 | Old better |
~₹33–34 Lakhs (with EV, no home loan) | — | ≈ Equal | — | ≈ Equal | EV BREAKEVEN |
₹35,00,000 | ₹27,75,000 | ~₹6,18,800 | ₹34,25,000 | ~₹5,97,500 | New better (EV only) |
~₹38–40 Lakhs (with EV + home loan) | — | ≈ Equal | — | ≈ Equal | FULL BREAKEVEN |
₹40,00,000 | ₹32,75,000 | ~₹8,08,600 | ₹39,25,000 | ~₹7,51,500 | New better |
₹50,00,000 | ₹42,75,000 | ~₹11,57,000 | ₹49,25,000 | ~₹10,94,000 | New better |
Taxpayers with existing EV loans (sanctioned before 31.03.2023): breakeven with 80EEB is approximately ₹33–34 LPA. For all others (no EV loan), breakeven is approximately ₹23–24 LPA. The ₹10 lakh difference underscores how much the closed 80EEB window is worth — and why its non-renewal is a missed opportunity.
Breakeven Shifts by Deduction Profile
Not every taxpayer claims every deduction. The breakeven point is not a single number — it depends on your specific deduction profile:
Deduction Profile | Breakeven Gross Salary | Who This Applies To |
Standard deduction only — no investments, no insurance | ₹8–10 LPA | Very young earners, new joiners |
80C ₹1.5L + 80D self ₹25K | ₹13–15 LPA | Basic tax planner |
Above + HRA (40% of basic) | ₹17–19 LPA | Salaried renter, non-metro |
Above + NPS ₹50K (80CCD 1B) | ₹20–22 LPA | Disciplined retirement planner |
Above + 80D parents (senior) ₹50K | ₹23–25 LPA | Covering parents' health insurance |
All above + Section 80EEB (EV loan — loan sanctioned before 31.03.2023 only) | ~₹33–34 LPA | Pre-Mar 2023 EV loan borrowers only — closed for new loans |
All above + Section 24(b) (home loan interest ₹2L) | ~₹38–40 LPA | Homeowner with EV loan — max deduction profile |
All above + 80CCD(2) employer NPS (10% of basic) | ~₹42–45 LPA | High-income salaried with structured CTC |
Your Decision Guide: Old or New Regime?
Choose the Old Regime if you have all or most of these:
• An active home loan with interest deduction under Section 24(b) — up to ₹2,00,000 per annum (self-occupied); full interest deductible for let-out property
• Full 80C utilisation — PF, ELSS, LIC, PPF, tuition fees, home loan principal
• Health insurance for self and senior citizen parents — up to ₹75,000 combined
• NPS contribution under 80CCD(1B) — ₹50,000 over the 80C ceiling
• HRA — you live in rented accommodation and receive HRA from employer
• An EV loan sanctioned between 01.04.2019 and 31.03.2023 — Section 80EEB ₹1.5 lakh per annum (closed for new loans — no extension has been granted)
• Gross salary is below the applicable breakeven for your deduction profile
Choose the New Regime if:
• Your gross salary is below ₹12.75 LPA — zero tax, no effort required
• You do not have significant deductions (no home loan, no HRA, no EV loan)
• Your gross salary exceeds ₹33–34 LPA even with all deductions claimed
• You prefer liquidity and do not want to lock funds in 80C instruments
• You are earning above ₹2 crore — surcharge is capped at 25% under new regime vs 37% under old
High Income Taxpayers: The Surcharge Dimension
For incomes above ₹50 lakhs, surcharge applies and can meaningfully alter the regime comparison:
Total Income | Old Regime Surcharge | New Regime Surcharge | Impact |
₹50L – ₹1 Crore | 10% | 10% | Equal — no difference |
₹1 Crore – ₹2 Crore | 15% | 15% | Equal — no difference |
₹2 Crore – ₹5 Crore | 25% | 25% (capped) | Equal — no difference |
Above ₹5 Crore | 37% | 25% (capped) | New regime saves significantly — ~12% on surcharge base |
For incomes above ₹5 crore, the surcharge under the old regime can reach 37%, bringing the effective marginal tax rate to approximately 42.7%. Under the new regime, the surcharge cap of 25% limits the effective rate to approximately 39%. At this income level, the regime choice is driven by the surcharge advantage of the new regime, not deductions.
FY 2025-26 Action Checklist Before Filing Your Return
For old regime taxpayers
• Collect Form 16 from employer — verify regime declared matches your ITR
• Gather investment proofs for 80C — confirm total ₹1.5L utilised
• Collect insurance premium receipts — 80D for self and parents
• Obtain NPS statement for 80CCD(1B) contribution
• HRA — confirm rent receipts and landlord PAN (if rent exceeds ₹1L/year)
• EV loan (if applicable) — obtain interest certificate from NBFC/bank; verify loan was sanctioned between 01.04.2019 and 31.03.2023; deduction is NOT available for loans sanctioned after 31.03.2023
• Home loan interest certificate from bank under Section 24(b) — if applicable
• Compute tax under both regimes before filing — ITR filing allows you to switch even if employer deducted TDS under a different regime
For new regime taxpayers
• Confirm standard deduction of ₹75,000 has been applied before computing taxable income
• Verify 87A rebate — if taxable income is ₹12L or below, tax must be NIL
• Check marginal relief if taxable income is between ₹12L and ₹12.75L
• ITR due date: 31 July 2026 for salaried individuals
• Do not claim 80C, 80D, HRA or 80EEB deductions under the new regime — they are not permitted
Conclusion
For most salaried individuals in the ₹13–33 LPA range with a structured deduction profile, the old regime continues to deliver a materially lower tax outflow in FY 2025-26. The ₹12L zero-tax threshold under the new regime is genuinely powerful for lower-income earners — but it does not diminish the old regime's advantage at mid and upper-middle income levels where compound deductions substantially reduce taxable income.
Section 80EEB — the electric vehicle loan deduction — remains valuable for taxpayers who took EV loans between April 2019 and March 2023. At ₹1.5 lakh per annum on interest, it shifts the breakeven by ₹10 lakhs and can save ₹46,800–₹78,000 annually at mid-income levels. Taxpayers in this window should claim it every year until the loan is repaid. For everyone else: the section is closed — the loan sanction window ended on 31.03.2023 and has not been extended. No notification, circular or Finance Act has extended this date, despite widespread expectation after Budget 2023.
The Income Tax Act 2025, which comes into force from 1 April 2026, does not change this calculus. It is a structural recodification — the numbers remain the same. Your FY 2025-26 return (AY 2026-27), due 31 July 2026, is governed entirely by the Income Tax Act 1961.
The optimal choice is always individual-specific. A structured computation covering your exact income, deduction eligibility, and employer perquisites is the only reliable basis for the decision. We strongly recommend computing both regimes before filing — the ITR allows a switch even if TDS was deducted under the other regime during the year.
Need a personalised old vs new regime computation? BLC Consultancy LLP provides Virtual CFO and direct tax compliance services to individuals, SMEs, and corporates in Hyderabad and across Telangana. We prepare personalised regime comparisons, covering salary structure, deduction eligibility, HRA, 80EEB and home loan analysis. Reach us at blcconsultancy.co.
Disclaimer: This article is published for general informational and educational purposes and does not constitute professional tax advice. Tax laws and provisions are subject to amendment. Readers are advised to consult a Chartered Accountant or qualified tax professional for advice specific to their circumstances. BLC Consultancy LLP accepts no liability for decisions taken on the basis of this publication without independent professional verification.
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