The Union Budget 2025 effectively killed the old tax regime for most salaried people. Not by removing it — but by raising the new regime’s section 87A rebate to ₹60,000, which means anyone earning up to ₹12.75 lakh in gross salary pays zero income tax under the new regime.
That single change shifted the cross-over point. Before Budget 2025, the old regime won for a lot of middle-income earners with even moderate deductions. From FY 2025-26, the cross-over has moved much higher — typically only beating new regime if total deductions cross ₹4.75 lakh, which usually requires a stack of HRA + 80C + 80D + home loan interest + NPS, all maxed.
This article runs the numbers across CTC bands so you can decide for your own situation, with the income tax calculator handling the maths.
What changed in Budget 2025
The new regime had been the default since FY 2023-24, but the slabs and rebate were modest. Budget 2025 made three meaningful changes:
| Item | Pre-Budget 2025 | FY 2025-26 onwards |
|---|---|---|
| 87A rebate (new regime) | ₹25,000 (income up to ₹7L) | ₹60,000 (income up to ₹12L) |
| Standard deduction (new) | ₹50,000 | ₹75,000 |
| Slab structure (new) | 5 slabs to 30% | 7 slabs to 30%, all rates lowered |
| Marginal relief | At ₹7L | At ₹12L |
The old regime is unchanged: ₹2.5L exemption, ₹50K standard deduction, 87A ₹12,500 up to ₹5L taxable. So the practical question becomes: at your CTC, do your old-regime deductions justify staying on the old slabs, or does the new regime simply win on lower rates and the bigger rebate?
How the new regime now treats salaried income
Under the new regime for FY 2025-26:
- Salaried + new regime gets a ₹75,000 standard deduction (raised from ₹50K)
- The slab tax kicks in only above ₹4 lakh of taxable income
- The 87A rebate covers any tax liability up to ₹12 lakh of taxable income
- Marginal relief at ₹12 lakh prevents a tax cliff: if you’re at ₹12,01,000 taxable, you don’t pay full slab tax — you pay only the excess
So for a salaried person with no deductions other than standard:
- Gross ₹4.75L → tax ₹0 (₹4L taxable, in nil slab)
- Gross ₹12.75L → tax ₹0 (₹12L taxable, 87A rebate covers full slab tax of ₹60K)
- Gross ₹15L → tax ₹97,500 (₹14.25L taxable, slab tax ₹93,750 + 4% cess)
- Gross ₹20L → tax ₹2,02,800 (₹19.25L taxable, slab tax ₹1,95,000 + 4% cess)
That ₹12.75 lakh threshold is the single most important number. Below it, the new regime is unbeatable for salaried people because it produces zero tax.
Cross-over CTC: when does old regime win?
Take a salaried person at ₹15 lakh CTC and run both regimes for varying deduction stacks:
| Old-regime deductions | Old-regime tax | New-regime tax | Better |
|---|---|---|---|
| ₹0 (no deductions) | ₹2,55,840 | ₹97,500 | New |
| ₹1,50,000 (just 80C) | ₹2,11,120 | ₹97,500 | New |
| ₹2,50,000 (80C + 80D + ₹50K NPS) | ₹1,79,920 | ₹97,500 | New |
| ₹3,75,000 (above + ₹2L home loan int.) | ₹1,40,920 | ₹97,500 | New |
| ₹4,50,000 (above + HRA exemption) | ₹1,17,520 | ₹97,500 | New |
| ₹5,50,000 (full deduction stack maxed) | ₹86,320 | ₹97,500 | Old |
For ₹15L CTC, the cross-over is around ₹4.75 lakh of total deductions. Anything below that, new regime wins. Anything above, old regime wins by 5-15K.
Same exercise at ₹25 lakh CTC:
| Old-regime deductions | Old-regime tax | New-regime tax | Better |
|---|---|---|---|
| ₹0 | ₹5,77,200 | ₹3,30,200 | New |
| ₹2,50,000 | ₹4,79,200 | ₹3,30,200 | New |
| ₹4,50,000 | ₹4,01,200 | ₹3,30,200 | New |
| ₹6,00,000 | ₹3,42,200 | ₹3,30,200 | New (just) |
| ₹7,50,000 | ₹2,83,200 | ₹3,30,200 | Old |
Cross-over moves up to ~₹6.5 lakh of deductions at ₹25L CTC. Beyond that, very few people stack — you’d need the maximum HRA in a metro plus a substantial home loan plus NPS plus 80C + 80D to get there.
What deductions actually disappear under the new regime?
This is the gotcha most people miss. The new regime lower slabs come at the cost of removing nearly every deduction:
Allowed under new regime:
- Standard deduction (₹75,000 salaried)
- Employer’s NPS contribution under 80CCD(2) (up to 14% of basic for govt, 10% for private)
- Family pension exemption (₹15,000)
- Agniveer Corpus Fund 80CCH
Removed under new regime:
- 80C (₹1.5 lakh) — PPF, ELSS, life insurance premium, principal repayment
- 80D (₹25-50K) — health insurance premium
- 80CCD(1B) (₹50K) — own NPS contribution
- Section 24(b) — home loan interest (self-occupied)
- 10(13A) — HRA exemption
- LTA, leave encashment, professional development allowance
- 80E (education loan interest), 80G (donations), 80GGA, 80TTA/80TTB
Self-occupied home loan interest deduction is the biggest single absence — losing ₹2 lakh of deduction at the 30% slab is ₹62,400 of extra tax under new regime versus old.
When old regime is the right call
Stay on the old regime if all four of the following are true:
- You pay rent in a metro and your HRA exemption exceeds ₹2 lakh per year
- You have a self-occupied home loan with full ₹2 lakh interest claim under section 24(b)
- You max out 80C (₹1.5L) consistently — PPF, ELSS, EPF combined
- Your CTC is above ₹15 lakh
A common stack that justifies old regime in 2026:
| Deduction | Amount |
|---|---|
| HRA exemption (Bengaluru, ₹50K rent, ₹50K basic) | ₹2,16,000 |
| Section 24(b) home loan interest (let-out property allowed) | ₹2,00,000 |
| 80C (PPF + ELSS + insurance + principal) | ₹1,50,000 |
| 80D (health insurance for self + parents) | ₹50,000 |
| 80CCD(1B) NPS | ₹50,000 |
| Standard deduction | ₹50,000 |
| Total | ₹7,16,000 |
That stacks to ₹7.16 lakh of deductions. At ₹25L CTC, old regime wins by roughly ₹1.5 lakh per year. At ₹15L CTC, old regime wins by ~₹35K — small but real.
The 24(b) home loan interest deduction has a niche: while you can’t claim it for self-occupied property under new regime, you can claim it for let-out property even under new regime against rental income. So landlords with rental income still get to use this lever.
How to actually decide for FY 2025-26
The clean three-step decision:
- List your old-regime deductions honestly — only what you’ll actually claim, not aspirational
- Run both regimes through the income tax calculator with your CTC and deduction stack
- Pick the lower number, give your employer one declaration
If the gap is less than ₹10,000 per year, default to new regime anyway. The simplicity advantage is real:
- No rent receipts, landlord PAN, or Form 12BB exemption claims
- No proof-of-investment scramble in February
- Less chance of scrutiny, less paperwork
- Cleaner ITR filing
For most salaried Indians earning under ₹15 lakh in 2026, that ₹12.75 lakh threshold means the choice is settled — new regime wins by default. The decision matters mainly for the ₹15-30 lakh CTC band where deduction stacks can swing it.
What about freelancers and self-employed?
Different rules. The Section 87A rebate works the same way, so income up to ₹12L taxable is still tax-free under the new regime. But:
- 80C/80D/etc deductions are still excluded under new regime
- 44ADA presumptive (50% of gross) and 44AD (6%/8%) are independent of the regime choice — you compute deemed profit first, then choose regime
- Freelancers tend to have fewer 80C-style deductions, so new regime is even more dominant for them
Self-employed with business income face the one-way switch rule: you can opt out of new regime once, then return only once and stay there. Easier to commit early.
Frequently asked questions
Can I switch regimes every year?
Salaried: yes, every year. Just declare to payroll at start of FY and again at filing time. Self-employed: not freely — see above.
Does HRA exemption still work under new regime?
No. HRA under section 10(13A) is allowed only under the old regime. If you pay rent and the exemption is large, run both regimes carefully — you might be giving up real money by defaulting to new.
What if my CTC is exactly ₹12.75 lakh?
Salaried: gross ₹12.75L − ₹75K standard deduction = ₹12L taxable → 87A rebate covers the full ₹60K slab tax → zero tax. This is the sweet spot for new regime.
Will my employer compute TDS correctly?
If you declare your regime preference in your annual investment declaration, yes. Errors usually come from default settings (employer assumes new regime if you don’t declare) or from claiming deductions you can’t actually claim. Cross-check using the take-home calculator.
Where does NPS fit in?
Two relevant sections:
- 80CCD(1B): self-contribution up to ₹50K, old regime only
- 80CCD(2): employer contribution up to 10% of (basic + DA), allowed in both regimes
Salaried employees can effectively use 80CCD(2) regardless of regime — this is why structuring CTC with employer NPS contribution is increasingly popular under new regime.
Run your numbers
The Income Tax Calculator lets you switch between regimes instantly with all FY 2025-26 slabs, the ₹60K rebate, marginal relief, surcharge slabs and 4% cess applied correctly. Take 30 seconds to compare both for your own salary — much more useful than internet rules of thumb.
For salaried structure questions, the Take-Home Salary Calculator walks the full chain from CTC to bank deposit, showing employer PF, gratuity provision, employee PF, professional tax and TDS in your chosen regime.
Sources
- Union Budget 2025-26: tax regime amendments (Finance Act 2025)
- Income Tax Act 1961: Sections 87A, 115BAC, 24(b), 10(13A), Chapter VI-A
- CBDT FY 2025-26 / AY 2026-27 circulars and notifications
- ClearTax FY 2025-26 slab and rebate documentation