Choosing Between the New and Old Tax Regimes

Tax regimes are basically the rules the government follows to decide how much tax people and businesses need to pay. In India, there are two main types: the old tax regime, where you can claim deductions and exemptions, and the new tax regime, where you pay lower taxes but can't claim those benefits.

It’s all about how much you earn and which system works best for you, so you can pick the tax regime that fits your needs.

New and Old Tax Regimes

For the financial year 2025-26, the income tax slabs in India differ depending on whether you choose the new or old tax regime. Here's a quick breakdown:

New Tax Regime

• Up to ₹4,00,000 – No tax
• ₹4,00,001 to ₹8,00,000 – 5%
• ₹8,00,001 to ₹12,00,000 – 10%
• ₹12,00,001 to ₹16,00,000 – 15%
• ₹16,00,001 to ₹20,00,000 – 20%
• ₹20,00,001 to ₹24,00,000 – 25%
• Above ₹24,00,000 – 30%

Deductions

• Section 24(b): Interest on housing loans for let-out property.
• Section 80CCD(2): Employer’s contribution to the National Pension Scheme (NPS), capped at 14% of salary.
• Section 80CCH: Contributions to the Agnipath Scheme.
• The rebate under Section 87A has increased from ₹25,000 to ₹60,000. This means people with income up to ₹12,00,000 will have no tax liability. But rebates do not apply to special tax rates, like capital gains under section 112A. Marginal relief on the rebate is still available.
• Standard Deduction: The government has kept the standard deduction at ₹75,000.

Old Tax Regime (Based on Age)

For individuals below 60 years:

• Up to ₹2,50,000 – No tax
• ₹2,50,001 to ₹5,00,000 – 5%
• ₹5,00,001 to ₹10,00,000 – 20%
• Above ₹10,00,000 – 30%

For senior citizens (60-80 years):

• Up to ₹3,00,000 – No tax
• ₹3,00,001 to ₹5,00,000 – 5%
• ₹5,00,001 to ₹10,00,000 – 20%
• Above ₹10,00,000 – 30%

For super senior citizens (80+ years):

• Up to ₹5,00,000 – No tax
• ₹5,00,001 to ₹10,00,000 – 20%
• Above ₹10,00,000 – 30%

Deductions under Old Regime

• Section 80C: Up to ₹1.5 lakh for investments like PPF, LIC premiums, ELSS, etc.
• Section 80D: Health insurance premiums.
• Section 24(b): Interest on housing loans up to ₹2 lakh.
• Section 80E: Deduction on loan interest for higher education.
• Section 80G: Deductions on donations to prescribed funds.
• Additional exemptions for HRA, LTA, and more.

How much tax you will pay?

Under the revised tax regime in Budget 2025, income up to ₹12 lakh remains tax-free, offering significant relief to taxpayers. For those earning above ₹12 lakh, the tax rates have been adjusted to ensure a more favourable tax burden.

In the old tax regime, income up to ₹2.5 lakh is exempt from tax, while income between ₹2.5 lakh and ₹5 lakh is taxed at 5%, from ₹5 lakh to ₹10 lakh at 20%, and any income exceeding ₹10 lakh is taxed at 30%.

How the tax slabs work

The ₹12 lakh exemption is only for those earning up to ₹12 lakh annually. Anyone earning above this amount will still be taxed according to the slab-wise system. The tax process begins with breaking down the total income into different slabs, with each slab being taxed at its specific rate.

For example, if you earn ₹15 lakh annually, after a standard deduction of ₹75,000 (under the new regime), your taxable income would be ₹14.25 lakh. Here's how the tax would be calculated:

• The first ₹4 lakh is tax-free.
• The next ₹4 lakh (from ₹4 lakh to ₹8 lakh) will be taxed at 5%, which equals ₹20,000.
• The next ₹4 lakh (from ₹8 lakh to ₹12 lakh) will be taxed at 10%, which amounts to ₹40,000.
• The remaining ₹2.25 lakh (from ₹12 lakh to ₹14.25 lakh) will be taxed at 15%, which equals ₹33,750.

This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.