Selecting the beneficial tax regime: Without HRA, old regime makes little sense; new regime scores across income slabs

The Budget might have done for Indian exports what trade policy hasn’t been able to.

With Finance Minister Nirmala Sitharaman ushering in major changes in the new tax regime, the old, with-exemptions structure of taxation has likely lost its sheen even further, according to an analysis by Deloitte India.

The tax rebate limit under the new regime has been raised from Rs 7 lakh to Rs 12 lakh, the basic exemption limit hiked from Rs 3 lakh to Rs 4 lakh, and the income tax slabs were liberalised, in the Union Budget 2025-26, on February 1. Read more details about the new income tax slabs here.

As a result, the new, simplified regime has now become significantly attractive for taxpayers across income tax slabs. Those earning up to Rs 12 lakh per annum (Rs 12.75 lakh in case of salaried individuals due to standard deduction) will not have to pay any tax under the new regime, though they will have to file returns to get rebate of up to Rs 60,000.

Check out Moneycontrol's New Income Tax Calculator for 2025-26.

However, taxpayers in the higher income brackets will have to run the numbers to come up with the right answer on which tax regime is more beneficial.

Read More: No income tax upto Rs 12 lakhs, check new income tax regime AY 2025-26 here

As per Deloitte India’s calculations, those earning over Rs 24 lakh will have to claim deductions of Rs 8 lakh or more, for the old tax regime to be beneficial to them. Put simply, popular deductions under Section 80C (Rs 1.5 lakh for tax saving investment), 80D (maximum Rs 1 lakh for health insurance premium), 24b (Rs 2 lakh for home loan interest) will not be adequate to offset the benefits offered under the new regime.

On the other hand, salaried employees living on rent in high-end apartments might still be able to claim tax breaks of Rs 8 lakh or more.

Therefore, taxpayers will need to make a careful comparison of the reimbursement and allowance components of their salary and eligible tax breaks, before taking a call on choosing between the two tax regimes.