Pick the tax path best suited for you The Indian government continues to offer two tax regimes: the traditional (old) one with deductions like Section 80C, 80D, and interest on housing loan, and the new (optional) one with lower slab rates without the highest deductions. For FY 2025 26, you have to do rough estimates both ways to know which saves you more in tax – keeping your investments, expenses, and financial goals in view.
Compare tax slabs and rates In the old regime, rates are 5% to 30% after claiming deductions. The new regime has a simplified slab structure with slightly lower rate but no deduction relief. If you have taxable income less than ₹15 lakh and do not use up deduction, new regime typically provides you with a lower tax. But if you have significant deductions, old regime may be cost-effective.
Calculate your basket of deductions Do you have ELSS, PPF, life insurance (80C), or health insurance (80D) investments or pay rent and home loan interest? If you have deductions and exemptions totaling more than ₹2-3 lakh in a year, the old regime will likely be for you. Those where income is based on such investments and expenses need to calculate tax both ways. If you save just mandatory EPF or minimal LIC and medical insurance premiums, the simpler new regime will be for you.
Consider lifestyle and flexibility The new regime lets you take slab benefits current to date without proof every year. It suits professionals with irregular income (freelancers, contractors) and young income earners who have no long-term tax-savings investments. Conversely, if you have loans, school fees for kids, or investment schemes, the old regime promotes disciplined saving and can also impart financial discipline through compelled investing.
Future proof your decision You can change regimes annually but not after submitting your ITR. So, prior to FY 2025 26 start, weigh both options against estimated income and allowances. Most employer payrolls these days display projected tax liability under both regimes to assist with the decision. Use numbers with an online calculator or seek advice from your finance professional before locking in your decision.
Act now Make your decision before March 31, 2026, and inform your employer if you change regimes. Review your investment and expense plans to align with the regime you opt for. For example, opting for the old regime would mean locking down SIPs or insurance payments in advance to maximize tax benefits, whereas the new regime would free up cash flows to invest anywhere else.
