- The new regime is the default; individuals must actively choose the old regime if they want it.
- The old regime allows a wide range of deductions and exemptions; the new regime offers lower slab rates but removes most of them.
- The right choice depends on your actual deductions — compare both each year before filing.
Two regimes, one choice
Individuals and Hindu Undivided Families can compute their income tax under one of two regimes. The new regime offers lower slab rates with very few deductions and exemptions. The old regime has higher rates but allows a long list of deductions — for investments, insurance, housing loan interest, house rent allowance and more.
The new regime is the default. If you do not actively opt for the old regime, your tax will be computed under the new one.
What changes under the Income-tax Act, 2025
The Income-tax Act, 2025 came into force on 1 April 2026. It restructures and renumbers the law and introduces a single 'tax year' in place of 'previous year' and 'assessment year', but the broad choice between regimes continues. Returns for income earned up to 31 March 2026 are filed under the 1961 Act. Section numbers you may be familiar with (such as those for common deductions) have changed, so check references carefully when reading older guidance.
What you give up under the new regime
Under the new regime, most popular deductions and exemptions are not available — for example deductions for specified investments and insurance premiums, house rent allowance exemption and interest on a self-occupied home loan. A standard deduction for salaried individuals and certain employer contributions remain available.
A simple way to decide
- List your actual deductions. Add up what you genuinely invest or spend on eligible items each year — not what you could invest.
- Compute tax both ways. Use the slab rates and rebates applicable for the year under each regime.
- Consider certainty and simplicity. If the difference is small, the new regime avoids locking money into investments purely for tax reasons.
- Check switching rules. Salaried individuals without business income can generally choose each year when filing; those with business or professional income have restrictions on switching back and forth.
Who tends to benefit from each
As a broad rule of thumb, taxpayers with substantial eligible deductions — such as a large home loan, high rent in a metro city and full use of investment-linked deductions — may still find the old regime beneficial. Taxpayers with few deductions, or those who prefer flexibility, often find the new regime simpler and cheaper. The only reliable answer is a side-by-side calculation for your numbers.
