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As we step into the Financial Year 2025-26, Indian taxpayers are once again faced with a critical decision, choosing between the old and new tax regimes. Both systems offer distinct advantages depending on your income, eligible deductions, and long-term financial goals. While the old regime allows a range of exemptions, the new one provides reduced rates with minimal compliance.
Understanding the latest salary income tax slabs is crucial to making this decision, especially since Budget 2023 significantly revised them under the new regime, and they remain unchanged for FY 2025-26. One of the most important tools in this comparison is identifying the break-even salary point, the income level at which tax liability under both regimes is nearly equal. Knowing this threshold empowers salaried individuals to optimise their tax planning with greater clarity.
Key Takeaways
For FY 2025-26, taxpayers have the choice between a new regime with lower rates and fewer deductions and an old regime with standard rates and numerous exemptions.
The tax slabs differ significantly between the new and old regimes, impacting the tax liability at various income levels.
Calculating the salary break-even point helps individuals identify the income level at which the tax liability is the same under both regimes.
Factors like investment in tax-saving instruments, HRA, and other eligible deductions play a crucial role in determining the optimal tax regime.
Analysing your specific financial situation and potential deductions is paramount before choosing between the new and old tax regimes.
Choosing Between New and Old Tax Regimes in FY 2025-26: Where Does Your Break-Even Point Lie?
India’s dual tax regime offers salaried individuals greater flexibility, but it can also lead to confusion. The new tax regime is the default option. However, taxpayers still have the freedom to choose the old regime if they wish to claim deductions and exemptions. Ultimately, the decision often hinges on your salary’s break-even point between the two systems.
Choosing the right regime isn't just about comparing tax slabs. It also depends on the deductions you claim, the exemptions you’re eligible for, and your total taxable income. In this blog, we break down both tax regimes to help you identify the income level at which one starts to offer more financial benefits than the other.
Old Tax Regime Slabs
The old tax regime offers various exemptions and deductions under sections like 80C, 80D, HRA, and LTA, making it beneficial for those with significant tax-saving investments. Here's how the slab rates apply based on age:
Income Slab
Individuals (< 60 years)
Senior Citizens (60–80 years)
Super Senior Citizens (80+ years)
Up to ₹ 2,50,000
Nil
Nil
Nil
₹ 2,50,000 – ₹ 5,00,000
5%
5%
Nil
₹ 5,00,000 – ₹ 10,00,000
20%
20%
20%
Above ₹ 10,00,000
30%
30%
30%
New Tax Regime Slabs (FY 2025-26):
The new tax regime offers a different set of tax slabs with generally lower rates, but without the benefit of most deductions and exemptions:
Comparative Features of New and Old Tax Regimes:
Up to ₹ 4 lakh
NIL
₹ 4 lakh - ₹ 8 lakh
5%
₹ 8 lakh - ₹ 12 lakh
10%
₹ 12 lakh - ₹ 16 lakh
15%
₹ 16 lakh - ₹ 20 lakh
20%
₹ 20 lakh - ₹ 24 lakh
25%
Above ₹ 24 lakh
30%
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What Are Salary Break-Even Points?
To find your break-even point between the old and new tax regimes, estimate your total income and eligible deductions under the old regime. Key deductions include Section 80C, 80D, HRA, LTA, and the standard deduction. Subtract these from your income to get your taxable amount. Then, compare the tax payable under both regimes. If your deductions substantially lower your taxable income, the old regime may offer better savings. However, if you have few deductions, the new regime’s lower rates could work in your favour. Use an income tax calculator to make an accurate and informed comparison.
How to Calculate Your Break-Even Point?
To calculate your break-even point between the old and new tax regimes, start by estimating your total income and the deductions and exemptions available under the old regime. Key deductions include Section 80C, 80D, HRA, LTA, and the standard deduction. Add these up to determine your taxable income under the old regime. Then, compare the tax payable under both regimes. If your deductions reduce your taxable income significantly, especially below higher tax slab thresholds, the old regime may offer more savings. Otherwise, the new regime’s lower rates and simpler structure could result in a lower tax outgo and be a better option.
Section 80C: Investments in instruments like EPF, PPF, ELSS, NSC, etc. (up to ₹ 1,50,000).
House Rent Allowance (HRA): Exemption based on actual rent paid, salary, and location.
Leave Travel Allowance (LTA): Exemption for travel expenses incurred during leave.
Section 80D: Premium paid for medical insurance.
Section 80E: Interest paid on education loan.
Standard Deduction: ₹ 50,000 available to salaried individuals under the old regime.
Let’s examine a few scenarios to see where the break-even lies.
Scenario 1: Income ₹7 lakh
Component
Old Regime
New Regime
Gross Salary
₹7,00,000
₹7,00,000
Standard Deduction
₹50,000
₹50,000
80C Deduction
₹1,50,000
Not Applicable
Net Taxable Income
₹5,00,000
₹6,50,000
Tax (before rebate)
₹12,500
₹25,000
Rebate under 87A
₹12,500
₹25,000
Final Tax Payable
₹0
₹0
Conclusion: Both regimes result in zero tax due to rebate, but under the new regime, even without 80C, you still get a full rebate up to ₹7 lakh taxable income.
Scenario 2: Income ₹10 lakh
Let’s assume deductions under 80C, 80D, and HRA add up to ₹3 lakh under the old regime.
Component
Old Regime
New Regime
Gross Salary
₹10,00,000
₹10,00,000
Deductions (Std + Others)
₹3,00,000
₹50,000(Standard only)
Net Taxable Income
₹7,00,000
₹9,50,000
Tax Liability
₹52,500
₹45,000
Conclusion: In this case, despite more deductions in the old regime, the new regime results in lower taxes. But with higher deductions (₹3.5 lakh+), the old regime could become more beneficial.
Did You Know?
Under the New Tax Regime, salaried individuals can enjoy zero tax on income up to ₹12.75 lakh after standard deduction and Section 87A rebate.
Choosing the right tax regime isn’t just about slab rates, it’s also about what each system offers in terms of benefits and trade-offs. Both the new and old regimes come with their own set of advantages and limitations, depending on your income and investments. Here’s a quick look at how they compare.
New Tax Regime Advantages -The New Tax Regime, introduced to simplify compliance, offers lower tax rates but with limited deductions. Here's a quick look at its key benefits and drawbacks:
Simplified tax slabs and computations
Higher exemption limit (up to ₹ 12.75 lakh with standard deduction)
Lower effective tax for middle-income salary earners
Limitations: No major deductions like HRA, 80C, or LTA, which affect taxpayers with significant investments.
Old Tax Regime Advantages - The Old Tax Regime appeals to those who maximise deductions and exemptions through investments and expenses. Below are its main strengths and limitations
Availability of multiple deductions/exemptions (HRA, LTA, 80C, home loan interest)
Lower tax liability for taxpayers with high investments or expenses
Limitations: Complex paperwork, requiring investment declarations and compliance.
Strategy to Choose the Right Regime
Choosing the right tax regime can significantly impact your tax liability. To make an informed decision, consider the following strategy to compare both the old and new regimes:
Estimate your gross salary and deduct allowable exemptions/deductions to calculate net taxable income under the old regime.
Calculate tax payable under both old and new regimes.
Compare the tax liability and choose the regime offering the lower tax payable.
Use break-even points as guidance: If your deductions meet or exceed the break-even threshold for your income group, opt for the old regime; otherwise, the new regime would be better.
Insurance and Tax Benefits
Leading insurers like Canara HSBC Life Insurance offer a variety of tax-saving instruments. Policies such as ULIPs, term insurance, and traditional savings plans help taxpayers maximise their deductions under Section 80C and 10(10D). By investing in such plans, policyholders can effectively lower their taxable income, sometimes enough to make the old regime more favourable, especially at higher salary levels.
For those who prefer long-term protection and savings with tax efficiency, integrating insurance products from reputed players like Canara HSBC Life Insurance into your portfolio is a strategic way to optimise your tax outgo under the old regime.
Conclusion
Choosing between the new and old tax regimes in FY 2025–26 depends on how effectively you can reduce your taxable income. The new regime offers simplicity and lower income tax slabs, making it suitable for those with minimal deductions. On the other hand, the old regime may offer greater savings if you maximise deductions under Sections like 80C and 80D. Use a tax calculator to find your break-even point and make an informed decision.
For those opting for the old regime, Plans by Canara HSBC Life Insurance is a smart choice. It helps you meet long-term financial goals while offering Section 80C deductions. If conditions are met, the maturity value is also tax-free under Section 10(10D). It’s an effective way to reduce your tax burden under the current salary income tax slabs.
Glossary
Gross Salary: Total salary before any deductions like taxes, PF, or professional tax.
Net Taxable Income: Income remaining after all deductions; this is the amount on which tax is calculated.
Tax Slab: Income categories that determine the rate of income tax you pay in a financial year.
Standard Deduction: A flat ₹50,000 deduction for salaried individuals to reduce taxable income.
Section 87A Rebate: A rebate of up to ₹25,000 for individuals with net taxable income up to ₹7 lakh.
FAQs
No, LTA is part of the exemptions not permitted under the new regime. Only the standard deduction of ₹50,000 is allowed.
No, under the new regime, you’re not required to submit proofs for deductions, as most are not applicable.
Yes, HRA is not exempt under the new regime. Rent paid will not reduce your taxable income in this regime.
Salaried individuals can switch every financial year, but non-salaried individuals can switch only once in a lifetime.
No, retirement benefits such as gratuity and provident fund remain tax-exempt as per existing rules, even under the new regime.
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
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