Salary Structures That Still Benefit From the Old Regime in FY 2025–26
- CA Pratik Bharda
- 15 hours ago
- 8 min read
For FY 2025–26, the new tax regime offers lower slab rates, a higher standard deduction, and tax-free income up to ₹12 lakh through enhanced rebate. Despite these changes, the old tax regime continues to provide better outcomes for salaried individuals whose pay structure includes significant deductions such as HRA, home loan interest, and Chapter VI-A investments. The real advantage now depends less on income level and more on how salary components and deductions are structured. Employees with well-optimised salary breakups may still achieve lower overall tax liability under the old regime when compared on a like-to-like basis.
Table of Contents
Overview of Old Tax Regime vs New Tax Regime in FY 2025–26
For FY 2025–26, taxpayers can choose between the old and new tax regimes under the Income Tax Act, 1961. The old tax regime follows higher slab rates but allows a wide range of deductions and exemptions, such as HRA, home loan interest, and Chapter VI-A deductions. The new tax regime offers lower slab rates, a higher standard deduction, and a rebate that effectively makes income up to ₹12 lakh tax-free, but disallows most exemptions and deductions. The choice now depends largely on the structure of salary and eligible deductions rather than income alone.
What Changed in the New Tax Regime for FY 2025–26
The new tax regime for FY 2025–26 introduced revised slabs with more gradual rate progression and an increased standard deduction of ₹75,000 for salaried individuals. A higher rebate underSection 87A reduces tax liability to zero for taxable income up to ₹12 lakh. While these changes improve take-home pay for employees with simple salary structures, the regime continues to restrict deductions such as HRA, Section 80C, 80D, and housing loan interest, limiting flexibility for tax planning.
Why Certain Salary Structures Still Favour the Old Tax Regime
Salary structures that include multiple tax-efficient components often generate higher total deductions than the benefits offered by lower slab rates in the new regime. Employees claiming HRA, home loan interest, full Section 80C investments, health insurance premiums, and education loan interest may significantly reduce taxable income. When these deductions exceed the break-even level, the old regime delivers lower overall tax liability despite higher nominal rates.
Break-Even Analysis for Old vs New Tax Regime by Salary Level
The break-even point refers to the deduction level at which tax payable under both regimes becomes comparable. For salaries between ₹13 lakh and ₹15 lakh, deductions exceeding ₹5–6 lakh typically tilt the balance in favour of the old regime. At higher salaries such as ₹20–25 lakh, structured deductions above ₹7–8 lakh often result in meaningful tax savings under the old regime. This analysis highlights why salaried individuals with long-term financial commitments continue to prefer the old regime.
Is House Rent Allowance Allowed in the New Tax Regime?
House Rent Allowance is not allowed as an exemption under the new tax regime. Employees opting for the new regime cannot claim any tax benefit for rent paid, irrespective of city category or rent amount.
How HRA-Based Salary Structures Work in the Old Tax Regime
Under the old tax regime, HRA exemption is calculated based on actual rent paid, salary level, and city of residence. Employees living in metro cities and paying substantial rent often receive significant tax relief through HRA. For many urban professionals, HRA alone accounts for a large portion of total deductions, making the old regime substantially more beneficial.
Is Home Loan Interest Deduction Allowed in the New Tax Regime?
Home loan interest deduction under Section 24(b) is not allowed in the new tax regime for self-occupied properties. This restriction removes a major tax-saving avenue for homeowners.
How Home Loan Interest Improves Tax Savings in the Old Regime
The old tax regime allows a deduction of up to ₹2 lakh per year for interest on self-occupied house property. For let-out properties, the full interest amount is deductible, subject to set-off rules. This deduction significantly reduces taxable income for salaried individuals servicing housing loans, especially during early repayment years when interest outgo is high.
Is Section 80C Deduction Allowed in the New Tax Regime?
Section 80C deductions are not permitted under the new tax regime. Investments such as EPF, PPF, ELSS, life insurance premiums, and principal repayment on housing loans do not provide tax benefits in the new regime.
How Section 80C and NPS Contributions Work in the Old Regime
The old tax regime allows deductions up to ₹1.5 lakh under Section 80C and an additional ₹50,000 under Section 80CCD(1B) for NPS contributions. Salaried employees contributing regularly to EPF and NPS often exhaust these limits automatically, strengthening the case for the old regime without requiring additional investments.
Is Health Deduction Under Section 80D Allowed in the New Regime?
Health insurance premium deduction under Section 80D is not available in the new tax regime, regardless of age or policy coverage.
How Medical Insurance and Senior Citizen Benefits Work in the Old Regime
The old tax regime allows deductions for health insurance premiums paid for self, family, and parents. Higher limits apply when covering senior citizens. These deductions are particularly valuable for taxpayers supporting elderly parents or managing higher medical insurance costs, further increasing total tax savings.
Combined Deduction Salary Structures That Maximise Old Regime Savings
The most tax-efficient salary structures under the old regime combine multiple deductions such as HRA, housing loan interest, Section 80C investments, Section 80D premiums, and education loan interest. When aligned properly, these components can reduce taxable income substantially and deliver savings ranging from ₹15,000 to ₹50,000 or more compared to the new regime.
Who Should Re-Evaluate the Old Tax Regime for FY 2025–26
Employees with increasing rent, new home loans, rising insurance premiums, or higher investment commitments should reassess the old regime annually. Senior citizens and individuals with multiple income heads also benefit from exemptions and deductions exclusive to the old regime.
Common Mistakes While Comparing Old and New Tax Regimes
A frequent mistake is comparing slab rates without accounting for deductions. Another error is ignoring future commitments, such as loan EMIs or insurance premiums. Many taxpayers also assume the new regime is always better due to simplicity, without calculating the post-deduction tax under the old regime.
How TaxBuddy Helps Compare Salary Structures Across Tax Regimes
TaxBuddy enables accurate regime comparison by factoring in salary components, deductions, exemptions, and long-term financial commitments. Automated calculations and expert-assisted support ensure that the selected regime aligns with the taxpayer’s actual financial position rather than assumptions.
Conclusion
For FY 2025–26, the old tax regime continues to benefit salaried individuals with structured pay components and high eligible deductions. While the new regime suits simpler income profiles, a detailed evaluation remains essential before selecting a regime. For anyone looking for assistance in tax filing and regime comparison, it is advisable to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy offers both self-filing and expert-assisted plans for income tax return filing. The self-filing option is suitable for individuals with straightforward income, such as salaried employees with Form 16 and limited deductions. For taxpayers with complex salary structures, multiple deductions, home loans, capital gains, or uncertainty around tax regime selection, expert-assisted plans provide professional review, error checks, and end-to-end support. This flexibility allows taxpayers to choose the level of assistance based on their income profile and confidence level.
Q. Which is the best site to file ITR?
The best site to file an income tax return is one that ensures accuracy, data security, ease of use, and reliable post-filing support. While the official income tax portal allows direct filing, many taxpayers prefer platforms that provide guided workflows, automatic calculations, deduction checks, and expert validation. Platforms like TaxBuddy combine technology-driven filing with professional assistance, reducing the risk of errors, incorrect regime selection, or missed deductions.
Q. Where to file an income tax return?
Income tax returns can be filed through the official income tax e-filing portal of the Government of India or through authorised online tax filing platforms. Authorised platforms such as TaxBuddy integrate with the government portal while offering additional features like regime comparison, deduction validation, and guided filing. Filing through such platforms helps taxpayers complete compliance accurately while saving time and effort.
Q. Is the old tax regime still relevant after the Budget changes?
Yes, the old tax regime continues to be relevant even after recent Budget changes. Although the new regime offers lower slab rates and a higher standard deduction, it disallows most exemptions and deductions. Taxpayers with structured salary components such as HRA, home loan interest, health insurance premiums, and full utilisation of Section 80C may still achieve lower tax liability under the old regime. The relevance depends on individual deductions rather than slab rates alone.
Q. Can salaried individuals change tax regimes every year?
Yes, salaried individuals who do not have business or professional income are allowed to choose between the old and new tax regimes every financial year while filing their income tax return. This flexibility allows employees to re-evaluate their salary structure, deductions, and financial commitments annually and select the regime that results in lower tax outflow for that year.
Q. Does a higher standard deduction make the new regime better for everyone?
No, the higher standard deduction under the new regime does not automatically make it better for all taxpayers. While the new regime provides a higher standard deduction, it removes the benefit of multiple deductions, such as HRA, Section 80C, Section 80D, and home loan interest. For taxpayers with significant eligible deductions, the tax savings under the old regime can exceed the benefit of the higher standard deduction offered in the new regime.
Q. Is tax planning required even under the new regime?
Yes, tax planning is still required under the new regime. Although the regime is simpler, decisions such as regime selection, salary restructuring, investment planning, and timing of income can impact overall tax liability. Tax planning under the new regime focuses more on optimising take-home salary and aligning financial goals rather than maximising deductions.
Q. Are senior citizens better off under the old regime?
In many cases, senior citizens benefit more under the old tax regime. The old regime provides higher basic exemption limits for senior and super senior citizens and allows deductions such as Section 80TTB for interest income, health insurance under Section 80D, and other exemptions. These benefits are not available under the new regime, making the old regime more suitable for many senior taxpayers.
Q. Can incorrect regime selection increase tax payable?
Yes, selecting the wrong tax regime without proper comparison can lead to higher tax payable. Many taxpayers choose the new regime, assuming lower slab rates will reduce tax, but later realise that forfeited deductions would have resulted in lower tax under the old regime. A detailed comparison before filing is essential to avoid unnecessary tax outflow.
Q. Does TaxBuddy assist with regime switching during filing?
Yes, TaxBuddy assists taxpayers with tax regime comparison and selection during the filing process. The platform evaluates income details, salary components, and eligible deductions to determine which regime is more beneficial. This ensures that the selected regime aligns with the taxpayer’s financial profile and compliance requirements for the relevant financial year.
Q. Should deductions be evaluated before choosing a regime?
Yes, deductions should always be evaluated before finalising the tax regime. Deductions such as HRA, home loan interest, insurance premiums, and investments can significantly reduce taxable income under the old regime. Comparing regimes without factoring in deductions can result in an inaccurate assessment of tax liability.
Q. Is a professional review useful for salaried taxpayers?
Professional review is useful even for salaried taxpayers, especially those with multiple deductions, changes in employment, variable pay, or tax-saving investments. A professional review helps identify overlooked deductions, validate regime selection, and ensure compliance with income tax rules. It also reduces the risk of notices or errors arising from incorrect filing.
