Salary Structures That Still Benefit From the Old Regime in FY 2025–26
- Dipali Waghmode
- Feb 5
- 9 min read
Certain salary structures continue to deliver lower tax liability under the old tax regime in FY 2025–26 despite the higher rebate threshold and simplified slabs under the new regime. Salaried individuals with significant House Rent Allowance, home loan interest, and eligible investments often see greater tax savings when deductions are fully utilised. For income levels above ₹15 lakh, the benefit of exemptions and Chapter VI-A deductions can outweigh the rate advantage of the new regime. Understanding how salary components interact with regime-specific rules is critical before choosing the applicable tax structure.
Table of Contents
Understanding Old vs New Tax Regime in FY 2025–26
The income tax framework for FY 2025–26 offers salaried individuals two parallel options: the old tax regime and the new tax regime. The new regime provides lower slab rates and a higher rebate threshold, but it removes most exemptions and deductions. The old regime, on the other hand, allows taxpayers to reduce taxable income through specific salary components and Chapter VI-A deductions. The choice is not based on income alone but on how the salary is structured and whether eligible deductions are actively used. For higher-income earners with planned investments and housing commitments, the structure of pay often determines which regime results in lower tax outgo.
Old Regime Tax Slabs Applicable for Salaried Individuals
Under the old tax regime, income tax is calculated using progressive slab rates along with applicable cess. Salaried taxpayers are allowed a standard deduction of ₹50,000 and a professional tax deduction where applicable. The slabs remain unchanged for FY 2025–26.
Income up to ₹2.5 lakh is exempt from tax. Income between ₹2.5 lakh and ₹5 lakh is taxed at 5 per cent. Income from ₹5 lakh to ₹10 lakh is taxed at 20 per cent, while income above ₹10 lakh is taxed at 30 per cent. A rebate under Section 87A is available only up to ₹5 lakh taxable income, beyond which full slab rates apply. Senior citizens and super senior citizens continue to enjoy higher basic exemption limits.
Is HRA Allowed in the New Tax Regime?
House Rent Allowance exemption is not available under the new tax regime. Any HRA received by salaried individuals is fully taxable when opting for the new regime, irrespective of actual rent paid or the city of residence. This removal significantly affects taxpayers living in rented accommodation, especially in metro cities where rent forms a substantial part of monthly expenses. As a result, employees with high rental outgo often find the new regime less efficient despite lower slab rates.
How HRA Works in the Old Tax Regime
Under the old tax regime, HRA exemption is allowed under Section 10(13A) of the Income Tax Act. The exempt portion is calculated as the least of three values: actual HRA received, rent paid minus 10 per cent of basic salary, or 50 per cent of basic salary for metro cities and 40 per cent for non-metro cities. This exemption directly reduces taxable salary and can lead to substantial savings when rent and basic salary are high. Employees living in metro cities with structured salary components often benefit the most from this provision.
Is Home Loan Interest Deduction Allowed in the New Tax Regime?
Home loan interest deduction for self-occupied property is not allowed under the new tax regime. Interest paid on housing loans cannot be claimed as a deduction when opting for the new regime, even if the loan is ongoing and interest payments are substantial. This makes the new regime less suitable for salaried individuals servicing large home loan EMIs.
How Home Loan Benefits Work in the Old Tax Regime
The old tax regime allows a deduction of up to ₹2 lakh per year for interest paid on a home loan for a self-occupied property under Section 24(b). In addition, the principal portion of the loan repayment is eligible for deduction under Section 80C, subject to the overall limit. These combined benefits significantly reduce taxable income for homeowners. Taxpayers with high-interest outgo during the initial years of a loan often find the old regime more tax-efficient.
Is Section 80C Allowed in the New Tax Regime?
Section 80C deductions are not allowed under the new tax regime. Investments such as EPF, PPF, ELSS, life insurance premiums, and home loan principal repayments do not provide any tax benefit when the new regime is selected. The removal of this deduction eliminates one of the most commonly used tax-saving avenues for salaried individuals.
How Section 80C and NPS Deductions Work in the Old Tax Regime
The old tax regime permits deductions of up to ₹1.5 lakh under Section 80C for eligible investments. In addition, an exclusive deduction of ₹50,000 is available under Section 80CCD(1B) for contributions to the National Pension System. Together, these deductions can reduce taxable income by up to ₹2 lakh annually. When combined with other deductions such as health insurance premiums, the overall tax impact becomes significantly lower under the old regime.
Salary Structures That Favour the Old Tax Regime
Salary structures with a high proportion of basic pay-linked HRA, housing loan benefits, and employer-supported retirement contributions tend to favour the old tax regime. Employees who maximise tax-saving investments, pay substantial rent, or service long-term housing loans generally derive more benefit from exemptions and deductions than from the reduced slab rates of the new regime. These structures are particularly common among mid-to-senior professionals in metro cities.
Break-Even Analysis for ₹12 Lakh, ₹15 Lakh, and ₹20 Lakh Salaries
At a gross salary of ₹12 lakh, the new tax regime often results in zero tax due to the rebate threshold, unless deductions under the old regime exceed ₹2 lakh. At ₹15 lakh, the old regime starts becoming competitive when total exemptions and deductions cross ₹3 lakh. For salaries around ₹20 lakh, the old regime generally offers lower tax liability when deductions exceed ₹3.5 to ₹4 lakh. The higher the salary and the greater the eligible claims, the more the old regime tilts in favour of the taxpayer.
Who Should Still Prefer the Old Tax Regime in FY 2025–26
Salaried individuals living in rented accommodation, paying high home loan interest, or consistently investing in tax-saving instruments should consider the old regime. Professionals earning above ₹15 lakh with structured salaries and long-term financial commitments often benefit more from deductions than from lower slab rates. The old regime remains particularly relevant for taxpayers who actively plan and utilise available exemptions.
How TaxBuddy Helps Compare Salary Structures Across Tax Regimes
TaxBuddy helps salaried individuals make an informed choice between the old and new tax regimes by breaking down complex salary structures into clear, comparable components. Instead of relying on assumptions or generic slab comparisons, the platform evaluates how each element of a salary package impacts tax liability under both regimes.
Salary details such as basic pay, allowances, House Rent Allowance, bonuses, and employer contributions are mapped systematically. For the old tax regime, eligible exemptions and deductions like HRA, home loan interest, standard deduction, and Chapter VI-A benefits are factored in. For the new tax regime, the same income is recalculated by removing these benefits and applying the applicable slab rates and rebates. This side-by-side computation allows taxpayers to see the exact tax difference rather than approximate savings.
Automated calculations play a key role in reducing errors that commonly arise from manual estimation. TaxBuddy’s system applies the correct slab rates, deduction limits, and regime-specific rules without requiring users to track changes in tax laws. Built-in validation checks flag missing details, inconsistent entries, or ineligible claims before the return is prepared, reducing the risk of incorrect filings or future notices.
The platform also supports guided regime selection during the filing process. Instead of forcing a fixed choice upfront, TaxBuddy allows taxpayers to compare outcomes under both regimes and select the one that results in lower tax liability. This is particularly helpful for individuals with variable salary components, mid-year changes in housing status, or new loan obligations.
By aligning salary structure analysis with return filing, TaxBuddy ensures that the chosen tax regime is applied consistently across all calculations and disclosures. This approach not only simplifies compliance with the Income Tax Act but also gives salaried taxpayers clarity and confidence in their tax decisions before submission.
Conclusion
The choice between the old and new tax regimes in FY 2025–26 depends largely on how a salary is structured and whether deductions are fully utilised. For individuals with significant HRA, home loan interest, and tax-saving investments, the old regime can still result in meaningful tax savings. For anyone looking for assistance in tax filing, a reliable way to evaluate both regimes and file accurately is 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 ITR filing options. The self-filing plan is designed for individuals with straightforward income sources who are comfortable entering details on their own with guided prompts and automated checks. The expert-assisted plan is suitable for taxpayers with complex salary structures, multiple deductions, or regime comparisons, where a tax professional reviews the return to ensure accuracy and compliance before submission.
Q. Which is the best site to file ITR?
The best site to file an income tax return is one that combines accuracy, data security, and ease of use. An ideal platform should help taxpayers understand deductions, compare tax regimes, validate data automatically, and minimise errors. Platforms that provide real-time calculations, compliance checks, and optional expert support are generally more reliable for salaried individuals.
Q. Where to file an income tax return?
Income tax returns can be filed online through authorised tax filing platforms that integrate with the income tax portal. These platforms allow taxpayers to prepare, validate, and submit returns digitally without visiting any office. Online filing is now the standard method and ensures faster processing, acknowledgements, and refunds.
Q. Can salaried employees switch between old and new tax regimes every year?
Yes, salaried employees who do not have business or professional income can choose between the old and new tax regimes every financial year. The selection is made at the time of filing the income tax return. This flexibility allows employees to reassess their salary structure, deductions, and exemptions annually before deciding the most beneficial regime.
Q. Is HRA fully taxable under the new tax regime?
Yes, House Rent Allowance is fully taxable under the new tax regime. No exemption is available for rent paid, regardless of city of residence or rental amount. This makes the new regime less suitable for individuals who pay high rent, especially in metro cities, where HRA exemption under the old regime can significantly reduce taxable income.
Q. Is the standard deduction available under the old tax regime?
Yes, salaried individuals opting for the old tax regime are eligible for the standard deduction. This deduction is applied directly to salary income and reduces taxable income without requiring any investment or proof. It continues to be an important baseline benefit for salaried taxpayers under the old regime.
Q. Does the new tax regime allow Section 80C deductions?
No, Section 80C deductions are not allowed under the new tax regime. Investments such as EPF, PPF, ELSS, life insurance premiums, and home loan principal repayments do not offer any tax benefit if the new regime is selected. Taxpayers who regularly invest under Section 80C generally find the old regime more beneficial.
Q. Can home loan interest be claimed under the old tax regime?
Yes, under the old tax regime, interest paid on a home loan for a self-occupied property can be claimed as a deduction up to ₹2 lakh per year. This deduction significantly reduces taxable income, especially during the initial years of the loan when interest payments are high. The benefit is not available under the new tax regime.
Q. Does the ₹12 lakh rebate apply under the old tax regime?
No, the higher rebate threshold of ₹12 lakh applies only under the new tax regime. Under the old regime, the rebate under Section 87A is limited to lower taxable income levels. Taxpayers with income above this limit do not receive rebate benefits under the old regime and are taxed as per applicable slab rates.
Q. How can taxpayers identify the better tax regime?
Identifying the better tax regime requires comparing total tax liability under both options after considering salary components, exemptions, and deductions. Factors such as HRA, home loan interest, health insurance premiums, and retirement investments play a key role. Running a side-by-side comparison before filing helps ensure the most tax-efficient choice.
Q. Is professional tax deductible under the old regime?
Yes, professional tax paid by salaried employees is deductible under the old tax regime. The amount paid during the financial year can be reduced from gross salary while computing taxable income. This deduction is not available under the new tax regime.
Q. Can TaxBuddy help with regime comparison before filing?
Yes, TaxBuddy helps taxpayers compare the old and new tax regimes before filing by factoring in salary structure, deductions, and exemptions. Automated calculations and validation ensure accurate comparisons, helping salaried individuals select the regime that results in lower tax liability while remaining fully compliant.
