Tax Benefits Decoded: Should You Switch to the New Tax Regime in 2025-26? Here’s Everything You Need to Know

Each year, around tax season, professionals across India face the same head-scratching question: Old tax regime or new?

With the 2025-26 financial year around the corner, many salaried individuals are once again evaluating the best option to maximize savings and reduce tax outflow. If you find yourself stuck in this decision maze, this detailed breakdown is for you.

Let’s decode the tax benefits, allowances, deductions, and breakeven points between the two regimes to help you make an informed choice.

Old vs. New Tax Regime: What’s the Basic Difference?

The old tax regime allows taxpayers to claim various exemptions and deductions (like HRA, LTA, 80C, 80D, NPS, etc.), effectively reducing their taxable income.

The new tax regime offers lower slab rates but removes most deductions and exemptions.

So, the choice boils down to this:

• If you have substantial deductions, the old regime might still benefit you.
• If you don’t claim many exemptions, the new regime—with its simpler structure and lower slab rates—could be more favorable.

But the real answer lies in the details. Let’s dive deeper.

Allowances and Deductions: What’s Allowed in Each Regime?

The old regime clearly allows for a larger buffet of benefits—especially if your CTC includes allowances like HRA, LTA, and reimbursements.

Breakeven Analysis: At What Point Should You Switch?

The breakeven chart gives us the minimum required deductions under the old regime to ensure tax parity (or advantage) when compared to the new regime. If your actual deductions exceed this threshold, the old regime wins. If they fall below it, the new regime is better.

What this means: If you earn ₹30 lakh annually and claim more than ₹8 lakh in deductions, go with the old regime. If not, opt for the new one. This breakeven cap remains static at ₹8 lakh for high-income individuals beyond ₹25 lakh, which is interesting.

Real-Life Example: Mr. A’s Salary is ₹40 Lakh

Let’s put theory into practice.

Mr. A’s gross salary is ₹40 lakh. His total deductions are:

• HRA: ₹1,00,000
• PPF / ELSS / 80C: ₹1,50,000
• NPS (80CCD): ₹50,000
• Medical Insurance (80D): ₹50,000 Total Deduction = ₹3,50,000

However, the breakeven point for ₹40 lakh isn’t explicitly listed, but based on the ₹30–50 lakh bracket, it’s clearly around ₹8,00,000.

Since Mr. A’s total deductions (₹3.5 lakh) fall way below the breakeven, he’s better off choosing the new tax regime.

Key Takeaways for HR, Finance Teams & Employees

1. Don’t blindly follow what your colleague chooses. Each individual has a different salary structure and investment style. What works for one may not work for another.

2. New regime suits those with fewer deductions If you don’t pay rent, don’t invest in PPF/ELSS, don’t claim HRA or LTA, or don’t have a home loan—there’s a high chance the new regime is better for you.

3. Old regime is powerful—if you use it well If you maximize deductions under:

• Section 80C (₹1.5L)
• NPS (₹50K)
• Home loan interest (₹2L)
• HRA, LTA, 80D (medical insurance)
• Education loan or donations

—then the old regime may still save you more money.

4. The new regime simplifies things One of the core goals of the new regime was to simplify taxation—no document hassles, fewer proofs needed, and fewer calculations.

Bonus Insight: Employer Benefits & Tax-Friendly Salary Structuring

Finance and HR teams should note that several benefits (e.g., car lease, meal cards, NPS, telephone) still offer tax relief under both regimes—provided they are part of the salary structure.

So even in the new regime, companies can structure CTCs smartly to minimize tax liability and improve in-hand salary.

Key Documents to Keep Handy (If You’re in Old Regime)

If you choose the old regime, be prepared with:

• Rent agreement + landlord PAN for HRA
• Home loan interest certificate
• Investment proofs (PPF, ELSS, insurance)
• LTA tickets and boarding passes
• Car lease agreements and bills
• Driver’s salary slips
• Medical insurance receipts

Miss out on even one, and your exemption may be disallowed.

What Should You Do Before Making the Choice?

1. Calculate your total annual deductions: Include everything from 80C, 80D, NPS, HRA, LTA, home loan, etc.
2. Compare it against the breakeven point for your salary bracket.
3. Use a tax calculator or consult with your CA/HR to simulate both regimes.
4. Make a conscious, personalized decision—not a herd-following one.

Final Thoughts: The Verdict Isn’t One-Size-Fits-All

With the 2025-26 changes, it’s tempting to default to the new regime for its simplicity and lower rates. But for the well-organized, benefit-maximizing taxpayer, the old regime still has its advantages.

It all depends on how well you play the deduction game.

If you’re a:

• Freelancer or gig worker: New regime may be easier
• Salaried individual with lots of allowances: Evaluate both carefully
• High earner with property, dependents, and investments: Old regime could still shine