OLD TAX REGIME VS. NEW TAX REGIME FOR F.Y. 2025-26 (A.Y. 2026-27)

Introduction

Choosing between the old tax regime and the new tax regime remains one of the most significant tax-planning decisions for individual taxpayers in India. For F.Y. 2025-26, relevant to A.Y. 2026-27, the new regime continues to be the default regime option; it may not be the most advantageous choice for every taxpayer. The optimal regime depends largely on an individual’s income profile, eligibility for deductions and exemptions, and overall financial planning strategy. Taxpayers with limited deduction claims may benefit from the simplified structure and concessional tax rates offered under the new tax regime, whereas those who actively utilize tax-saving provisions may find the old regime more fiscally edifying.

In this guide, we’ll explain why you might receive a Section 139(9) notice, how to respond to it step-by-step, and the consequences of not addressing it on time. Let’s break it down in simple terms to help you navigate this situation smoothly.

SLAB RATES UNDER BOTH REGIMES

For A.Y. 2026-27, the old regime slab rates remain unchanged, while the new regime now follows a revised slab structure for the F.Y. 2025-2026.

TAXABLE INCOME	NEW TAX REGIME	OLD TAX REGIME
Up to Rs 2,50,000	Nil	Nil
Rs 2,50,001 to Rs 4,00,000	Nil	5%
Rs 4,00,001 to Rs 5,00,000	5%	5%
Rs 5,00,001 to Rs 8,00,000	5%	20%
Rs 8,00,001 to Rs 10,00,000	10%	20%
Rs 10,00,001 to Rs 12,00,000	10%	30%
Rs 12,00,001 to Rs 16,00,000	15%	30%
Rs 16,00,001 to Rs 20,00,000	20%	30%
Rs 20,00,001 to Rs 2,400,000	25%	30%
Above Rs 2,400,000	30%	30%

For A.Y. 2026-27, the old regime slab rates remain unchanged, while the new regime now follows a revised slab structure for F.Y. 2025-2026.

 

Tax rates for an individual (resident or non-resident) less than 60 years of age anytime during the previous year are as below:

OLD TAX REGIME		NEW TAX REGIME U/S 115BAC OF INCOME TAX ACT,1961
Income Tax Slab	Income Tax Rate	Income Tax Slab	Income Tax Rate
Up to ₹ 2,50,000	Nil	Up to ₹ 4,00,000	Nil
₹ 2,50,001 – ₹ 5,00,000	5% above ₹ 2,50,000	₹ 4,00,001 – ₹ 8,00,000	5% above ₹ 4,00,000
₹ 5,00,001 – ₹ 10,00,000	₹ 12,500 + 20% above ₹ 5,00,000	₹ 8,00,001 – ₹ 12,00,000	₹ 20,000 + 10% above ₹ 8,00,000
Above ₹ 10,00,000	₹ 1,12,500 + 30% above ₹ 10,00,000	₹ 12,00,001 – ₹ 16,00,000	₹ 60,000 + 15% above ₹ 12,00,000
		₹ 1,600,001 – ₹ 2,000,00000	₹ 120,000 + 20% above ₹ 1,600,000
		₹ 20,00,001 – ₹ 24,00,000	₹ 200,000 + 25% above ₹ 2,000,000
		Above ₹2,400,0000	₹ 300,000 + 30% above ₹ 2,400,000

• 2. Tax rates for an individual (resident or non-resident), 60 years or more but less than 80 years of age anytime during the previous year, are as follows:

   

  OLD TAX REGIME		NEW TAX REGIME U/S 115BAC OF INCOME TAX ACT, 1961
  Income Tax Slab	Income Tax Rate	Income Tax Slab	Income Tax Rate
  Up to ₹ 300,000	Nil	Up to ₹ 400,000	Nil
  ₹ 300,001 – ₹ 500,000	5% above ₹ 300,000	₹ 400,001 – ₹ 800,000	5% above ₹ 400,000
  ₹ 500,001 – ₹ 1,000,000	₹ 10,000 + 20% above ₹ 500,000	₹ 800,001 – ₹ 1,200,000	₹ 20,000 + 10% above ₹ 800,000
  Above ₹ 1,000,000	₹ 110,000 + 30% above ₹ 1,000,000	₹ 12,00,001 – ₹ 16,00,000	₹ 60,000 + 15% above ₹ 1,200,000
  		₹ 1,600,001 – ₹ 2,000,000	₹ 120,000 + 20% above ₹ 1,600,000
  		₹ 2,000,001 – ₹ 2,400,000	₹ 200,000 + 25% above ₹ 2,000,000
  		Above ₹ 2,400,000	₹ 300,000 + 30% above ₹ 2,400,000

   

REBATE UNDER SECTION 87A

One of the most enthralling advantages of the new tax regime is the enhanced rebate available under Section 87A of the income tax act. For FY 2025-2026, resident individuals opting for the new regime may claim a rebate of up to 60,000, provided their taxable income does not exceed 12 lakh. By contrast, under the old regime, the rebate continues to be restricted to 12,500 for taxpayers whose taxable income doesn’t exceed 5 lakhs.

Consequently, eligible taxpayers under the new regime may effectively eliminate their tax liability up to the prescribed income threshold, subject to compliance with the applicable statutory conditions. The availability of the standard deduction further strengthens the attractiveness of the new regime for salaried individuals.

DEDUCTIONS AVAILABLE AND NOT AVAILABLE

The most fundamental distinction between the two tax regimes lies not merely in their respective slab rates but in the treatment of deductions and exemptions. The old tax regime provides taxpayers with access to a comprehensive range of tax-saving provisions, whereas the new regime adopts a comparatively streamlined approach by restricting several commonly claimed deductions.

Under the old regime, taxpayers may avail themselves of deductions and exemptions such as investments under Section 80C, medical insurance premiums under Section 80D, House Rent Allowance (HRA), Leave Travel Allowance (LTA), and interest on self-occupied residential property under Section 24(b), among numerous others. For individuals with a well-structured tax-saving portfolio, these benefits can substantially reduce taxable income and potentially outweigh the higher slab rates applicable under the old regime.

Conversely, the new regime dispenses with many traditional exemptions and deductions in exchange for lower tax rates and simplified compliance. Nevertheless, certain benefits continue to remain available, including the standard deduction, employer contributions to the National Pension System under Section 80CCD(2), deductions under Section 80JJAA, and specific notified allowances

HOUSE PROPERTY AND LOSS SET-OFF

The tax treatment of income from house property continues to be a critical consideration when evaluating the suitability of either tax regime. Under the old regime, taxpayers may claim deductions for interest paid on self-occupied residential property, subject to the prescribed limits, and may also avail themselves of the permissible set-off of house property losses against other heads of income.

In contrast, the new tax regime significantly curtails these benefits, thereby diminishing its attractiveness for taxpayers with substantial housing loan obligations. Individuals deriving considerable tax advantages from home-loan interest deductions should undertake a detailed comparative analysis before electing the new regime

 

WHICH REGIME SHOULD YOU CHOOSE?

There is no universally preferable tax regime, as the most beneficial option is inherently dependent upon an individual’s financial circumstances, investment behavior, and tax-saving profile.

The new regime is generally better suited to taxpayers who prefer simplified compliance procedures, claim relatively few deductions, and seek to benefit from lower marginal tax rates without undertaking additional tax-saving investments. Conversely, the old regime may prove more advantageous for salaried individuals and families who strategically utilize deductions and exemptions to optimize their overall tax position.

Rather than relying on broad assumptions, taxpayers should undertake a comprehensive side-by-side computation of their tax liability under both regimes. Such an exercise facilitates an informed decision based on actual financial outcomes rather than perceived benefit.

Conclusion

Choosing the right tax regime requires careful evaluation of your income, deductions, and financial goals. While the New Tax Regime offers simplicity and lower tax rates, the Old Tax Regime may provide greater tax savings for individuals who actively claim exemptions and deductions.

At Manthan Experts, we help taxpayers compare both regimes, calculate tax liability accurately, and select the most beneficial option for maximum tax efficiency and compliance.