Every financial year, one question lands on every HR and finance desk: should our employees pick the old tax regime or the new one? The answer changes the take-home salary, the monthly TDS you deduct, and the investment proofs you collect. This guide breaks it down in plain terms for FY 2025-26 so your team can advise employees confidently.
The core difference
The old regime offers lower tax only if the employee claims deductions — HRA, 80C investments, home loan interest, and so on. The new regime offers lower slab rates but removes almost all of those deductions. So the choice is really: *lots of deductions vs simpler lower rates.*
The new regime is now the default. If an employee does nothing, TDS is calculated under the new regime. They must actively opt for the old regime if it benefits them.
New regime slabs (FY 2025-26)
| Annual Income | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
When the OLD regime wins
The old regime usually saves more when an employee genuinely uses these deductions:
- HRA — living in rented accommodation in a metro city
- Section 80C — full ₹1.5 lakh via PF, ELSS, life insurance, PPF, children tuition
- Home loan interest — up to ₹2 lakh under Section 24(b)
- 80D — health insurance premiums for self and parents
- NPS 80CCD(1B) — extra ₹50,000
A rough thumb rule: below about ₹12 lakh the new regime wins outright, because the 87A rebate takes the tax to nil whatever the deductions would have been. Above that, the old regime only catches up once total deductions get large — roughly ₹4.5 lakh and up, which in practice means substantial rent plus a full 80C plus home loan interest.
A quick worked example
Take an employee earning ₹12 lakh a year. Under the new regime, the ₹75,000 standard deduction brings taxable income to ₹11.25 lakh, which is inside the 87A limit — so the tax is nil. Under the old regime the same employee would need well over ₹3 lakh of deductions to get anywhere near that. At this income the new regime is not close. The comparison only becomes interesting above ₹12 lakh, which is exactly where our take-home salary calculator shows both regimes side by side.
How Payroll Bharat handles this
Payroll Bharat supports both regimes during payroll processing. Each employee’s chosen regime drives their monthly TDS automatically, and the investment declaration module collects proofs for old-regime employees so the year-end reconciliation is clean.
- 1Employees submit their regime choice and IT declarations from their self-service portal.
- 2Payroll computes monthly TDS under the correct regime — no manual spreadsheets.
- 3At year-end, Form 16 is generated with the right regime already applied.
The bottom line: there is no single “best” regime — it depends on each employee’s rent and investments. Give your team the numbers, let the system do the math, and revisit the choice every financial year.