From FY 2025-26, businesses and individual entrepreneurs can choose between the old and new income tax regimes. The new regime offers simplified slabs, while the old regime allows deductions. Here is a complete comparison to help you decide.
What is the Income Tax Slab?
The Indian income tax levies tax on individual taxpayers in our country on the basis of a slab system. A slab system means that different taxpayers are segregated on the basis of the range of their incomes, essentially meaning that the amount of tax payable by individuals increases with an increase in their income. This type of taxation enables a fair and progressive tax from the taxpayers.
The income tax slab rate can be mainly bifurcated as under:
- By Gender
- Male; and
- Female
- By Age
- Resident; and
- Non-resident in India.
- For Hindu Undivided Family (HUF)/ Association Of Person (AOP)/ Body Of Individual (BOI)/ Artificial Judicial Person (AJP)
- On Non-individuals
- Partnership Firms or LLPs;
- Domestic Company;
- Foreign Company;
- Co-operative Societies; and
- Local Authorities.
Also Read All You Need To Know About Business Loans And Taxes
Income tax slabs for FY 2025-26
The Union Budget 2025 introduced revised tax slabs under the new regime. The old regime slabs remain unchanged.
New tax regime slabs (FY 2025-26)
| Income range | Tax rate |
|---|---|
| Up to INR 4 lakh | Nil |
| INR 4 lakh to INR 8 lakh | 5% |
| INR 8 lakh to INR 12 lakh | 10% |
| INR 12 lakh to INR 16 lakh | 15% |
| INR 16 lakh to INR 20 lakh | 20% |
| INR 20 lakh to INR 24 lakh | 25% |
| Above INR 24 lakh | 30% |
Under the new regime, income up to INR 12 lakh is effectively tax-free due to the Section 87A rebate (INR 60,000). Salaried individuals with income up to INR 12.75 lakh pay nil tax after the standard deduction of INR 75,000.
Old tax regime slabs (FY 2025-26)
| Income range | Tax rate (below 60 years) |
|---|---|
| Up to INR 2.5 lakh | Nil |
| INR 2.5 lakh to INR 5 lakh | 5% |
| INR 5 lakh to INR 10 lakh | 20% |
| Above INR 10 lakh | 30% |
Senior citizens (60-80 years) get a basic exemption up to INR 3 lakh. Super senior citizens (above 80 years) get an exemption up to INR 5 lakh under the old regime.
Both regimes attract a 4% health and education cess on the total tax liability.
Two Options For A Taxpayer
- New Income Tax Structure – Let go of all exemptions and breaks and avail the lower tax rates
- Old Income Tax Structure – At the existing income tax rates, benefit from all the exemptions and tax breaks.
Some income tax slabs have been lowered if one foregoes exemptions and breaks in the new regime tax slab structure.
However, there are certain deductions you can still claim using the new regime tax slab and they are as below.
- Retirement benefits, gratuity etc.
- commutation of pension
- leave encashment on retirement
- retrenchment compensation
- VRS benefits
- EPFO: Employer contribution
- NPS withdrawal benefits
- Education scholarships
- Payments of awards instituted in the public interest
Also Read: How To Check Income Tax 2022 –23 Refund Status For Your Business Filing
Most common exemptions and deductions availed by Indian taxpayers
|
EXEMPTIONS |
DEDUCTIONS |
|
House Rent Allowance |
Public Provident Fund |
|
Leave Travel Allowance |
ELSS (Equity Linked Saving Scheme) |
|
Mobile and Internet Reimbursement |
Employee Provident Fund |
|
Food Coupons or Vouchers |
Life Insurance Premium |
|
Company Leased Car |
Principal and Interest component of Home Loan |
|
Standard Deduction |
Children Tuition Fees |
|
Uniform Allowance |
Health Insurance Premiums |
|
Leave Encashment |
Investment in NPS |
|
Tuition fee for Children | |
|
Saving Account Interest |
Which regime is better for MSMEs?
The right tax regime depends on how much you can claim in deductions.
Choose the old regime if:
- Your total deductions under 80C, 80D, HRA, home loan interest, and other sections exceed INR 3.75 lakh annually
- You pay significant rent and can claim an HRA exemption
- You have a home loan with interest deduction under Section 24(b)
- You invest in PPF, ELSS, life insurance, or NPS
- You pay health insurance premiums for yourself and your family
Choose the new regime if:
- Your deductions total less than INR 3.75 lakh
- You do not have a home loan or rent payments eligible for exemption
- You prefer simpler tax filing without tracking multiple deductions
- Your income is up to INR 12 lakh (you pay nil tax under the new regime)
Important for business owners: If you have income from business or profession, the switching rules are stricter. Unlike salaried individuals who can switch regimes every year, business taxpayers who opt out of the new regime can only switch back once. After that, the choice becomes permanent for as long as you have business income.
Calculate your tax under both regimes before filing. If your deductions are substantial, the old regime typically saves more tax despite higher slab rates.
Benefits According to the Government
According to the government, introducing the new tax rates will help them gain a wider base of taxpayers by luring unorganized sectors to start paying taxes at a low base rate. A huge part of the unorganized sector is out of the income tax-paying frame. Bringing them into the bigger picture will help the government reduce the income tax rates in the future.
Now comes the question of which regime should a businessman go for?
Since the eligible deductions, sources and quantum of income differs for every individual, one rule cannot be applied to all. Taxpayers will need to evaluate and compare the tax liability under both regimes and then decide on which to opt for.
One of the most important things to keep in mind while choosing a tax regime is that taxpayers having income from businesses and professions can withdraw their option only once and they shall not be eligible to opt for the new tax regime unless they cease to have income from business or profession.
Also Read: Why Income Tax Return Filing Is Important
The corporate income tax (CIT) rate applicable to an Indian company and a foreign company for the tax year 2022/23 is as follows:
| Income* | CIT rate (%) | |||||
| Turnover does not increase INR 4 billion in FY 2020/21 | For other domestic companies | Foreign companies | ||||
| Basic | Effective* | Basic | Effective* | Basic | Effective* | |
| Less than INR 10 million | 25 | 26 | 30 | 31.2 | 40 | 41.6 |
| More than INR 10 million but less than INR 100 million | 25 | 27.82 | 30 | 33.38 | 40 | 42.43 |
| More than INR 100 million | 25 | 29.12 | 30 | 34.94 | 40 | 43.68 |
In the end, in conclusion, there is no right or wrong regime one can choose due to the complex nature of the Indian ta law. Hence it is always advised to look at the figures and facts before making an informed decision.
FAQs
1. What are the income tax slabs for FY 2025-26?
Under the new regime, income up to INR 4 lakh is tax-free, with rates rising from 5% (INR 4-8 lakh) to 30% (above INR 24 lakh). The old regime starts exemption at INR 2.5 lakh with rates of 5%, 20%, and 30% for higher brackets.
2. Which regime is better for a small business owner?
The old regime typically benefits business owners who claim deductions exceeding INR 3.75 lakh annually through 80C, 80D, HRA, and home loan interest. If your deductions are lower, the new regime’s reduced rates may result in lower tax.
3. Can a business switch between regimes every year?
No. Taxpayers with business or professional income face restrictions. Once you opt out of the new regime, you can switch back only once. Salaried individuals without business income can switch regimes each year while filing their return.
4. What deductions are unavailable in the new regime?
The new regime disallows most Chapter VI-A deductions, including 80C (PPF, ELSS, life insurance), 80D (health insurance), HRA exemption, LTA, and home loan interest under Section 24(b) for self-occupied property. Standard deduction of INR 75,000 remains available for salaried taxpayers.