Choose right tax regime for FY 2025-26 best for middle-class

Choosing the right tax regime for FY 2025-26: What’s best for middle-class earners?

Every new financial year brings one familiar question for salaried individuals: Which tax regime should I chooseold or new? For FY 2025-26, the government continues to offer both systems, but the structure, exemptions, and benefits differ enough to make this a meaningful decision.

For middle-class earners, choosing the right regime can help reduce tax outflow, increase savings, and create more room for long-term planning. But since every person’s financial situation is different, understanding how the income tax slab for ay 2025-26 works under each regime becomes essential.

Let’s break down the differences in a simple, conversational way—so you can make the right choice with confidence.

Understanding the two tax regimes for FY 2025-26

When the new tax regime was introduced, it aimed to simplify taxation by offering lower slab rates but removing most deductions and exemptions. On the other hand, the old regime allows you to claim various deductions—such as Section 80C, 80D, HRA, and home loan interest.

Here’s a quick overview of how the income tax slab for ay 2025-26 differs under both regimes, without going into every slab number:

Old tax regime

• Higher tax rates
• Multiple exemptions and deductions allowed
• Better suited for those who invest consistently or pay EMIs, rent, or insurance premiums

New tax regime

• Lower tax rates
• Minimal exemptions and deductions
• Default regime unless an individual opts out
• Suitable for those with fewer investments or simpler finances

The best choice often depends on your current life stage, monthly expenses, and how much you invest in tax-saving instruments.

What middle-class taxpayers should consider

Middle-class earners usually fall into a range where salaries, EMIs, children’s education expenses, insurance premiums, and rent play a major role. That means both regimes can look appealing, but each works differently for different financial behaviours.

Here’s how you can compare:

1. Your total deductions matter

If you claim deductions totalling Rs. 2 lakh to Rs. 3.5 lakh or more, the old regime may still offer better tax savings despite higher slab rates.

2. Your stage of life matters

Younger professionals without major commitments may benefit from the new regime because they may not have enough deductions to justify shifting to the old regime.

3. Your long-term investment discipline matters

If you regularly invest in ELSS funds, PPF, EPF, NPS, or life insurance, the old regime could work in your favour. If your focus is flexibility and ease, the new regime tends to be simpler.

This is where a calculator becomes useful. While many people compare tax regimes manually, using digital tools on financial apps helps make this calculation faster and more accurate.

How capital gains affect your tax calculation

Many middle-class earners now invest in equity mutual funds, stocks, or ETFs. That means long term capital gain tax also becomes part of the overall tax calculation. Here’s a simple explanation:

• Long-term capital gains (LTCG) on equity investments are taxed when you sell your investment after holding it for more than one year.
• The current applicable rules remain the same regardless of which tax regime you select.

This is why understanding LTCG is essential. Even though your choice between old and new regime affects your salary-based taxation, your investment taxation—especially on mutual funds—remains separate.

For example:

If you invest through SIPs for long-term goals, those redemptions will attract long-term capital gain tax when you eventually withdraw. That means your investment decisions and your tax regime choice must work in harmony, not in isolation.

Key differences in exemptions and deductions under each regime

To help you choose better, let’s quickly break down what changes when opting for the new regime:

Allowed in the new regime

• Standard deduction
• Employer NPS contribution up to 10%
• Section 80CCD(2)
• Certain allowances specific to employment categories

Not allowed in the new regime

• Section 80C (ELSS, PPF, EPF, life insurance)
• Section 80D (health insurance)
• HRA
• Home loan interest (for self-occupied property)
• Leave travel allowance

For someone who uses multiple deductions, the old regime might still deliver stronger tax savings. But for someone who prefers simplicity, the new regime eliminates the paperwork.

How to calculate which regime is better

Most salaried individuals find the comparison confusing if they try doing it manually. The decision becomes easier when you list out all deductions you can realistically claim under the old regime and compare them with the lower slab rates of the new regime. Here’s a quick framework:

Choose the old regime if:

• You invest consistently in ELSS, PPF, NPS
• You pay home loan interest
• You claim HRA
• You have insurance premiums, tuition fees, or other eligible deductions
• Your total deductions exceed Rs. 2 lakh

Choose the new regime if:

• Your deductions are limited
• You prefer a simplified system
• You have fewer financial commitments
• You value flexibility over structured tax-saving investments

Understanding the difference can help you keep more of your income while still planning for long-term goals.

Planning your taxes along with long-term investments

• While choosing a tax regime helps reduce your immediate tax burden, long-term wealth creation still depends on your investment strategy. Many middle-class investors today combine tax planning with their long-term goals using mutual funds.
• And since long-term investments may generate LTCG in the future, it’s important to track potential growth and tax implications. That’s where digital tools help.

Using the Bajaj Finserv Mutual Fund App for better planning

The Bajaj Finserv Mutual Fund App helps users manage SIPs, understand fund categories, and evaluate long-term growth potential through built-in tools. While comparing tax regimes is one part of planning, understanding how your investments grow is equally important. The platform includes features to:

• analyse long-term growth of mutual fund investments
• simplify fund selection based on goals
• estimate returns using calculators
• track your SIP and investment progress
• understand the impact of potential long term capital gain tax during redemption

Together, these insights help middle-class earners make balanced financial decisions that optimise both tax savings and long-term wealth creation.

Conclusion

Choosing the right tax regime for FY 2025-26 doesn’t need to be overwhelming. For the middle-class, the decision often depends on how much they invest, the deductions they claim, and the kind of financial commitments they handle each year.

Understanding the income tax slab for ay 2025-26, evaluating your deductions, and considering future liabilities like long term capital gain tax all help you make a more informed choice.

With the right tools and planning, you can create a personalised strategy that keeps your taxes efficient and your long-term financial goals on track. And platforms like the Bajaj Finserv Mutual Fund App make this entire process simpler by combining investment insights, calculators, and a smooth user experience you can rely on.