New vs old income tax regime: the business owner's decision
The income tax regime choice affects every rupee you earn. For salaried employees, the math is straightforward. For business owners, sole proprietors, and freelancers, the decision is more nuanced — and the stakes are higher.
FY 2025-26 new regime slabs
The Union Budget 2025 revised the new regime slabs, making it significantly more attractive:
| Income slab | Tax rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4 lakh – ₹8 lakh | 5% |
| ₹8 lakh – ₹12 lakh | 10% |
| ₹12 lakh – ₹16 lakh | 15% |
| ₹16 lakh – ₹20 lakh | 20% |
| ₹20 lakh – ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
Section 87A rebate: Under the new regime, if your total income does not exceed ₹12 lakh, the entire tax liability (up to ₹60,000) is rebated. Effectively, zero tax up to ₹12 lakh.
FY 2025-26 old regime slabs
| Income slab (age < 60) | Tax rate |
|---|---|
| Up to ₹2.5 lakh | Nil |
| ₹2.5 lakh – ₹5 lakh | 5% |
| ₹5 lakh – ₹10 lakh | 20% |
| Above ₹10 lakh | 30% |
Senior citizens (60–79): basic exemption ₹3 lakh. Super seniors (80+): ₹5 lakh.
What deductions can business owners claim?
Under the old regime, business owners can typically claim:
| Deduction | Section | Maximum |
|---|---|---|
| LIC, PPF, ELSS, home loan principal | 80C | ₹1,50,000 |
| Health insurance premium | 80D | ₹25,000 (₹50,000 senior) |
| Home loan interest (self-occupied) | 24(b) | ₹2,00,000 |
| NPS additional contribution | 80CCD(1B) | ₹50,000 |
| Education loan interest | 80E | Actual |
| Charitable donations | 80G | 50–100% of donation |
The new regime does not allow these deductions (except employer NPS contribution under 80CCD(2)).
When does the old regime win?
The breakeven depends on your income level. As a rule of thumb:
- Income ≤ ₹12L: New regime almost always wins (zero tax via rebate)
- Income ₹12L–₹20L: Old regime wins if total deductions exceed ~₹2–2.5L
- Income ₹20L–₹30L: Old regime wins if deductions exceed ~₹3L
- Income > ₹30L: High earners with maximum deductions (₹3.5L+) often prefer old regime