Old vs New Tax Regime India: Which Should You Choose?
Choosing the wrong tax regime could cost you thousands — here is how to pick the right one for your salary and investments.
The debate between India's old and new tax regimes is one that every salaried professional faces each April. The government introduced the new regime in FY 2020-21 and made it the default from FY 2023-24 onwards. Yet millions of taxpayers still benefit more from the old regime. The right answer depends entirely on how many deductions you can claim.
What Is the Old Tax Regime?
The old regime taxes income at progressive slab rates but allows a large menu of deductions — Section 80C (up to ₹1.5 lakh), 80D (health insurance), HRA, LTA, home loan interest under Section 24(b), and more. A diligent taxpayer can reduce taxable income by ₹3–4 lakh or more before a single rupee of tax is computed.
What Is the New Tax Regime?
The new regime, revamped in the Union Budget 2023, offers lower slab rates but removes almost all deductions. A standard deduction of ₹75,000 for salaried employees (effective FY 2024-25) is the only major relief available.
| Income Slab (₹) | Old Regime Rate | New Regime Rate (FY 2025-26) |
|---|---|---|
| 0 – 3,00,000 | Nil | Nil |
| 3,00,001 – 7,00,000 | 5% | 5% |
| 7,00,001 – 10,00,000 | 20% | 10% |
| 10,00,001 – 12,00,000 | 30% | 15% |
| 12,00,001 – 15,00,000 | 30% | 20% |
| Above 15,00,000 | 30% | 30% |
Note: Under the new regime, income up to ₹7 lakh is effectively tax-free thanks to the Section 87A rebate.
The Break-Even Deduction Point
The core question is: "How much do I need to claim in deductions before the old regime becomes cheaper?"
For a gross salary of ₹12 lakh, the break-even deduction amount is roughly ₹3.75 lakh. If your 80C + 80D + HRA + home loan interest exceeds this, stick with the old regime. If not, the new regime wins.
Break-even formula (approximate):
Tax saved in old regime = Tax saved by switching to new regime
Old regime tax (post deductions) = New regime tax (post standard deduction only)
Practical Example: ₹15 Lakh Salary
Old Regime:
- Gross salary: ₹15,00,000
- Standard deduction: ₹50,000
- Section 80C: ₹1,50,000 (EPF + ELSS)
- 80D (self + parents): ₹50,000
- HRA: ₹1,20,000
- Taxable income: ₹11,30,000
- Tax payable: ~₹1,55,500 (+ 4% cess = ~₹1,61,720)
New Regime:
- Gross salary: ₹15,00,000
- Standard deduction: ₹75,000
- Taxable income: ₹14,25,000
- Tax payable: ~₹1,57,500 (+ 4% cess = ~₹1,63,800)
In this example, the old regime saves roughly ₹2,080 — a slim margin. Push deductions to ₹4 lakh+ and the old regime pulls clearly ahead.
Who Should Choose the New Regime?
- Young professionals in their first job with minimal deductions
- Those who do not pay rent and have no home loan
- Individuals earning under ₹7 lakh (tax is nil either way, but new regime is simpler)
- People who want simpler ITR filing with fewer documents
Who Should Stick With the Old Regime?
- Taxpayers maximising 80C through EPF, PPF, and ELSS
- Homeowners claiming both principal repayment and interest deduction
- Those with dependent parents eligible for the senior citizen 80D premium limit (₹50,000)
- Earners with significant HRA in metro cities
How to Switch Between Regimes
Salaried individuals can switch regimes every year while filing their ITR. Business owners and freelancers can switch only once from the new to the old regime. Inform your employer via the declaration form at the start of the financial year so TDS is deducted correctly.
Use the Income Tax Calculator to model both scenarios with your actual numbers before deciding.
These figures are estimates for educational purposes. Consult a SEBI-registered advisor for personalised advice.
Frequently asked questions
Is the new tax regime better than the old regime for a ₹10 lakh salary?+
It depends on your deductions. If you can claim more than ₹2.5–3 lakh in deductions (80C, HRA, 80D, etc.), the old regime is usually better. Otherwise, the new regime's lower slabs win.
Can I switch between old and new tax regime every year?+
Salaried employees can switch every financial year. Business owners who have opted out of the new regime can only switch once, permanently.
What deductions are allowed in the new tax regime?+
The new regime allows only a standard deduction of ₹75,000 for salaried individuals. Most other deductions — 80C, 80D, HRA, LTA — are not available.
Which regime is the default in FY 2025-26?+
The new tax regime is the default from FY 2023-24 onwards. You must actively opt for the old regime while filing your ITR or by informing your employer.
Does the 87A rebate apply to both regimes?+
Yes. The Section 87A rebate of up to ₹25,000 applies under both regimes if your net taxable income does not exceed ₹7 lakh (new regime) or ₹5 lakh (old regime).
Try the calculators
Keep reading
- Section 80C Investments Explained: How to Save Up to ₹1.5 Lakh in Tax
Section 80C lets you cut ₹46,800 off your tax bill every year — if you invest in the right instruments.
- How to Save Tax in India: A Complete Checklist for FY 2025-26
Most Indians pay more tax than they need to — this checklist closes every legal gap in your tax plan.
- How Income Tax Slabs Work in India: A Step-by-Step Guide for FY 2025-26
India does not tax your entire income at one rate — understanding how slabs work could change how you read your pay slip.
Elena writes about taxes and the money side of running a small business. She’s on a mission to make VAT, margins, and break-even points feel a lot less scary.