Since FY 2023-24, the new tax regime became the default. If you do nothing, the IT department files you under the new regime. Switching to the old regime requires you to explicitly opt in when filing your ITR.
The question of which regime saves more is simple in theory but personal in practice — it depends entirely on how many deductions you can legitimately claim. Here is a clear framework to decide in under 5 minutes.
The new tax regime wins for most people with income below ₹12.75 lakh and limited deductions. The old regime wins if your total eligible deductions exceed roughly ₹3.75 lakh. Run the comparison with your actual numbers before filing.
The Core Difference in One Line
New regime: lower tax rates, almost no deductions. Old regime: higher rates, but you can subtract deductions from taxable income. The regime that gives you a lower final tax bill is the right one for you.
New Regime Tax Slabs for FY 2025-26
The new regime slabs for FY 2025-26: income up to ₹3 lakh — nil; ₹3 lakh to ₹7 lakh — 5%; ₹7 lakh to ₹10 lakh — 10%; ₹10 lakh to ₹12 lakh — 15%; ₹12 lakh to ₹15 lakh — 20%; above ₹15 lakh — 30%.
The most important feature: if your total income is ₹12 lakh or below, you pay zero tax because of the Section 87A rebate. Standard deduction of ₹75,000 is available, so effective zero-tax limit is ₹12.75 lakh for salaried employees.
Plus 4% health and education cess applies on the tax amount in both regimes.
- Standard deduction: ₹75,000 under new regime vs ₹50,000 under old regime
- Zero tax up to ₹12 lakh income under new regime via 87A rebate
- NPS employer contribution deduction still available under new regime
- No HRA, 80C, 80D, or home loan interest deduction under new regime
When the Old Regime Wins
The old regime is better when your deductions are large enough to push your taxable income significantly below what the new regime would tax.
The break-even point for most salaried people is around ₹3.75 lakh in total deductions. If your deductions exceed this, the old regime saves more. If your deductions are below this, the new regime saves more.
- 80C investments: up to ₹1.5 lakh (EPF, PPF, LIC, ELSS, tuition fees)
- HRA exemption: depends on rent paid and city — can be ₹1–2 lakh for metro renters
- Home loan interest under 24(b): up to ₹2 lakh
- Health insurance under 80D: up to ₹25,000 (₹50,000 for senior citizens)
- NPS additional deduction under 80CCD(1B): up to ₹50,000
Real Salary Examples — Old vs New
Example 1 — ₹8 lakh salary, minimal deductions. New regime: taxable income ₹7.25 lakh (after ₹75k standard deduction), zero tax due to 87A rebate. Old regime: taxable ₹7.5 lakh (after ₹50k), also zero tax after 87A. Both give zero tax. New regime wins on simplicity.
Example 2 — ₹15 lakh salary, high deductions. Old regime deductions: 80C ₹1.5L + HRA ₹1.8L + 80D ₹25k + home loan ₹2L + standard deduction ₹50k = ₹6.05 lakh total. Taxable income = ₹8.95 lakh. Tax ≈ ₹93,080 with cess. New regime: taxable ₹14.25 lakh, tax ≈ ₹1,48,200 with cess. Old regime saves over ₹55,000.
Example 3 — ₹15 lakh salary, minimal deductions. No HRA, no home loan, no 80C. Old regime taxable = ₹14.5 lakh, tax ≈ ₹2,26,200 with cess. New regime taxable = ₹14.25 lakh, tax ≈ ₹1,48,200 with cess. New regime saves over ₹78,000.
The 2-Minute Decision Rule
Add up all your eligible deductions: 80C investments + actual HRA exemption (not just rent paid) + home loan interest + 80D premiums + any other applicable deductions.
If total deductions exceed ₹3.75 lakh: old regime is likely better. Use a tax calculator to confirm with your exact numbers.
If total deductions are below ₹3.75 lakh: new regime is almost certainly better.
If your income is ₹12.75 lakh or below: new regime gives zero tax regardless — switch and simplify.
- Income below ₹12.75 lakh → new regime, zero tax, no calculation needed
- High HRA (metro renter) + home loan + full 80C → old regime likely better above ₹12.75 lakh
- No HRA, no home loan → new regime almost always wins
- Salaried employees can switch regime every year at filing — you are not locked in permanently
How to Switch Regime When Filing
When filing on the income tax portal, ITR-1 and ITR-2 ask you to choose the regime. Select your preferred option there. If you choose old regime, the deduction fields open. If you choose new regime, most deduction fields are disabled.
For salaried employees, you can switch regime every year at filing time. You are not permanently locked in. However, if you have business income (ITR-3 or ITR-4), you can only switch from new to old regime once — plan carefully.
