Since its introduction in Budget 2020 and revamped in Budget 2023, the new tax regime has become the default for salaried employees in India. But “default” doesn’t mean “better for everyone.” Whether you should stick with the new regime or opt back into the old one depends entirely on how much you invest and claim in deductions. Here’s how to decide.
New Tax Regime: Lower Rates, No Deductions
The new regime (FY 2025-26) offers lower tax rates across all slabs: 0% up to ₹3 lakh, 5% from ₹3–7 lakh, 10% from ₹7–10 lakh, 15% from ₹10–12 lakh, 20% from ₹12–15 lakh, and 30% above ₹15 lakh. It also includes a standard deduction of ₹75,000 for salaried employees and the basic exemption limit effectively becomes ₹7 lakh (with rebate u/s 87A).
The trade-off: you cannot claim deductions under 80C, 80D, HRA, LTA, home loan interest (Section 24), or most other exemptions.
Old Tax Regime: Higher Rates, Generous Deductions
The old regime has higher rates but allows you to reduce your taxable income significantly through deductions: ₹1.5 lakh under 80C, ₹50,000 under 80CCD(1B) for NPS, ₹25,000–₹50,000 under 80D for health insurance premiums, HRA exemption (for those paying rent), home loan interest deduction up to ₹2 lakh under Section 24, and ₹50,000 standard deduction.
The Break-Even Calculation
The regime that saves you more tax depends on your total deductions. As a rough guideline: if your total deductions (80C + 80D + HRA + home loan interest + NPS + others) exceed ₹3.75 lakh for someone earning ₹15 lakh, the old regime likely saves more tax. Below that threshold, the new regime is generally better.
For income of ₹10 lakh: if you can claim more than ~₹2.5 lakh in deductions, the old regime wins. For ₹20 lakh income: if you can claim more than ~₹4.5 lakh in deductions, old regime wins.
Who Should Pick Which
New Regime is better for: Young earners with few deductions, those without home loans or HRA claims, people in lower income brackets, and those who simply want simplicity and less paperwork.
Old Regime is better for: Those maximizing 80C + NPS, people paying significant rent with HRA claims, home loan borrowers claiming the ₹2 lakh interest deduction, and those paying health insurance for parents (80D).
Do the Math Every Year
You can switch between regimes every year (as a salaried employee). Use one of the many online tax calculators to compute your tax liability under both regimes with your actual projected deductions — and pick the one that saves more. Don’t default blindly.