Old vs new tax regime: a simple way to decide which one saves you more
The new regime has lower rates; the old one has deductions. Here is a step-by-step way to compare them for your own salary — no jargon.
Every year, salaried Indians face the same question when their employer asks for an investment declaration: old regime or new regime? The honest answer is “it depends on your deductions” — but that’s not very useful on its own. This guide turns it into a decision you can actually make.
The two regimes in one paragraph each
The new regime has more slabs with lower rates, a higher standard deduction for salaried people, and a large rebate that makes income up to a threshold effectively tax-free. In exchange, almost all popular deductions — Section 80C investments, 80D health insurance, HRA exemption, home-loan interest on a self-occupied house — are not allowed. It is now the default: if you say nothing, this is what applies.
The old regime has fewer slabs with higher rates, but lets you subtract a long list of deductions and exemptions from your income before tax is calculated. If you invest, pay rent, hold health insurance and repay a home loan, those deductions can add up.
The slabs (FY 2025-26)
These are the individual slabs announced in Union Budget 2025 for FY 2025-26. Budgets can change them, so always check the latest year’s rates before filing.
| Taxable income (new regime) | Rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4–8 lakh | 5% |
| ₹8–12 lakh | 10% |
| ₹12–16 lakh | 15% |
| ₹16–20 lakh | 20% |
| ₹20–24 lakh | 25% |
| Above ₹24 lakh | 30% |
Under the new regime, a rebate under Section 87A means resident individuals with taxable income up to ₹12 lakh pay no income tax, and salaried people get a ₹75,000 standard deduction — so salary up to roughly ₹12.75 lakh can end up tax-free.
| Taxable income (old regime, below 60 years) | Rate |
|---|---|
| Up to ₹2.5 lakh | Nil |
| ₹2.5–5 lakh | 5% |
| ₹5–10 lakh | 20% |
| Above ₹10 lakh | 30% |
The old regime offers a ₹50,000 standard deduction and a rebate that makes taxable income up to ₹5 lakh tax-free. Both regimes add a 4% health and education cess on the tax, and a surcharge at higher incomes.
A four-step way to decide
Step 1 — Add up deductions you will genuinely claim. Not what you could claim, what you actually will. Typical items:
- Section 80C (EPF contribution, PPF, ELSS, life insurance premium, children’s tuition, home-loan principal) — capped at ₹1.5 lakh
- Section 80D health insurance premiums
- HRA exemption, if you pay rent and receive HRA
- Interest on a home loan for a self-occupied house (Section 24b), capped at ₹2 lakh
- NPS contributions under 80CCD(1B), up to ₹50,000
Your EPF contribution already counts toward 80C, so many salaried people hit a good chunk of the ₹1.5 lakh without doing anything extra.
Step 2 — Calculate tax both ways. Use the same gross salary, apply each regime’s standard deduction, subtract your deductions only in the old regime, then apply the slabs, rebate and cess.
Step 3 — Compare the final numbers, not the rates. A lower rate does not automatically mean lower tax, and a big deduction does not automatically mean the old regime wins.
Step 4 — Don’t change your life to chase a deduction. Buying an insurance policy you don’t need just to “save tax” under 80C is usually a bad trade. The regime should fit your finances, not the other way round.
Who usually benefits from which?
These are patterns, not rules — your numbers decide.
- Income up to about ₹12.75 lakh (salaried): the new regime usually means zero tax, which is very hard for the old regime to beat.
- Few deductions (no rent, no home loan, modest investments): the new regime usually wins.
- Large deductions (high rent with HRA, home-loan interest, full 80C and 80D, NPS): the old regime can win, especially at higher incomes. This is where calculating both is essential.
Can you switch?
Salaried individuals without business income can choose the regime each year when filing their return, so a wrong declaration to your employer is not permanent — though it may mean more or less TDS during the year. People with business or professional income have much less flexibility to switch back and forth, so they should decide more carefully.
The ten-minute annual habit
Once a year, ideally before your employer’s investment-declaration deadline, run both numbers. Our free income tax calculator does the comparison side by side so you can see the difference in rupees, not percentages.
Rates and rules in this article refer to FY 2025-26 and may change in later Budgets. This is general information, not tax advice.
This article is for education only, not personalised investment, tax or legal advice. Rules and rates change — check the latest official sources or a qualified professional before acting. Spotted an error?Tell the editor.