Old vs New Tax Regime: which one actually costs you less
Slab rates, deductions, the ₹12 lakh rebate, break-even maths and worked examples for FY 2025-26 (AY 2026-27) — so you can choose with numbers instead of guesswork.
The short answer
The new regime is the default. It taxes a wider band of income at lower rates and gives salaried taxpayers a standard deduction of ₹75,000, but it withdraws almost every deduction and exemption. The old regime keeps 80C, 80D, HRA, LTA and home-loan interest, and charges higher rates from a much lower threshold.
So the choice is one question: are your genuine, documented deductions large enough to beat the rate cut? For most salaried taxpayers without rent and a home loan, they are not — and the new regime wins. Where HRA plus home-loan interest plus 80C stack up, the old regime can still be cheaper.
Slab rates side by side
New regime
| Income band | Rate |
|---|---|
| ₹0 lakh – ₹4 lakh | 0% |
| ₹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% |
Old regime (below 60)
| Income band | Rate |
|---|---|
| ₹0 lakh – ₹3 lakh | 0% |
| ₹3 lakh – ₹5 lakh | 5% |
| ₹5 lakh – ₹10 lakh | 20% |
| Above ₹10 lakh | 30% |
Health and education cess of 4% applies on tax under both regimes. Surcharge applies at higher incomes. Senior-citizen basic exemption differs under the old regime.
What you keep and what you lose
Still allowed in the new regime
- Standard deduction of ₹75,000 on salary
- Employer's NPS contribution under section 80CCD(2)
- Deduction on family pension
- Section 80JJAA for additional employee cost
- Section 87A rebate — nil tax up to total income of ₹12,00,000
Only in the old regime
- Section 80C up to ₹1,50,000 — EPF, PPF, ELSS, tuition, principal
- Section 80D health insurance — ₹25,000 / ₹50,000
- HRA exemption under section 10(13A) and LTA
- Home-loan interest on a self-occupied house
- Section 80CCD(1B) NPS of ₹50,000, 80G, 80E, 80TTA/80TTB
- Standard deduction of ₹50,000 and 87A up to ₹5,00,000
Worked comparison
Salaried taxpayer below 60, claiming ₹2,50,000 of old-regime deductions (80C, 80D and NPS), including cess.
| Gross salary | Old regime tax | New regime tax | Cheaper by |
|---|---|---|---|
| ₹10,00,000 | ₹54,600 | ₹0 | New · ₹54,600 |
| ₹15,00,000 | ₹1,79,400 | ₹97,500 | New · ₹81,900 |
| ₹20,00,000 | ₹3,35,400 | ₹1,92,400 | New · ₹1,43,000 |
| ₹30,00,000 | ₹6,47,400 | ₹4,75,800 | New · ₹1,71,600 |
Illustrative, for FY 2025-26 (AY 2026-27). Change the deduction figure to your own and the answer can flip — run it on the calculator before deciding.
Run the Old vs New Tax Regime calculatorA decision framework
- 1. Add up what you genuinely claim. Only deductions you can evidence — EPF and PPF actually paid, premiums actually paid, rent actually paid with receipts, interest actually charged by the lender.
- 2. Compute both. Tax under the old slabs with those deductions, tax under the new slabs with the higher standard deduction and no deductions.
- 3. Check the rebate line. If your new-regime total income lands at or under ₹12,00,000, the 87A rebate takes tax to nil and the comparison is over.
- 4. Factor in the lock-in. Business and professional income needs Form 10-IEA to leave the new regime, and the switch back can be used only once. Salary income can be reviewed every year.
- 5. Look at next year too. A home loan starting, rent ending or an 80C commitment maturing can move the answer, so do not treat the choice as permanent.
How to opt in or out
Salary only, no business income
Choose the regime directly in your income tax return, filed by the due date. The declaration you gave your employer only affects TDS during the year; excess tax deducted comes back as a refund.
Business or professional income
File Form 10-IEA before the due date of the return to opt out of the new regime. Missing the deadline means the new regime applies for that year, and the option to return to the new regime can be exercised only once.
Frequently asked questions
What is the difference between the old and new tax regime?
The new regime has wider, lower slabs and a higher standard deduction of ₹75,000, but it removes most deductions and exemptions such as 80C, 80D, HRA and LTA. The old regime keeps those deductions but taxes income at higher rates from a lower threshold. The new regime is the default; the old regime must be opted into.
Which regime is better for a salaried person?
It depends on how much you actually claim. If your total deductions and exemptions (80C, 80D, HRA, home-loan interest, NPS) are small, the new regime is usually cheaper. If your claims are large — typically because of HRA and a home loan together — the old regime can still win. Compare both with your real numbers before choosing.
How much deduction do I need for the old regime to be better?
There is a break-even level of deductions at every income. Below it the new regime is cheaper; above it the old regime is. The break-even rises with income, so the old regime mainly suits people with genuinely high, documented claims.
Is income up to ₹12 lakh really tax-free in the new regime?
For a resident individual, the section 87A rebate makes tax nil where total income under the new regime does not exceed ₹12,00,000. With the ₹75,000 standard deduction, a salaried person can reach that point from a higher salary. Special-rate income such as capital gains is not covered by the rebate.
What deductions are still allowed in the new regime?
The standard deduction of ₹75,000 for salary, the employer's NPS contribution under 80CCD(2), the family pension deduction and 80JJAA remain available. 80C, 80D, HRA, LTA and most chapter VI-A deductions do not.
Can I switch between the old and new regime every year?
A salaried taxpayer without business income can choose afresh each year while filing within the due date. A taxpayer with business or professional income must file Form 10-IEA to opt out of the new regime and can switch back only once.
Does choosing a regime with my employer lock me in?
No. The declaration you give your employer only decides how TDS is deducted. The regime you finally adopt is the one you choose in your return, and any excess TDS comes back as a refund.
Which regime applies if I do not choose one?
The new regime applies by default. You have to positively opt for the old regime in your return, and for business income through Form 10-IEA before the due date.