Choosing between the old and new tax regime is one of the most important financial decisions salaried individuals make each year. With the new regime now being the default from FY 2023-24 onwards, understanding the differences and making an informed choice can save you thousands — or even lakhs — in taxes.
Overview of Tax Regimes
The new tax regime, introduced in Budget 2020 and made default from FY 2023-24, offers lower tax rates but removes most deductions and exemptions. The old tax regime has higher rates but allows you to claim deductions under Sections 80C, 80D, HRA, home loan interest, and many more.
You can choose either regime when filing your ITR. Salaried individuals can switch between regimes each year. Business income earners have limited switching options (once chosen, can only switch once).
New Tax Regime Slabs (FY 2026-27)
| Income Slab | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 — ₹8,00,000 | 5% |
| ₹8,00,001 — ₹12,00,000 | 10% |
| ₹12,00,001 — ₹16,00,000 | 15% |
| ₹16,00,001 — ₹20,00,000 | 20% |
| ₹20,00,001 — ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Key features:
- Standard deduction of ₹75,000 for salaried individuals
- Rebate under Section 87A: If taxable income ≤ ₹12,00,000, rebate up to ₹60,000 (effectively no tax up to ₹12 lakh)
- No deductions for 80C, 80D, HRA, LTA, etc.
- Employer's NPS contribution (Section 80CCD(2)) is still deductible
Old Tax Regime Slabs
| Income Slab | Tax Rate (Below 60) | Senior (60-80) | Super Senior (80+) |
|---|---|---|---|
| Up to ₹2,50,000 | Nil | Nil | Nil |
| ₹2,50,001 — ₹3,00,000 | 5% | Nil | Nil |
| ₹3,00,001 — ₹5,00,000 | 5% | 5% | Nil |
| ₹5,00,001 — ₹10,00,000 | 20% | 20% | 20% |
| Above ₹10,00,000 | 30% | 30% | 30% |
Key features:
- Standard deduction of ₹50,000 for salaried individuals
- Rebate under Section 87A: If taxable income ≤ ₹5,00,000, rebate up to ₹12,500
- Full access to all deductions and exemptions
Available Deductions Under Old Regime
| Section | Deduction | Maximum Limit |
|---|---|---|
| 80C | PPF, ELSS, LIC, NSC, SSY, home loan principal | ₹1,50,000 |
| 80D | Health insurance premium | ₹25,000 (₹50,000 for seniors) |
| 80CCD(1B) | NPS contribution | ₹50,000 |
| 80CCD(2) | Employer's NPS contribution | 10%/14% of salary |
| 24(b) | Home loan interest | ₹2,00,000 |
| 10(13A) | HRA exemption | As per calculation |
| 80E | Education loan interest | No limit (8 years) |
| 80G | Donations | 50%-100% of donation |
Side-by-Side Comparison
| Feature | Old Regime | New Regime |
|---|---|---|
| Tax rates | Higher | Lower |
| Standard deduction | ₹50,000 | ₹75,000 |
| 80C deductions | Up to ₹1.5L | Not available |
| HRA exemption | Available | Not available |
| Home loan interest | Up to ₹2L | Not available |
| 87A rebate limit | ₹5L income | ₹12L income |
| Best for | High deductions | Low deductions |
Worked Examples
Example 1: Salary ₹10,00,000 with ₹3,00,000 deductions
Old Regime: Taxable income = ₹10,00,000 - ₹3,00,000 - ₹50,000 (SD) = ₹6,50,000. Tax = ₹15,000 + ₹30,000 = ₹45,000 + cess = ₹46,800.
New Regime: Taxable income = ₹10,00,000 - ₹75,000 (SD) = ₹9,25,000. Tax = ₹0 + ₹20,000 + ₹12,500 = ₹32,500 + cess = ₹33,800. New regime saves ₹13,000.
Example 2: Salary ₹15,00,000 with ₹5,00,000 deductions (80C + HRA + 80D)
Old Regime: Taxable = ₹15,00,000 - ₹5,00,000 - ₹50,000 = ₹9,50,000. Tax = ₹15,000 + ₹90,000 = ₹1,05,000 + cess = ₹1,09,200.
New Regime: Taxable = ₹15,00,000 - ₹75,000 = ₹14,25,000. Tax = ₹0 + ₹20,000 + ₹40,000 + ₹60,000 + ₹45,000 = ₹1,65,000 + cess = ₹1,71,600. Old regime saves ₹62,400.
Which Regime Should You Choose?
Use this simple rule of thumb:
- Choose New Regime if: Your total deductions are less than ₹3-4 lakh. This applies to young professionals, those without home loans, and people who don't invest heavily in 80C instruments.
- Choose Old Regime if: You claim HRA (especially in metro cities), have a home loan, invest ₹1.5L in 80C, and have health insurance. Total deductions exceeding ₹4L make the old regime more beneficial.
The easiest way to decide is to calculate your tax under both regimes and compare. You can use our Income Tax Calculator to do this instantly.
Compare Your Tax Under Both Regimes
Use our free calculator to find out which regime saves you more money.
Use Income Tax Calculator →Frequently Asked Questions
Is the new tax regime better for everyone?
No. The new regime is better only if you have minimal deductions. If you claim HRA, home loan interest, and 80C investments, the old regime usually saves more tax.
Can I switch between old and new regime every year?
Yes, salaried individuals can switch between regimes every year while filing ITR. However, those with business income have restrictions on switching.
What is Section 87A rebate?
Section 87A provides a rebate on income tax. Under the new regime, if your taxable income is up to ₹12,00,000, you get a rebate of up to ₹60,000, effectively making income up to ₹12 lakh tax-free.
Does the new regime allow any deductions at all?
The new regime allows employer's NPS contribution (80CCD(2)) and standard deduction (₹75,000). Most other deductions like 80C, 80D, HRA are not available.
What is the standard deduction for FY 2026-27?
Under the new regime, standard deduction is ₹75,000. Under the old regime, it is ₹50,000. This deduction is available to all salaried individuals.