Indian salaried earners face a binary choice every April: old tax regime (higher slabs but rich deductions) or new tax regime (lower slabs, almost no deductions). New is default. Wrong choice = ₹50k-2L extra tax annually.
The slabs (FY 2025-26)
New regime (default)
- Up to ₹3 lakh: Nil
- ₹3-7 lakh: 5%
- ₹7-10 lakh: 10%
- ₹10-12 lakh: 15%
- ₹12-15 lakh: 20%
- Above ₹15 lakh: 30%
Plus 4% cess. Standard deduction ₹75,000. Rebate 87A: no tax if total income ≤ ₹12 lakh.
Old regime (optional)
- Up to ₹2.5 lakh: Nil
- ₹2.5-5 lakh: 5%
- ₹5-10 lakh: 20%
- Above ₹10 lakh: 30%
Plus 4% cess. Standard deduction ₹50,000. Rebate 87A: no tax if income ≤ ₹7 lakh. Allows 80C, 80D, HRA, 80CCD(1B), Section 24(b) home loan interest, etc.
The breakeven by income level
| Income | Old regime needs deductions of... |
|---|---|
| ₹10 lakh | ~₹2.5 lakh |
| ₹15 lakh | ~₹3.75 lakh |
| ₹20 lakh | ~₹4.0 lakh |
| ₹25 lakh | ~₹4.5 lakh |
| ₹50 lakh+ | ~₹6 lakh+ |
If your total deductions cross the threshold = old regime is cheaper. Below = new regime is cheaper.
The deduction inventory (old regime only)
- 80C (₹1.5L cap): EPF + ELSS + PPF + tax-saver FD + LIC + home loan principal + tuition fees
- 80CCD(1B) NPS (₹50k): Extra ₹50k for NPS Tier-1
- 80D (₹50k-₹1L): Health insurance self + parents
- 80E: Education loan interest (no cap, 8 years)
- 80G: Charitable donations (50-100% depending on org)
- 80TTA / 80TTB: Savings interest ₹10k / Senior FD interest ₹50k
- Section 24(b): Home loan interest up to ₹2L (self-occupied)
- HRA exemption: 3-way formula on rent (see HRA guide)
- LTA: Two trips in 4 years
- Food coupons + vehicle reimbursement: Within company policy
Worked examples
Example 1: ₹15L income, salaried, rents in Bengaluru
Deductions: ₹1.5L 80C (EPF + ELSS) + ₹50k NPS + ₹25k 80D + ₹1.8L HRA exemption + ₹50k standard = ₹4.55L
Old regime: tax on ₹10.45L = ₹1.39L. New regime: tax on ₹14.25L (only ₹75k std) = ₹1.43L.
Old wins by ~₹4,000. Marginal here — depends on HRA fact-pattern.
Example 2: ₹15L income, salaried, owns home with home loan
Deductions: ₹1.5L 80C (EPF + principal) + ₹50k NPS + ₹50k 80D + ₹2L home loan interest 24(b) + ₹50k standard = ₹5L
Old regime: tax on ₹10L = ₹1.17L. New regime: tax on ₹14.25L = ₹1.43L.
Old wins by ₹26,000.
Example 3: ₹15L income, no home loan, basic 80C only
Deductions: ₹1.5L 80C + ₹25k 80D + ₹50k standard = ₹2.25L
Old regime: tax on ₹12.75L = ₹1.96L. New regime: tax on ₹14.25L = ₹1.43L.
New wins by ₹53,000.
Example 4: ₹8L income, salaried
Most ₹8L earners fall under the ₹12L rebate in new regime → ZERO tax. Old regime would tax them ₹40-70k depending on deductions.
New wins comprehensively at ₹8-12L income due to the rebate.
The decision algorithm
- Income < ₹12L? → NEW regime (rebate gives zero tax)
- Income ₹12-15L without home loan/heavy HRA? → NEW regime
- Income ₹15L+ with home loan + max 80C + HRA + 80D + NPS? → OLD regime
- Income ₹15L+ without home loan, modest deductions? → NEW regime
- Income ₹50L+ at any deduction level? → Often OLD if you have home loan + family insurance + NPS, else NEW
Switching mechanics
- Salaried (no business income): Switch regimes annually at ITR filing or via Form 10IE.
- Business income earners: Once chosen, switching back to old is restricted (one-time).
- Default behaviour: If you don't explicitly opt for old at ITR, new regime applies.
The future direction
Government clearly nudging toward new regime — lower slabs each Budget, sweeter rebate. Old regime deductions unlikely to expand. Plan long-term assuming new becomes standard, but optimise for current year specifics.
Use the Income Tax calculator to compute both regimes side-by-side with your specific numbers. Make the decision data-driven, not based on what colleagues do.