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Every April, the same email lands in salaried inboxes: “Please declare your tax regime and investments.” And every year, a lot of people just tick whatever they picked last time.
That might be costing you money. Since the new tax regime became the default and its slabs got a lot more generous, the answer has changed for millions of people. Many who used to rush into tax-saving investments every March would actually pay less tax by just choosing the new regime.
But it’s not better for everyone. If you have a home loan, pay high rent, or already make big deductible investments, the old tax regime can still come out ahead. Let’s look at both properly, with real numbers.
I used to rush into tax-saving investments every March without checking if I even needed them. This year I did the maths first, and it changed my choice.
First, a big change: the Income-tax Act, 2025
From 1 April 2026, India’s new Income-tax Act, 2025 replaced the old 1961 Act. The idea is simpler language and structure. It uses the term “tax year” instead of the old “previous year” and “assessment year”, and lots of familiar section numbers have changed. Deductions everyone knows as 80C, 80D and 24(b) now sit under different numbers.
The good news: the slab rates and most key limits carried over. In this article, I’ll use the old familiar names because that’s what most people still search for. Just double-check the current rules, or ask a tax professional, when you file.
New tax regime slabs for FY 2026-27
Budget 2026 left the slabs alone. So the new tax regime rates from FY 2025-26 continue:
| Taxable income | Tax rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹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% |
A few things make the new tax regime attractive. Salaried people and pensioners get a ₹75,000 standard deduction. There’s a rebate that makes your tax zero if your taxable income is up to ₹12 lakh (the rebate goes up to ₹60,000). In practice, that means a salaried person earning up to ₹12.75 lakh usually pays nothing.
If you earn just a bit over ₹12 lakh, marginal relief kicks in, so the tax you pay can’t be more than the amount you earned above ₹12 lakh. Your employer’s contribution to NPS is also deductible, up to 14% of your basic plus DA. Beyond that, most other deductions and exemptions aren’t available.
One catch: the zero-tax rebate generally doesn’t cover income taxed at special rates, like capital gains from shares and equity mutual funds. So even if your total income is under ₹12 lakh, you could still owe tax on those gains.
Old tax regime slabs
For people under 60:
| Taxable income | Tax rate |
|---|---|
| Up to ₹2.5 lakh | Nil |
| ₹2.5 lakh – ₹5 lakh | 5% |
| ₹5 lakh – ₹10 lakh | 20% |
| Above ₹10 lakh | 30% |
Senior citizens (60 to 79) get a ₹3 lakh basic exemption, and super seniors (80+) get ₹5 lakh, in the old regime. Tax is zero if taxable income is up to ₹5 lakh, thanks to a rebate. The standard deduction for salaried people is ₹50,000.
In both regimes, there’s a 4% health and education cess on top of the tax, and surcharge at higher incomes.
What the old tax regime gives you that the new one doesn’t
The old regime’s whole advantage is its deductions. The big ones:
- 80C (up to ₹1.5 lakh): your EPF contribution, PPF, ELSS, life insurance premiums, home loan principal, kids’ tuition fees, 5-year tax-saving FD, NSC, Sukanya Samriddhi.
- 80D (health insurance): up to ₹25,000 for you, your spouse and kids, plus up to ₹50,000 for senior citizen parents (₹25,000 if they’re under 60).
- 80CCD(1B): an extra ₹50,000 for your own NPS contribution, on top of the ₹1.5 lakh.
- HRA: exemption based on your rent, salary and city.
- Home loan interest (24b): up to ₹2 lakh for a home you live in.
- Education loan interest (80E): the full interest, for up to eight years.
- Donations (80G) to eligible institutions, plus LTA and some allowances.
- Savings account interest (80TTA): up to ₹10,000, with a higher limit for senior citizens under a separate provision.
Let’s do the maths
Numbers are approximate and include the 4% cess. No surcharge applies at these income levels.
Example 1: ₹10 lakh salary, basic deductions
New regime: ₹10 lakh minus ₹75,000 = ₹9.25 lakh taxable. That’s under ₹12 lakh, so tax is zero.
Old regime (₹50,000 standard + ₹1.5 lakh 80C + ₹25,000 80D): ₹7.75 lakh taxable. Tax is ₹12,500 + 20% of ₹2.75 lakh = ₹67,500, plus cess = about ₹70,200.
New regime wins, easily.
Example 2: ₹15 lakh salary, moderate deductions
New regime: ₹14.25 lakh taxable. Tax is ₹20,000 (4–8 lakh) + ₹40,000 (8–12 lakh) + ₹33,750 (15% of ₹2.25 lakh) = ₹93,750, plus cess = about ₹97,500.
Old regime (₹2.25 lakh of deductions like above): ₹12.75 lakh taxable. Tax is ₹12,500 + ₹1,00,000 + 30% of ₹2.75 lakh (₹82,500) = ₹1,95,000, plus cess = about ₹2,02,800.
New regime saves over ₹1 lakh.
Example 3: ₹15 lakh salary, heavy deductions
Now let’s say this person pays high rent and also has a home loan. Deductions: ₹50,000 standard + ₹1.5 lakh 80C + ₹75,000 80D (self and senior parents) + ₹50,000 NPS + ₹2 lakh HRA + ₹2 lakh home loan interest = ₹7.25 lakh.
Old regime: ₹7.75 lakh taxable. Tax about ₹70,200.
New regime: still about ₹97,500.
Old regime wins here, by around ₹27,000.
(Quick note: in real life, you usually can’t claim both HRA and home loan interest for the same home in the same city, unless specific conditions apply, like owning a home in another city. This is just to show how the numbers work.)
Example 4: ₹25 lakh salary, heavy deductions
New regime: ₹24.25 lakh taxable. Tax is ₹20,000 + ₹40,000 + ₹60,000 + ₹80,000 + ₹1,00,000 + 30% of ₹25,000 (₹7,500) = ₹3,07,500, plus cess = about ₹3,19,800.
Old regime with the same ₹7.25 lakh of deductions: ₹17.75 lakh taxable. Tax is ₹1,12,500 + 30% of ₹7.75 lakh (₹2,32,500) = ₹3,45,000, plus cess = about ₹3,58,800.
New regime wins, even with big deductions. At this level, the old tax regime needs roughly ₹8.5 lakh of deductions just to break even.
That last one surprises a lot of people. Because the new slabs are wider, higher earners benefit too, and the deductions you need to make the old regime worth it keep going up as income rises.
The break-even point
The easiest way to decide: figure out how much in total deductions you’d need for the old regime to match the new one. At a ₹15 lakh salary, the old regime only wins if your total deductions (including the ₹50,000 standard deduction) go above roughly ₹5.9 lakh.
If you earn up to ₹12.75 lakh, the new tax regime gives you zero tax. The old regime can’t beat zero. As income rises, the break-even amount shifts, but it stays high enough that only people with big HRA, home loan interest or other large deductions come out ahead in the old regime.
Most online calculators, including the one on the income tax e-filing portal, compare both in a minute. Do it every year, because your salary and deductions change.
Old vs new tax regime: who should pick which?
The new regime usually suits anyone earning up to about ₹12.75 lakh (salaried), young professionals without a home loan who live with parents or pay low rent, people who don’t want to lock money into tax-saving products just for the deduction, those whose deductions are mainly EPF and a small health insurance premium, and most pensioners without large deductions.
The old regime can still make sense if you have a big home loan and claim both interest and principal, pay high rent in a metro with a large HRA exemption, already max out 80C, 80D (including parents) and the extra NPS deduction, or have large education loan interest or eligible donations.
A few special cases
Senior citizens and pensioners. The old regime gives seniors a higher basic exemption and a bigger deduction on interest income. Many retirees live mostly on FD and small savings interest. Even so, the new regime’s ₹4 lakh nil slab, ₹75,000 standard deduction for pensioners, and rebate up to ₹12 lakh often make it cheaper. If you pay big health insurance premiums for yourself, the old regime might compete, so compare both.
Freelancers and small business owners. If you use presumptive taxation, where a fixed percentage of your receipts counts as income, the new tax regime often works out well, since you usually don’t have HRA or salary-type deductions anyway. Since switching back is restricted for business income, think about the next few years before you choose.
People with capital gains. Gains from shares and equity funds are taxed at special rates in both regimes. The new regime’s zero-tax rebate generally doesn’t cover them. So someone with a ₹9 lakh salary and ₹2 lakh of long-term equity gains may still pay tax on the gains above the ₹1.25 lakh exemption. Plan your selling with this in mind.
Couples. Each spouse picks their own regime. It’s pretty common for one partner with the home loan and high rent to go old regime while the other goes new. If you’re joint borrowers and co-owners, you can each claim interest in the old regime, which can change the maths.
Switching between tax regimes
If you have salary or pension income and no business income, you can choose a regime every year when you file your return, whatever you told your employer earlier.
If you have business or professional income, it’s stricter. Once you opt out of the new regime, you can switch back only once in your life, with limited exceptions. So choose carefully.
Since the new regime is the default, you have to actively opt for the old one, within the deadlines, if you want it.
What to tell your employer in April
Before you decide, estimate your full-year salary including any bonus. List the deductions you’re sure about: rent, home loan interest, EPF, insurance, NPS. Run both regimes through a calculator.
If you go with the old regime, submit your investment proofs on time, usually by January or February. Otherwise your employer will deduct a big chunk of TDS in the last few months. And remember, for salary income, your final choice happens when you file your return. What you tell your employer isn’t set in stone.
Please don’t invest just to save tax
Under the old regime, a lot of people panic-buy in March just to use up the ₹1.5 lakh limit. Expensive endowment policies, insurance they don’t need, products they don’t understand. It’s a costly habit.
A better approach, whatever regime you’re in: buy term and health insurance because you need protection, not for tax. Invest for real goals like retirement and your kids’ education using things like EPF, PPF, NPS and mutual funds. Then check which regime gives you lower tax based on what you’re already doing.
With lower rates in the new regime, you’re free to choose investments for their returns, flexibility and fit with your goals, not just for a deduction.
If you stay in the old regime and use ELSS for 80C, you’ll need a mutual fund or demat account. Angel One is one option. Pick ELSS only if you’d invest in equity anyway.
Tax moves that work in both regimes
Employer NPS. If your company offers it, routing part of your salary into employer NPS contribution is deductible even in the new regime, up to 14% of basic plus DA. And it builds your retirement savings.
Tax-free equity gains. Long-term gains on listed shares and equity funds are tax-free up to ₹1.25 lakh a year. Booking gains up to this limit each year can reduce future tax.
Tax-free instruments. PPF interest and maturity are tax-free, which helps even if you don’t claim the deduction.
Family planning. Where the law allows, investing in the name of a lower-earning family member can cut the family’s overall tax. But watch out for clubbing rules for spouses and minor children.
Keep your papers organised. Rent receipts, investment proofs and loan certificates, even if you’re not sure which regime you’ll pick.
Want one book to explain tax, insurance and investing in plain words? Let’s Talk Money by Monika Halan is written for Indians. A yearly income tax guide book also helps if you like to double-check.
Filing tips
Check your Form 16 and the Annual Information Statement (AIS) on the e-filing portal, and make sure all your income, including interest and dividends, is there. Use the pre-filled return, but check every number. File before the due date to avoid late fees and to carry forward any losses.
If your employer deducted tax under one regime and you choose the other while filing, your tax gets recalculated. You might get a refund or owe a bit more. And e-verify your return quickly after filing. An unverified return is treated as not filed once the verification deadline passes.
Mistakes people make
Assuming the old regime is better because “it has deductions”. Not recalculating after a salary hike or a new loan. Choosing the old regime at work and then forgetting to submit proofs, leading to huge TDS in the last months. Forgetting interest from FDs and savings accounts. Assuming the ₹12 lakh zero-tax benefit covers capital gains. And buying unsuitable products just for the deduction.
Saving tax is good. But money decisions are more about habits than rules. The Psychology of Money explains this beautifully.
Common questions
Is the new regime compulsory?
No. It’s the default, but you can opt for the old one.
Can I claim HRA in the new regime?
No, HRA exemption isn’t available in the new regime.
Does my EPF contribution give me a deduction in the new regime?
Your own contribution doesn’t. Your employer’s EPF contribution isn’t taxable within the prescribed limits.
Is the standard deduction available in both?
Yes. ₹75,000 in the new regime and ₹50,000 in the old one, for salaried people and pensioners.
I have a side business. Can I still choose?
Yes, but the switching restriction for business income applies. It’s worth talking to a chartered accountant.
What if I told my employer the wrong regime?
Don’t worry. If you only have salary income, you can pick the regime that suits you best when you file your return. Your tax will be recalculated. If too much TDS was deducted, you’ll get a refund. If too little, you’ll need to pay the difference, possibly with some interest, before filing.
Does the new regime allow any deduction for home loans?
Only for a let-out property, where interest can be deducted against the rent you receive. For a home you live in, there’s no deduction for either interest or principal under the new regime.
Are my FD interest earnings taxed differently in the two regimes?
The interest is added to your income in both, and taxed at your slab rate. The difference is that the slab rates themselves are lower in the new regime at most income levels, while the old regime lets senior citizens claim a separate deduction on interest income.
The short answer: which tax regime wins?
For most salaried people, especially those earning up to around ₹15 lakh without big housing-related deductions, the new tax regime now means lower tax and less hassle. The old tax regime still makes sense if you have a large home loan, high rent, and already use every deduction. Don’t guess. Run both calculations every year, pick the cheaper one, and invest for your actual goals instead of just for tax.
Recommended reads
- PPF Account in India: Interest, Rules and How to Open One
- Planning Your Retirement in India With EPF, PPF and NPS
- Home Loan Guide for First-Time Buyers in India: Key Tips
- Where Does Your Salary Go? A Simple Budget for Indians
- PF Deducted but Not Credited in EPFO? Here’s What to Do
Disclaimer: This article is for general information only and isn’t tax advice. Tax laws, including the Income-tax Act, 2025, and limits can change. Please check official sources or talk to a qualified chartered accountant before filing.
