Updated 2026-07-13

Old vs New Tax Regime: Which Saves More Tax?

At ₹15L salary with ₹4L+ deductions, old regime saves you ₹45,000 more. But at ₹10L with minimal deductions, new regime wins by ₹30,000. Here's the exact breakeven for your salary.

Gross Annual Income

₹

Employment Status

Old Regime Deductions

80C (EPF, PPF, ELSS)

₹

80D (Health Insurance)

₹

HRA Exemption

₹

Home Loan Interest (Sec 24)

₹

NPS 80CCD(1B)

₹

New Regime

Winner

Taxable Income₹14.25 L

Deductions₹75,000

Tax + Cess₹97,500

Monthly Take-Home₹1.17 L

Old Regime

Taxable Income₹10.25 L

Deductions₹4.75 L

Tax + Cess₹1.25 L

Monthly Take-Home₹1.15 L

New Regime (Real In-Hand Value)

₹1.17 L/month

Your gross salary of ₹15.00 L/year (₹1.25 L/month) is reduced to a real take-home of ₹1.17 L/month after deducting ₹8,125/month in taxes and cess.

New regime saves you ₹27,300/year (₹2,275/month more)

With ₹4.25 L in deductions, new regime's lower slabs still save more. You'd need ~₹more deductions for old regime to win.

Based on FY 2026-27 slabs (Income Tax Act 2025). Standard deduction: ₹75,000 (new) / ₹50,000 (old). Section 87A rebate applied automatically.

Tax Slab Comparison

Income Slab	New Regime Rate	Old Regime Rate
Up to ₹2.5L	0%	0%
₹2.5L – ₹4L	0%	5%
₹4L – ₹5L	5%	5%
₹5L – ₹8L	5%	20%
₹8L – ₹10L	10%	20%
₹10L – ₹12L	10%	30%
₹12L – ₹16L	15%	30%
₹16L – ₹20L	20%	30%
₹20L – ₹24L	25%	30%
Above ₹24L	30%	30%

Note: New regime slabs are per FY 2026-27 (Income Tax Act 2025). Both regimes have 4% health & education cess on total tax.

Breakeven Analysis - How Much Deduction Do You Need?

Gross Income	Tax (New Regime)	Deductions Needed for Old to Win	Typical Deductions Available
₹8L	₹0 (87A rebate)	N/A: New wins	₹1.5-2L
₹10L	₹0 (87A rebate)	N/A: New wins	₹2-3L
₹12L	₹0 (87A rebate)	N/A: New wins	₹2.5-4L
₹15L	≈₹1.04L	≥ ₹4.25L	₹3.5-5.5L (with HRA)
₹20L	≈₹2.34L	≥ ₹5.25L	₹4-7L (with HRA + home loan)
₹30L	≈₹5.46L	≥ ₹6.75L	₹5-8L (max deductions)

Why This Decision Matters More Than You Think

Choosing the wrong tax regime can cost you ₹30,000–₹1,00,000+ per year. At ₹20L income, the difference between optimal and sub-optimal choice is ₹45,000-70,000 annually. Over a 30-year career, that's ₹15-20 lakh in unnecessarily paid taxes: money that could have been invested and grown to ₹50L+ through compounding.

New Regime: The Simple, Low-Rate Option

The new regime offers lower slab rates but strips away almost all deductions. It's designed for people who don't want to plan investments around tax-saving. You get:

₹75,000 standard deduction (increased from ₹50,000 in FY 2024-25)
Section 87A rebate for income up to ₹12L taxable (effective zero tax up to ₹12.75L gross)
Lower marginal rates in the ₹5-15L range (5-15% vs 20-30% in old)
No planning required: just earn, file, done

Old Regime: Higher Rates, But Deductions Can Eliminate Them

The old regime has steeper slabs (20% kicks in at ₹5L vs ₹16L in new) but allows deductions that can dramatically reduce your taxable income:

Section 80C: ₹1,50,000: EPF, PPF, ELSS, life insurance, tuition fees
Section 80D: ₹25,000-₹1,00,000: Health insurance premiums
HRA Exemption: ₹2,00,000-₹5,00,000+: Based on rent paid in metro
Section 24: ₹2,00,000: Home loan interest
80CCD(1B): ₹50,000: Additional NPS deduction
Standard deduction: ₹50,000

Total possible deductions: ₹6.5-10L+ for a metro employee with home loan and family health insurance.

The Decision Framework

Choose New Regime if:

Gross income below ₹12.75L (zero tax under 87A anyway)
You don't pay rent (no HRA benefit in old regime)
You don't have a home loan
Your only deductions are 80C + 80D (₹1.75L total: not enough to justify old)
You want simplicity and don't want to maintain proof/documentation

Choose Old Regime if:

You're a salaried metro employee paying ₹25,000+ rent
You have a home loan with ₹2L/year interest
You can combine HRA + 80C + 80D + NPS to exceed ₹4-5L in deductions
You're already investing in PPF, ELSS, or EPF (80C is "free" deduction)

Common Mistakes That Cost You Money

Choosing new regime "because it's simpler" without calculating: many people leave ₹40K-70K on the table annually.
Forgetting EPF counts in 80C: your employer EPF contribution (up to ₹1.5L) is already a 80C deduction. You don't need additional ELSS/PPF if EPF fills it.
Not claiming HRA while paying rent to parents: legally valid if parents show rental income. Saves ₹20K-80K in tax.
Ignoring Section 87A marginal relief: income just above the rebate threshold receives marginal relief, but the benefit tapers away as income rises.
Not switching annually: your optimal regime can change year to year. Review every April when your salary changes.

Frequently Asked Questions

Who should choose the new tax regime?

Choose new regime if your total deductions under old regime (80C + 80D + HRA + home loan + NPS + standard deduction) are less than about ₹3.75 lakh for income around ₹12L, or ₹5.25L for income around ₹20L. Salaried people in rented accommodation in metro cities with home loans often still benefit from old regime. Those without rent or significant investments should pick new.

Can I switch between old and new regime every year?

Yes, salaried employees can switch between regimes every financial year at the time of filing ITR. No form or declaration needed: just file under your chosen regime. However, if you have business income (ITR-3/4), you can only switch once from new to old regime in your lifetime. Salaried individuals (ITR-1/2) have unlimited switching.

Is the new tax regime the default?

Yes, the new tax regime is the default tax regime. If you do not explicitly choose the old regime, you are automatically taxed under the new regime. To opt for the old regime, you must declare it to your employer for TDS, or choose it when filing your ITR. Your employer assumes the new regime for TDS unless you inform them otherwise.

What deductions are available under the new regime?

Very few: (1) Standard deduction of ₹75,000 (from FY 2024-25), (2) Employer NPS contribution under 80CCD(2): up to 14% of salary for central govt, 10% for others, (3) Agniveer corpus fund 80CCH. That's essentially it. No 80C, no 80D, no HRA exemption, no home loan deduction, no LTA, no professional tax deduction.

At what salary does old regime become better?

Old regime becomes better when total deductions exceed the breakeven point. At ₹10L income: ≈₹2.6L deductions. At ₹15L income: ≈₹4.25L deductions. At ₹20L: ≈₹5.25L deductions. If you max out 80C (₹1.5L) + 80D (₹25-50K) + HRA (₹2-4L in metros) + home loan (₹2L), you easily cross ₹5L in deductions: making old regime significantly better above ₹12L income.

What is the Section 87A rebate under both regimes?

Under new regime: if taxable income ≤ ₹12L (after ₹75K standard deduction, so gross up to ₹12.75L), your entire tax is rebated to zero. Under old regime: if taxable income ≤ ₹5L, tax is rebated to zero. Marginal relief limits the extra tax when taxable income is only slightly above ₹12 lakh.

How does HRA affect the old vs new regime decision?

HRA is the single biggest deduction for salaried metro employees. If you earn ₹15L, have 50% basic, and pay ₹30,000 rent in Mumbai: your HRA exemption alone is ₹2.4L/year. Add 80C (₹1.5L) and 80D (₹25K) and you're at ₹4.15L deductions. This makes old regime the clear winner. If you live in own house or don't pay rent, you lose this entirely: making new regime likely better.

Should I keep 80C investments if I choose new regime?

Investments like EPF, PPF, and ELSS have merits beyond tax saving. EPF gives 8.25% tax-free returns. PPF gives 7.1% tax-free with sovereign guarantee. ELSS gives equity exposure with just 3-year lock-in. Even under new regime, these are good investments: you just don't get the tax deduction. Don't stop investing just because you switched regime; invest for returns, not just tax saving.

Try it yourself → Income Tax Calculator