Every year around tax-filing season, the same question comes up: old regime or new regime? The honest answer is that it depends entirely on how many deductions you actually claim — not on which regime is "better" in the abstract. Here's how to actually work it out.
The core difference
The new regime has lower tax rates but strips away almost all deductions — no 80C, no HRA, no home loan interest benefit. The old regime has higher rates but lets you subtract all of that from your taxable income first. Whichever regime wins for you depends on how much you can actually deduct.
New regime slabs (FY 2026-27)
| Income slab | 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% |
A standard deduction of ₹75,000 applies for salaried individuals and pensioners. There's also a rebate under Section 87A that effectively makes income up to ₹12 lakh completely tax-free — which is the single biggest reason the new regime has become the default choice for most people without large deductions to claim.
Old regime slabs
| Income slab | Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Standard deduction here is ₹50,000, and the 87A rebate only zeroes out tax up to ₹5 lakh. The rates jump much faster than the new regime — but you can offset that with deductions under 80C (up to ₹1.5 lakh), 80D for health insurance, HRA if you're renting, and home loan interest if you have one.
Two examples
Example 1: ₹10 lakh salary, no significant deductions
Under the new regime, taxable income after the standard deduction is ₹9.25 lakh — still under the ₹12 lakh rebate threshold, so tax is zero. Under the old regime, taxable income is ₹9.5 lakh, landing well inside the 20% slab, resulting in real tax payable. In this case, the new regime wins clearly.
Example 2: ₹15 lakh salary, ₹2.5 lakh in deductions (80C + home loan interest)
Under the old regime, taxable income drops to roughly ₹12 lakh after standard deduction and other deductions, cutting tax noticeably. Under the new regime, deductions barely apply, so taxable income stays around ₹14.25 lakh, taxed at the higher slabs. Here, the old regime can come out ahead — but the gap has narrowed a lot compared to previous years, since the new regime's rates have also come down.
What counts as a deduction under the old regime
If you're weighing the old regime, it's worth knowing exactly what you can claim, since "deductions" is vague until you see the actual list:
- Section 80C (up to ₹1.5 lakh): EPF, PPF, ELSS mutual funds, life insurance premiums, principal repayment on a home loan, and children's tuition fees all fall under this one combined cap — not separate limits each.
- Section 80D: health insurance premiums, with separate limits for self/family and for parents, higher if they're senior citizens.
- HRA: if you're renting and receive a house rent allowance from your employer, a portion of it can be exempt based on your rent, salary, and city of residence.
- Home loan interest (Section 24): up to ₹2 lakh per year on interest paid for a self-occupied property.
- NPS (Section 80CCD(1B)): an additional ₹50,000 beyond the 80C cap for National Pension System contributions.
None of these apply under the new regime — which is exactly why the new regime tends to favor people who aren't actively using these instruments, and the old regime tends to favor people who already have a home loan, insurance, and long-term investments structured around these specific sections.
Can you switch between regimes each year?
If your income is entirely from salary or other sources (no business or professional income), you can choose freely between the old and new regime every single year when filing your return — there's no lock-in. If you have business or professional income, the rule is stricter: you can switch from new to old only once in your lifetime, so it's worth being more deliberate about that decision if it applies to you.
The honest rule of thumb
- If you don't have a home loan, don't invest heavily in 80C instruments, and don't pay significant rent — the new regime almost always wins.
- If you have a home loan, claim HRA, and max out 80C — it's worth actually calculating both, especially at higher income levels.
- The crossover point moves every year as slabs change, so don't rely on last year's answer.
Don't do this math by hand — plug in your numbers and see both regimes compared side by side.
Try the Income Tax Calculator →This is a general explainer, not tax advice. Figures exclude surcharge (relevant above ₹50 lakh income) and marginal relief just above the ₹12 lakh new-regime threshold. For your actual filing, consult a tax professional.