A comprehensive comparison of old and new tax regimes covering slabs, deductions under 80C, 80D, HRA and NPS, standard deduction, rebate and the break-even salary point.
The introduction of the new tax regime in 2020, and its significant overhaul in 2023, has left millions of Indian taxpayers confused about which regime saves them more tax. The new regime offers lower slab rates but takes away most deductions and exemptions. The old regime has higher slab rates but lets you claim deductions under Section 80C, 80D, HRA and dozens of other provisions.
The right choice depends entirely on your deduction profile. This guide walks you through both regimes with concrete numbers so you can pick the one that saves you the most money. You can also run exact calculations with our income tax calculator.
Tax slabs comparison
New tax regime (FY 2025-26 / AY 2026-27)
| Income slab | Tax rate |
|---|---|
| Up to Rs 4,00,000 | Nil |
| Rs 4,00,001 to Rs 8,00,000 | 5% |
| Rs 8,00,001 to Rs 12,00,000 | 10% |
| Rs 12,00,001 to Rs 16,00,000 | 15% |
| Rs 16,00,001 to Rs 20,00,000 | 20% |
| Rs 20,00,001 to Rs 24,00,000 | 25% |
| Above Rs 24,00,000 | 30% |
Standard deduction: Rs 75,000. Tax rebate under Section 87A: full rebate for taxable income up to Rs 12,00,000 (effective tax is zero on income up to Rs 12,75,000 when standard deduction is included).
Old tax regime (FY 2025-26 / AY 2026-27)
| Income slab | Tax rate |
|---|---|
| Up to Rs 2,50,000 | Nil |
| Rs 2,50,001 to Rs 5,00,000 | 5% |
| Rs 5,00,001 to Rs 10,00,000 | 20% |
| Above Rs 10,00,000 | 30% |
Standard deduction: Rs 50,000. Tax rebate under Section 87A: full rebate for taxable income up to Rs 5,00,000.
Key deductions available only under the old regime
The old regime lets you claim dozens of deductions and exemptions that are not available under the new regime. The major ones are:
Section 80C (up to Rs 1.5 lakh): PPF, ELSS, EPF, life insurance premium, home loan principal, tuition fees, NSC, tax-saving FD.
Section 80D (up to Rs 1 lakh): Health insurance premium. Rs 25,000 for self and family, Rs 25,000 to Rs 50,000 for parents (Rs 50,000 if parents are senior citizens).
HRA exemption: If you live in rented accommodation and receive House Rent Allowance, the exempt portion can be substantial, especially in metro cities. The exemption is the least of: actual HRA received, rent paid minus 10 percent of basic salary, or 50 percent of basic salary (metro) / 40 percent (non-metro).
Section 80CCD(1B) (up to Rs 50,000): Additional NPS contribution beyond the 80C limit.
Section 24(b) (up to Rs 2 lakh): Home loan interest deduction for self-occupied property.
Section 80E: Education loan interest (no cap, full deduction for up to 8 years).
Section 80TTA (up to Rs 10,000): Savings account interest deduction.
Which deductions survive in the new regime?
The new regime strips away almost all deductions. The notable exceptions are:
- Standard deduction of Rs 75,000 (higher than old regime's Rs 50,000)
- Employer contribution to NPS under Section 80CCD(2) (up to 14 percent of salary for central government, 10 percent for others)
- Section 80JJAA (new employee deduction for employers)
- Transport allowance for differently-abled employees
- Conveyance allowance for travel on duty
In particular, there is no 80C, no 80D, no HRA exemption, no home loan interest deduction, and no 80CCD(1B) under the new regime.
Break-even analysis: When does the old regime save more?
The break-even point depends on your total deductions. If your total deductions under the old regime are less than a certain threshold, the new regime saves more. If they exceed that threshold, the old regime wins.
Here is a simplified analysis for different salary levels.
Salary: Rs 10 lakh (CTC)
New regime: With Rs 75,000 standard deduction, taxable income is Rs 9,25,000. Tax (including cess): approximately Rs 44,200.
Old regime: With Rs 50,000 standard deduction, Rs 1.5 lakh 80C, Rs 25,000 80D, and Rs 1.2 lakh HRA (assuming rent of Rs 15,000/month in metro), taxable income is approximately Rs 6,55,000. Tax (including cess): approximately Rs 37,960.
Winner: Old regime saves approximately Rs 6,240 more.
Salary: Rs 15 lakh (CTC)
New regime: Taxable income Rs 14,25,000. Tax: approximately Rs 1,56,000.
Old regime: With full deductions (80C Rs 1.5 lakh, 80D Rs 25,000, HRA Rs 1.5 lakh, 80CCD(1B) Rs 50,000, standard deduction Rs 50,000), taxable income approximately Rs 10,75,000. Tax: approximately Rs 1,38,500.
Winner: Old regime saves approximately Rs 17,500 more.
Salary: Rs 25 lakh (CTC)
New regime: Taxable income Rs 24,25,000. Tax: approximately Rs 4,34,200.
Old regime: With full deductions including Rs 2 lakh home loan interest, taxable income approximately Rs 17,75,000. Tax: approximately Rs 3,82,200.
Winner: Old regime saves approximately Rs 52,000 more.
Salary: Rs 7 lakh (CTC)
New regime: Taxable income Rs 6,25,000. Tax: approximately Rs 11,700.
Old regime: Even with Rs 50,000 standard deduction and Rs 1.5 lakh 80C, taxable income is Rs 4,50,000. Tax: Rs 10,400.
Winner: Old regime by a thin margin. At this salary, both regimes are similar.
General rule of thumb
If your total deductions under the old regime (80C + 80D + HRA + home loan interest + NPS + standard deduction) exceed approximately Rs 3.75 lakh to Rs 4 lakh, the old regime is likely better. Below that threshold, the new regime usually wins.
For income up to Rs 12,75,000, the new regime is almost always better because of the enhanced Section 87A rebate that makes tax zero.
Who should choose the new regime?
The new regime is better for individuals with minimal deductions. This typically includes young professionals without home loans, people living with parents (no HRA claim), individuals without significant investments in 80C instruments, and those who find tax planning complicated and prefer simplicity.
The new regime is also the default option since the 2023 budget. If you do not specifically opt for the old regime, you are automatically placed in the new regime. Read about the new tax regime provisions for FY 2026-27 for complete details.
Who should choose the old regime?
The old regime benefits individuals who have substantial deductions, including those paying rent in metro cities (HRA exemption), those with home loans (Section 24(b) interest deduction), those investing in PPF, ELSS, NPS and other 80C instruments, and those with health insurance premiums for self and parents.
If you are already investing Rs 1.5 lakh under 80C, paying Rs 25,000 to Rs 50,000 in health insurance, claiming HRA of Rs 1 lakh or more, and paying home loan interest, your total deductions could exceed Rs 4 lakh, making the old regime clearly better.
Can I switch between regimes?
Salaried employees: You can switch between old and new regimes every financial year. Inform your employer at the beginning of the year, and you can also change your choice while filing your income tax return.
Self-employed / business income: You can opt out of the new regime once. After opting out, you cannot switch back. This restriction applies only to individuals with business or professional income, not to salaried employees.
Common mistakes in regime selection
Not calculating actual tax under both regimes. Many people assume the new regime is better because the slabs are lower. Run the numbers with your actual deductions before deciding.
Forgetting HRA exemption. HRA is often the single largest deduction for salaried individuals in metro cities. If you pay rent of Rs 20,000 per month or more, HRA exemption alone can be Rs 1.5 lakh to Rs 2 lakh per year.
Not claiming all eligible deductions under the old regime. If you choose the old regime but only claim 80C, you are leaving money on the table. Ensure you claim 80D, HRA, home loan interest, NPS (80CCD(1B)), education loan interest (80E) and every other applicable deduction.
Ignoring the Rs 12.75 lakh threshold. If your gross income is Rs 12.75 lakh or below, the new regime gives you zero tax because of the enhanced Section 87A rebate. The old regime cannot match this for most people at this income level.
Final verdict
There is no one-size-fits-all answer. Calculate your tax under both regimes using our income tax calculator with your actual salary, deductions and exemptions. The old regime favours those with deductions exceeding approximately Rs 3.75 to Rs 4 lakh. The new regime favours those with minimal deductions or income below Rs 12.75 lakh. Salaried employees have the flexibility to switch every year, so recalculate annually.
Frequently asked questions
Which tax regime is better for salaried employees?
It depends on your deductions. If your total deductions under 80C, 80D, HRA, home loan interest and NPS exceed Rs 3.75 to Rs 4 lakh, the old regime typically saves more tax. If your deductions are minimal, the new regime with its lower slab rates is better. Calculate for your specific situation.
Is Section 80C available under the new tax regime?
No. Section 80C deductions including PPF, ELSS, life insurance premium, home loan principal and tax-saving FDs are not available under the new tax regime. The only deduction that survives is the standard deduction of Rs 75,000 and employer NPS contribution under Section 80CCD(2).
Can I switch between old and new tax regimes every year?
Yes, salaried employees can switch between old and new tax regimes every financial year. You can inform your employer or choose at the time of filing your income tax return. Those with business or professional income face a one-time opt-out restriction and cannot switch back after opting out.
What is the tax rebate under the new regime?
Under the new regime, Section 87A provides a full tax rebate for individuals with taxable income up to Rs 12,00,000. Factoring in the Rs 75,000 standard deduction, salaried employees with gross income up to Rs 12,75,000 pay zero income tax under the new regime.
Is HRA exemption available under the new tax regime?
No. HRA exemption is not available under the new tax regime. This is a significant disadvantage for employees living in rented accommodation, especially in metro cities where rent is high. HRA exemption alone can amount to Rs 1.5 to Rs 2.5 lakh per year for metro employees.
What is the break-even salary for old vs new tax regime?
There is no single break-even salary because it depends on your specific deduction profile. Generally, if your annual deductions exceed Rs 3.75 to Rs 4 lakh, the old regime is better regardless of salary level. Use a tax calculator with your actual numbers for an accurate comparison.
Is NPS tax deduction available under the new regime?
The personal NPS deduction under Section 80CCD(1B) for Rs 50,000 is not available under the new regime. However, employer NPS contribution under Section 80CCD(2) remains available. Government employees can claim up to 14 percent of salary, and private sector employees up to 10 percent.
Should I switch to the new tax regime if I have a home loan?
Probably not. The home loan interest deduction of up to Rs 2 lakh under Section 24(b) is only available under the old regime. Combined with 80C for principal repayment and other deductions, home loan borrowers typically benefit more from the old regime, especially if the loan amount is substantial.