The new tax regime is an alternative income tax structure introduced in Budget 2020 and made the default regime from FY 2023-24. It offers lower slab rates than the old regime but removes most deductions and exemptions, including Section 80C, Section 80D, HRA, LTA, home loan interest and many others.
Slab rates (FY 2024-25)
| Taxable income | Tax rate |
|---|---|
| Up to Rs 3,00,000 | Nil |
| Rs 3,00,001 to Rs 7,00,000 | 5% |
| Rs 7,00,001 to Rs 10,00,000 | 10% |
| Rs 10,00,001 to Rs 12,00,000 | 15% |
| Rs 12,00,001 to Rs 15,00,000 | 20% |
| Above Rs 15,00,000 | 30% |
A rebate under Section 87A makes income up to Rs 7,00,000 effectively tax-free under the new regime.
What you keep in the new regime
- Standard deduction of Rs 75,000 (raised from Rs 50,000 in Budget 2024).
- Employer's contribution to NPS under Section 80CCD(2).
- Deduction for family pension up to Rs 15,000.
- Interest on home loan for a let-out property (not self-occupied).
- Exemption for voluntary retirement under Section 10(10C).
- Leave encashment on retirement under Section 10(10AA).
What you lose
The entire ecosystem of deductions that many taxpayers depend on: - Section 80C: PPF, ELSS, EPF, NSC, life insurance, tuition fees. - Section 80D: health insurance premiums. - HRA exemption. - LTA exemption. - Home loan interest on self-occupied property (Section 24). - Professional tax deduction. - Deductions under 80E (education loan interest), 80G (donations), 80TTA (savings interest).
When the new regime wins
If your total deductions under the old regime are modest, the new regime's lower slabs produce a lower tax. A rough rule of thumb: if your old-regime deductions are below Rs 3-4 lakh at a salary of Rs 15 lakh, the new regime is usually cheaper. As deductions climb above that, the old regime catches up or overtakes.
Run both scenarios in our Income Tax calculator to see which gives you a lower liability for your specific numbers.
How to choose
- Salaried employees must declare their choice to the employer at the start of the financial year for TDS purposes. You can switch between regimes each year.
- Business/professional income taxpayers who opt for the new regime can switch back to the old regime only once in a lifetime.
The new regime favours those who rent instead of own, do not have large 80C investments, and do not pay significant health insurance premiums. The old regime favours those with a combination of HRA, 80C, 80D, home loan interest and other deductions that together outweigh the slab difference.
Important: the new regime is the default
From FY 2023-24, if you do not explicitly opt for the old regime, you are automatically placed under the new regime. This is a reversal from earlier years when the old regime was the default. If you prefer the old regime, you must actively select it when filing your ITR or inform your employer.