Old Tax Regime vs New Tax Regime ā Which One to Choose and Save More Tax
Comprehensive comparison of old and new income tax regimes in India covering tax slabs, deductions, exemptions, and a decision framework to help you choose the regime that saves you more tax.
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Old Tax Regime vs New Tax Regime ā Complete Comparison
Every financial year, Indian taxpayers must choose between the old tax regime (with deductions and exemptions) and the new tax regime (with lower tax rates but fewer deductions). Making the right choice can save you thousands of rupees. This guide explains both regimes and helps you decide.
Tax Slab Comparison
New Tax Regime (Default from FY 2023-24)
| Income Slab | Tax Rate |
|---|---|
| Up to ā¹3,00,000 | Nil |
| ā¹3,00,001 ā ā¹7,00,000 | 5% |
| ā¹7,00,001 ā ā¹10,00,000 | 10% |
| ā¹10,00,001 ā ā¹12,00,000 | 15% |
| ā¹12,00,001 ā ā¹15,00,000 | 20% |
| Above ā¹15,00,000 | 30% |
Standard deduction of ā¹75,000 available. Rebate under 87A for income up to ā¹7 lakh (zero tax).
Old Tax Regime
| Income Slab | Tax Rate |
|---|---|
| Up to ā¹2,50,000 | Nil |
| ā¹2,50,001 ā ā¹5,00,000 | 5% |
| ā¹5,00,001 ā ā¹10,00,000 | 20% |
| Above ā¹10,00,000 | 30% |
All deductions and exemptions available (80C, 80D, HRA, LTA, etc.).
Key Differences
Deductions and Exemptions
| Deduction/Exemption | Old Regime | New Regime |
|---|---|---|
| Section 80C (PPF, ELSS, LIC, etc.) | ā¹1.5 lakh | ā Not available |
| Section 80D (Health insurance) | ā¹25,000āā¹1 lakh | ā Not available |
| HRA Exemption | Available | ā Not available |
| LTA (Leave Travel Allowance) | Available | ā Not available |
| Standard Deduction | ā¹50,000 | ā¹75,000 |
| Section 80CCD(1B) (NPS extra) | ā¹50,000 | ā Not available |
| Home Loan Interest (80EEA) | Available | ā Not available |
| Section 24(b) (Home loan interest) | ā¹2 lakh | ā Not available |
| Section 80TTA (Savings interest) | ā¹10,000 | ā Not available |
| Section 80E (Education loan) | Available | ā Not available |
| Professional Tax | Available | ā Not available |
| Employer NPS (80CCD(2)) | Available | ā Available |
| Agniveer Fund (80CCH) | Available | ā Available |
Quick Comparison Table
| Feature | Old Regime | New Regime |
|---|---|---|
| Tax Rates | Higher | Lower |
| Deductions | 70+ deductions available | Very few |
| Complexity | More paperwork and proof | Simple and straightforward |
| Default | Must opt-in | Default (auto-applied) |
| Switching | Can switch every year (salaried) | Can switch every year (salaried) |
| For Business Income | Can switch once to new | Once chosen, limited switching |
| Rebate u/s 87A | Up to ā¹5 lakh income | Up to ā¹7 lakh income |
| Surcharge (above ā¹5 cr) | 37% | 25% (capped) |
| Best For | Those with high deductions | Those with few deductions |
Which Regime Saves More Tax? (Examples)
Example 1: Salary ā¹10 lakh, moderate deductions
| Component | Old Regime | New Regime |
|---|---|---|
| Gross Salary | ā¹10,00,000 | ā¹10,00,000 |
| Standard Deduction | -ā¹50,000 | -ā¹75,000 |
| 80C (PPF, ELSS) | -ā¹1,50,000 | ā |
| 80D (Health Insurance) | -ā¹25,000 | ā |
| HRA Exemption | -ā¹1,20,000 | ā |
| Taxable Income | ā¹6,55,000 | ā¹9,25,000 |
| Tax Payable | ā¹45,500 | ā¹41,250 |
Winner: New Regime (saves ā¹4,250)
Example 2: Salary ā¹15 lakh, heavy deductions
| Component | Old Regime | New Regime |
|---|---|---|
| Gross Salary | ā¹15,00,000 | ā¹15,00,000 |
| Standard Deduction | -ā¹50,000 | -ā¹75,000 |
| 80C | -ā¹1,50,000 | ā |
| 80D | -ā¹50,000 | ā |
| 80CCD(1B) NPS | -ā¹50,000 | ā |
| HRA | -ā¹2,00,000 | ā |
| Home Loan Interest 24(b) | -ā¹2,00,000 | ā |
| Taxable Income | ā¹8,00,000 | ā¹14,25,000 |
| Tax Payable | ā¹85,800 | ā¹1,63,800 |
Winner: Old Regime (saves ā¹78,000)
Example 3: Salary ā¹7 lakh, minimal deductions
| Component | Old Regime | New Regime |
|---|---|---|
| Gross Salary | ā¹7,00,000 | ā¹7,00,000 |
| Standard Deduction | -ā¹50,000 | -ā¹75,000 |
| 80C (basic EPF only) | -ā¹50,000 | ā |
| Taxable Income | ā¹6,00,000 | ā¹6,25,000 |
| Tax Payable | ā¹45,500 (after rebate: ā¹23,400) | ā¹0 (rebate u/s 87A) |
Winner: New Regime (zero tax due to ā¹7 lakh rebate)
Decision Framework: Which Regime to Choose?
Choose Old Tax Regime if:
- Your total deductions and exemptions exceed ā¹3.75 lakh
- You claim HRA exemption (rent paying employees in metros)
- You have a home loan with interest payment up to ā¹2 lakh
- You invest heavily in 80C instruments (PPF, ELSS, LIC)
- You have health insurance for self + parents (80D up to ā¹1 lakh)
- You invest in NPS for the extra ā¹50,000 deduction
- Your salary is above ā¹10ā12 lakh with all deductions utilized
Choose New Tax Regime if:
- Your total deductions are less than ā¹3.75 lakh
- You do not claim HRA (living in own house or with parents)
- You have no home loan
- You do not make significant 80C investments
- Your income is up to ā¹7 lakh (zero tax with rebate)
- You prefer simplicity and minimal paperwork
- You are a fresher or young professional with few investments
Quick Rule of Thumb:
If total deductions + exemptions > ā¹3.75 lakh ā Old Regime is likely better If total deductions + exemptions < ā¹3.75 lakh ā New Regime is likely better
Use the Income Tax Calculator to compare exact numbers for your situation.
How to Switch Between Regimes
For Salaried Employees:
- You can choose the regime every financial year
- Inform your employer at the start of the year for correct TDS deduction
- Final choice is made when filing ITR (you can change at filing time)
For Business/Professional Income:
- Switching is restricted ā once you choose new regime, you can switch back only once
- After switching back to old, you cannot choose new regime again (for business income)
Frequently Asked Questions
Is the new tax regime the default?
Yes. From FY 2023-24, the new tax regime is the default. If you want the old regime, you must explicitly opt for it in your ITR.
Can I switch between old and new regime every year?
Yes, salaried individuals can switch every year at the time of filing ITR. Those with business income have limited switching options.
Is Section 80C available in the new regime?
No. Section 80C deductions (PPF, ELSS, LIC, FD, etc.) are not available in the new tax regime.
What about EPF contribution in the new regime?
Employer's EPF contribution and employer's NPS contribution under 80CCD(2) are available in both regimes. But your own 80C claim for EPF is not available in the new regime.
At what salary does old regime become better?
Generally, if your salary is above ā¹10ā12 lakh AND you have deductions exceeding ā¹3.75 lakh (HRA + 80C + 80D + home loan), the old regime saves more. Below ā¹7 lakh, new regime often wins due to the rebate.
Can I claim HRA in the new regime?
No. HRA exemption is not available in the new tax regime.
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