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From FY 2020–21, India has two income tax regimes — the old regime with deductions and the new regime with lower rates and almost no deductions. Choosing between them is one of the most financially significant decisions a salaried taxpayer makes each year. Here’s a clear, honest comparison to help you decide which saves you more tax.
The core difference
Old regime: Higher tax rates, but you can claim deductions and exemptions — 80C, 80D, HRA, LTA, home loan interest, standard deduction (₹50,000), NPS deduction, and more. If you use these, your taxable income reduces significantly.
New regime: Lower tax rates, but most deductions are removed. Standard deduction of ₹75,000 (enhanced from FY 2024–25) and NPS employer contribution are the main allowances retained. What you see is what you pay.
Tax slabs comparison (FY 2025–26)
| Income range | Old regime rate | New regime rate |
|---|---|---|
| Up to ₹3 lakh | Nil | Nil |
| ₹3–7 lakh | 5% | 5% |
| ₹7–10 lakh | 20% | 10% |
| ₹10–12 lakh | 20% | 15% |
| ₹12–15 lakh | 30% | 20% |
| Above ₹15 lakh | 30% | 30% |
Note: The old regime basic exemption limit is ₹2.5 lakh; the new regime is ₹3 lakh. Both regimes have rebate under Section 87A (up to ₹7 lakh taxable income under new regime, up to ₹5 lakh under old regime — making tax zero in these ranges with rebate).
Deductions available in the old regime (not available in new)
- Section 80C — up to ₹1.5 lakh (EPF, PPF, ELSS, life insurance, home loan principal, NSC, SSY, etc.)
- Section 80D — medical insurance premiums (up to ₹25,000 for self/family; ₹50,000 for senior citizen parents)
- HRA (House Rent Allowance) — if you live in rented accommodation
- LTA (Leave Travel Allowance) — actual travel expenses twice in a 4-year block
- Home loan interest — up to ₹2 lakh under Section 24(b) for self-occupied property
- NPS additional deduction — ₹50,000 under Section 80CCD(1B)
Which regime is better for you?
The answer depends on the total value of deductions you can legitimately claim:
- Old regime is better if your total deductions (80C + 80D + HRA + home loan interest + NPS + other) exceed the “break-even” threshold — typically ₹3–4.5 lakh of deductions for those in the ₹10–15 lakh income bracket.
- New regime is better if you have few deductions — you’re a renter with no home loan, don’t use 80C fully, and don’t have medical insurance. The lower slab rates compensate for the missing deductions.
Quick worked comparison at ₹12 lakh gross salary
| Old regime | New regime | |
|---|---|---|
| Gross salary | ₹12,00,000 | ₹12,00,000 |
| Standard deduction | ₹50,000 | ₹75,000 |
| 80C deductions | ₹1,50,000 | Not available |
| 80D + other | ₹50,000 | Not available |
| Taxable income | ₹9,50,000 | ₹11,25,000 |
| Approx. tax payable | ~₹1,17,000 | ~₹1,10,625 |
Illustration only — actual tax depends on exact HRA, home loan details and other allowances. Use an income tax calculator or consult a CA for precise figures.
Important: new regime is now the default
From FY 2023–24, the new tax regime is the default. If you want to opt for the old regime, you must explicitly do so when filing your ITR (or by submitting Form 10-IEA before the ITR filing deadline). Salaried employees can switch between regimes each year; business owners have more restricted switching.
Learn tax planning in depth
Browse personal finance and tax planning books on Amazon India — old vs new regime comparison, 80C planning, HRA optimisation and more. Also see global personal finance resources.
Frequently Asked Questions
Which tax regime is better in 2025 — old or new?
It depends on your deductions. If your total deductions (80C + 80D + HRA + home loan interest + NPS) exceed roughly ₹3–4.5 lakh, the old regime saves more. For those with fewer deductions, the new regime’s lower slabs typically work out better. Calculate both and compare.
Can I switch between old and new tax regime every year?
Yes — salaried individuals can switch between the old and new regime every financial year. Business owners can only switch back once from old to new regime.
The bottom line
The new regime wins if you have few deductions; the old regime wins if you maximise 80C, have HRA, a home loan, and medical insurance. Calculate the tax liability under both regimes for your exact numbers each year — the difference can be ₹20,000–₹80,000 depending on income and deduction profile. The new regime is the default from FY 2023–24; opt for the old regime explicitly if it saves you more.