Chapter 2 of 8
Old Tax Regime vs New Tax Regime
Which regime saves more? Side-by-side comparison.
It was February. Suvash's HR sent a message: "Please confirm your tax regime for FY 2025-26 by Friday."
He read it three times. He didn't know what a "tax regime" was. He Googled it and got 14 articles that all disagreed with each other. He messaged his senior: "Which one do I pick?"
Senior: "Depends on your situation."
Suvash: "What situation??"
Senior: "Deductions, bhai."
Suvash closed the phone and stared at the ceiling.
This article will give Suvash, and you, a clear, concrete answer. Not a vague "it depends." An actual number.
Two Regimes, One Choice
The set of tax slab rates and rules under which your income tax is calculated. India currently has two regimes: the Old Regime (with deductions) and the New Regime (lower rates, fewer deductions). You choose one each financial year.
The government introduced the New Regime in FY 2020-21 to simplify taxes. The idea: lower rates, but you give up most deductions. The Old Regime stays available for people who have lots of deductions that make it worth the higher rates.
As of FY 2023-24, the New Regime is the default. If you don't tell your employer anything, you're in the New Regime automatically.
The Slab Rates Side by Side
| Income Slab | Old Regime Rate | New Regime Rate (FY 2025-26) |
|---|---|---|
| Up to ₹2.5L | Nil | Nil |
| ₹2.5L – ₹3L | 5% | Nil |
| ₹3L – ₹7L | 5% | 5% |
| ₹7L – ₹10L | 20% | 10% |
| ₹10L – ₹12L | 30% | 15% |
| ₹12L – ₹15L | 30% | 20% |
| Above ₹15L | 30% | 30% |
The new regime wins on slab rates, clearly. But the old regime fights back with deductions.
What You Can and Cannot Claim
| Deduction / Exemption | Old Regime | New Regime |
|---|---|---|
| Standard Deduction | ₹50,000 | ₹75,000 |
| Section 80C (EPF, ELSS, PPF, etc.) | Up to ₹1.5L | Not available |
| Section 80D (Health insurance) | Up to ₹25,000–₹1L | Not available |
| HRA Exemption | Available | Not available |
| Home Loan Interest (Sec 24b) | Up to ₹2L | Not available |
| NPS 80CCD(1B) extra deduction | ₹50,000 | ₹50,000 (allowed!) |
| LTA, food coupons, etc. | Available | Not available |
The extra ₹50,000 NPS deduction under Section 80CCD(1B) is available in BOTH regimes. If you want to invest in NPS, you get this benefit regardless of which regime you choose.
The Real Calculation: Suvash's Numbers
Suvash earns ₹9L/year. He lives in rented accommodation (₹15,000/month = ₹1.8L/year). His EPF contribution is ₹21,600/year (12% of ₹15,000 basic). He has a term life insurance premium of ₹12,000/year.
Let's calculate his tax under both regimes:
Gross salary: ₹9,00,000
Deductions under old regime:
- Standard deduction: ₹50,000
- HRA exemption (Bengaluru): The exempt HRA is the lowest of three: (a) Actual HRA received: assume ₹18,000/month = ₹2,16,000/year (b) 50% of basic (metro city): assume basic ₹45,000/month → 50% = ₹2,70,000/year (c) Rent paid minus 10% of basic: ₹1,80,000 − ₹54,000 = ₹1,26,000/year → HRA exempt = ₹1,26,000 (lowest of the three)
- Section 80C: EPF ₹21,600 + insurance ₹12,000 = ₹33,600 (he can add ELSS/PPF to top up to ₹1.5L limit) → Let's say he maxes it: ₹1,50,000
- Total deductions: ₹50,000 + ₹1,26,000 + ₹1,50,000 = ₹3,26,000
Taxable income: ₹9,00,000 − ₹3,26,000 = ₹5,74,000
Tax:
- ₹0–₹2.5L: Nil
- ₹2.5L–₹5L: 5% = ₹12,500
- ₹5L–₹5.74L: 20% = ₹14,800
- Total: ₹27,300 + 4% cess = ₹28,392
Gross salary: ₹9,00,000
Deductions under new regime:
- Standard deduction: ₹75,000
- No HRA, no 80C
Taxable income: ₹9,00,000 − ₹75,000 = ₹8,25,000
Tax:
- ₹0–₹3L: Nil
- ₹3L–₹7L: 5% = ₹20,000
- ₹7L–₹8.25L: 10% = ₹12,500
- Total: ₹32,500 + 4% cess = ₹33,800
Old regime saves Suvash ₹5,408/year: but only because he fully utilises his HRA and maxes 80C. If he doesn't invest in 80C instruments or doesn't claim HRA, the new regime would win.
The Break-Even Point
The new regime wins if your total deductions (beyond the ₹75,000 standard deduction) are less than approximately ₹3.75L for a ₹9L salary. The old regime wins if your deductions are higher.
If your total deductions under old regime exceed ₹3.5L–₹4L, the old regime likely saves you more. Below that, go with the new regime. Always calculate with actual numbers, use the Income Tax Calculator to confirm.
When New Regime Is Better
- You're young, haven't started 80C investments
- Your HRA is low or you live with family (no rent)
- You don't want to lock money in tax-saving instruments
- Your income is below ₹12L (zero tax under new regime anyway)
- You want simplicity: no proofs, no declarations, no drama
When Old Regime Is Better
- You have home loan interest deduction (₹2L per year is huge)
- You receive significant HRA in a metro city
- You're already maxing 80C (EPF alone might not max it, but EPF + ELSS + insurance can)
- Your income is ₹15L+ (the old regime's 30% bracket kicks in at ₹10L vs new regime's ₹15L)
Once you tell your employer which regime you want, you're locked in for that financial year for TDS purposes. You can switch regimes when you file your ITR (for salaried people), but whatever you tell your employer sticks for TDS deduction throughout the year. Choose wisely in April.
What Suvash Should Actually Do
At ₹9L with HRA in Bengaluru and ability to max 80C, the old regime saves him about ₹5,000 more. But only if he actually invests the full ₹1.5L in 80C.
If Suvash is disciplined: old regime. If Suvash will spend the "savings" instead of investing: new regime (simpler, and the tax difference isn't dramatic at this income level).
Key Takeaways
- New Regime has lower slab rates; Old Regime lets you claim deductions like 80C, HRA, and home loan interest
- New Regime is the default from FY 2023-24: you must opt out if you want old regime
- Standard deduction is ₹75,000 under new regime vs ₹50,000 under old regime
- NPS 80CCD(1B) extra ₹50,000 deduction works in BOTH regimes
- Old regime wins when total deductions exceed ~₹3.5L–₹4L for a ₹9L salary
- Always calculate with actual numbers: your situation is unique
Try the Income Tax Calculator to run your own old vs new regime comparison in 30 seconds. Then read Section 80C Guide to understand how to max your deductions under the old regime.
Suvash earns ₹9L/year and claims ₹2L in total deductions beyond the standard deduction. Which regime is likely better?