Chapter 2 of 8
Old Tax Regime vs New Tax Regime
Which regime saves more? Side-by-side comparison.
Ramesh opened his salary slip in April and felt confused. His HR had automatically enrolled him in the New Tax
Regime. His colleague Priya, who had a home loan and pays rent, had switched to the Old Regime and saved
₹40,000 in tax last year. “Which one should I pick?” Ramesh asked. The answer depends entirely on
your deductions — and this chapter gives you the exact framework to decide.
The Core Difference
Both regimes ultimately calculate tax on your taxable income, but they differ in two ways: the
slab rates, and which deductions and exemptions you are allowed to claim. The Old Regime has higher slab rates
but allows dozens of deductions. The New Regime has lower rates but strips away most deductions.
What You Give Up in the New Regime
Under the New Regime you cannot claim the following (among others):
- Section 80C deductions (ELSS, PPF, LIC premium, home loan principal, tuition fees)
- HRA exemption under Section 10(13A)
- Home loan interest under Section 24(b)
- Section 80D health insurance premiums
- Section 80TTA/80TTB (savings/FD interest deduction)
- LTA (Leave Travel Allowance) exemption
- Professional tax deduction
You can still claim: Standard deduction (₹75,000), employer NPS contribution under 80CCD(2), and a few others.
Side-by-Side Comparison
| Factor | Old Regime | New Regime |
|---|---|---|
| Default since FY2024-25? | No — must opt in | Yes — automatic |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Section 80C (up to ₹1.5L) | ✅ Allowed | ❌ Not allowed |
| HRA Exemption | ✅ Allowed | ❌ Not allowed |
| Home Loan Interest (Sec 24b) | ✅ Up to ₹2L | ❌ Not allowed |
| Section 80D (Health Insurance) | ✅ Allowed | ❌ Not allowed |
| Employer NPS (80CCD(2)) | ✅ Allowed | ✅ Allowed |
| Tax on ₹10L income | ~₹1,17,000 | ~₹54,600 |
| Tax on ₹15L income (no deductions) | ~₹2,73,000 | ~₹1,45,600 |
| Tax on ₹15L income (₹5.9L deductions) | ~₹1,25,000 | ~₹1,65,600 |
| Best suits | High deduction earners | Limited deductions / high income |
When the Old Regime Wins
Annual Salary: ₹15,00,000 Deductions Ramesh can claim:
- Section 80C (PPF + ELSS): ₹1,50,000
- HRA Exemption: ₹2,40,000
- Home Loan Interest (Sec 24b): ₹2,00,000
- Standard Deduction: ₹50,000
Total Deductions: ₹6,40,000
Old Regime: Taxable Income = ₹15,00,000 − ₹6,40,000 = ₹8,60,000 Tax = Nil on ₹2.5L + ₹12,500 on ₹2.5L–5L (5%) + ₹72,000 on ₹5L–8.6L (20%) = ₹84,500 + 4% cess = ~₹87,880
New Regime: Taxable Income = ₹15,00,000 − ₹75,000 (std deduction) = ₹14,25,000 Tax = Nil on ₹3L + ₹20,000 (5% on ₹3L–7L) + ₹30,000 (10% on ₹7L–10L) + ₹30,000 (15% on ₹10L–12L) + ₹45,000 (20% on ₹12L–14.25L) = ₹1,25,000 + 4% cess = ~₹1,30,000
✅ Old Regime saves ≈ ₹42,000
When the New Regime Wins
Annual Salary: ₹12,00,000 Situation: Company provides accommodation (no HRA received), no home loan, minimal investments. Deductions available under Old Regime:
- Standard Deduction: ₹50,000
- Section 80C (only emergency EPF): ₹72,000
Total Deductions: ₹1,22,000
Old Regime: Taxable = ₹12,00,000 − ₹1,22,000 = ₹10,78,000 Tax = ₹1,12,500 base (up to ₹10L) + ₹23,400 (30% on ₹78K) + 4% cess ≈ ₹1,41,648
New Regime: Taxable = ₹12,00,000 − ₹75,000 = ₹11,25,000 Tax = ₹68,750 + 4% cess = ₹71,500
✅ New Regime saves ≈ ₹70,000
If your total eligible deductions (80C + HRA + home loan interest + 80D + others) exceed ₹3,75,000 , the Old Regime is generally better for incomes around ₹12L–₹15L. Below that threshold, the New Regime wins thanks to its lower slab rates. Always calculate both.
Salaried employees must inform their employer of the Old Regime choice at the start of the financial year (April). The final deadline to officially switch is your ITR filing date (July 31). After that, you are locked into the New Regime for that year.
Optimising Your Salary Structure
If you are in the Old Regime, ask your HR to restructure your Cost-to-Company (CTC) to maximise tax-free
components: higher HRA (if you rent), meal coupons (₹2,200/month tax-free), phone/internet reimbursement, and
Leave Travel Allowance. In the New Regime, these restructurings offer no benefit — keep your salary as a clean
package and invest the difference.
Which tax regime is the default for salaried individuals in FY 2025-26?
Key Takeaways
- The New Regime offers lower rates but eliminates most deductions; the Old Regime allows 80C, HRA, home loan interest, and 80D but has higher baseline rates.
- If your total deductions exceed approximately ₹3,75,000, the Old Regime typically wins for incomes in the ₹12L–₹15L range.
- Recalculate every April — life changes (new home loan, job change, rent move) can flip which regime benefits you.
- The New Regime is the default; you must proactively opt in to the Old Regime before the start of the financial year or before filing your ITR.