TAX
Old vs New Tax Regime: A Worked Walkthrough
The new regime has lower rates and almost no deductions. The old regime has higher rates and lets you subtract a long list of investments and expenses. Which costs you less comes down to how much you can deduct.
The two structures
For FY 2026-27 the new regime charges nothing on the first ₹4 lakh of taxable income, then rises in ₹4 lakh steps from 5% to 25%, with 30% above ₹24 lakh. A rebate removes the tax entirely when taxable income is ₹12 lakh or less. Salaried people and pensioners get a standard deduction of ₹75,000.
The old regime starts charging above ₹2.5 lakh for people under 60, moves to 20% above ₹5 lakh and 30% above ₹10 lakh. Its rebate only covers taxable income up to ₹5 lakh, and its standard deduction is ₹50,000. In return it allows deductions: section 80C investments, health insurance premiums under 80D, home loan interest, the HRA exemption and several more.
Both regimes add a 4% health and education cess. The examples below are for a salaried person under 60 and leave out surcharge, which only applies above ₹50 lakh.
Example 1: ₹12 lakh salary, ₹1.5 lakh of deductions
Under the new regime, taxable income is ₹12 lakh minus the ₹75,000 standard deduction, or ₹11,25,000. That is inside the rebate limit, so the tax is nothing.
Under the old regime, taxable income is ₹12 lakh minus ₹50,000 and minus ₹1.5 lakh of 80C investments, which leaves ₹10 lakh. The tax on that is ₹1,17,000 including cess.
The new regime saves ₹1,17,000. For the old regime to win at this salary, deductions would have to reach ₹6.5 lakh, enough to bring taxable income down to the old regime's own ₹5 lakh rebate limit.
Example 2: ₹18 lakh salary, ₹3.5 lakh of deductions
This person uses the full 80C allowance and pays ₹2 lakh of interest on a loan for the home they live in. Under the old regime their taxable income falls to ₹14 lakh and the tax is ₹2,41,800.
Under the new regime they deduct only the ₹75,000 standard deduction, so taxable income is ₹17,25,000 and the tax is ₹1,50,800. The new regime still saves ₹91,000, home loan and all. The old regime would need about ₹6.42 lakh of deductions to draw level.
Example 3: ₹25 lakh salary, ₹5 lakh of deductions
Reaching ₹5 lakh of deductions takes a combination of 80C, home loan interest, health insurance and HRA. Old-regime taxable income is then ₹19.5 lakh and the tax is ₹4,13,400. New-regime taxable income is ₹24,25,000 and the tax is ₹3,19,800, so the new regime saves ₹93,600. The breakeven at this salary is ₹8 lakh of deductions.
Why the breakeven stops rising
Work out the breakeven at different salaries and a pattern appears. At ₹10 lakh it is ₹4.5 lakh of deductions. At ₹15 lakh it is about ₹5.44 lakh, and at ₹20 lakh about ₹7.08 lakh. At ₹30 lakh it is ₹8 lakh, and at ₹50 lakh it is still ₹8 lakh.
Above ₹24 lakh of taxable income, both regimes charge 30% on each extra rupee. From there, more salary adds the same tax under either regime, so the gap between them stays fixed, and so does the amount of deductions needed to close it. For most salaried people at that level, the whole question becomes whether they can claim more than ₹8 lakh.
Counting your deductions honestly
Most people overestimate what they can deduct. Count only what you will claim and can prove:
- Section 80C items such as EPF contributions, PPF deposits, ELSS funds, life insurance premiums, children's tuition fees and home loan principal, up to the section's yearly limit.
- Health insurance premiums under 80D, for yourself, your family and your parents.
- Interest on a loan for a home you live in, up to its yearly limit.
- The HRA exemption, if you receive HRA and pay rent. It is often the largest single item, and it comes from three tests rather than the allowance itself. The HRA guide walks through them.
- Your own additional NPS contributions under 80CCD(1B).
Your EPF contribution already counts towards 80C, so it often fills most of that section without any extra saving.
When to decide, and how often
The new regime is the default. Salaried people can choose either one each year when they file their return, whatever they told their employer for TDS during the year. People with business or professional income have far less freedom to switch back and forth, so the choice needs more care.
Tell your employer early in the year which regime you expect to use, so the monthly TDS roughly matches what you will owe, and check the comparison again before filing. The old vs new tax regime calculator runs both regimes on your own income and shows your breakeven, and the income tax calculator breaks either one down slab by slab.
These figures follow the rules for FY 2026-27. Budgets change slabs and rebates, so rerun the comparison each year instead of assuming last year's answer still holds.