Budget 2025 made the new tax regime the default. You have to actively choose the old regime if you want it. Most people picked the default without calculating whether it actually saves them money.

Here is the comparison done properly.

Tax Slabs for AY 2026-27

Old Tax Regime

Income Range Tax Rate
Up to Rs. 2.5 lakh Nil
Rs. 2.5 lakh - Rs. 5 lakh 5%
Rs. 5 lakh - Rs. 10 lakh 20%
Above Rs. 10 lakh 30%

Plus: 4% Health and Education Cess on total tax. Surcharge for income above Rs. 50 lakh.

Standard Deduction: Rs. 50,000 (from FY 2023-24 onward).

Rebate under Section 87A: Tax fully waived if income (after deductions) is Rs. 5 lakh or below.

New Tax Regime

Income Range Tax Rate
Up to Rs. 4 lakh Nil
Rs. 4 lakh - Rs. 8 lakh 5%
Rs. 8 lakh - Rs. 12 lakh 10%
Rs. 12 lakh - Rs. 16 lakh 15%
Rs. 16 lakh - Rs. 20 lakh 20%
Rs. 20 lakh - Rs. 24 lakh 25%
Above Rs. 24 lakh 30%

Standard Deduction: Rs. 75,000 (increased in Budget 2024).

Rebate under Section 87A (New Regime): Full tax rebate if income is up to Rs. 12 lakh. No tax payable up to Rs. 12 lakh.

Most deductions (80C, 80D, HRA, home loan interest 24b) are NOT available under the new regime.

The Rs. 12 Lakh Threshold: New Regime Wins Clearly

For a salaried employee with income up to Rs. 12 lakh (after Rs. 75,000 standard deduction, taxable income is Rs. 11.25 lakh), the new regime rebate makes tax zero. Under the old regime, you would pay tax on Rs. 11.25 lakh minus your deductions.

Even with full 80C (Rs. 1.5 lakh), 80D (Rs. 25,000), and NPS 80CCD(1B) (Rs. 50,000) deductions under old regime, your taxable income would be Rs. 11.25L - Rs. 2.25L = Rs. 9 lakh. Tax at that level under old regime: approximately Rs. 1.07 lakh.

New regime: Zero tax. Clear winner for income below Rs. 12 lakh.

The Breakeven Point: Where Regimes Cross

For higher incomes, old regime can win if your deductions are substantial.

Let us calculate for Rs. 15 lakh gross income, Rs. 14.25 lakh after standard deduction:

Old Regime (maximum deductions):

Deduction Amount
Standard deduction Rs. 50,000
80C Rs. 1,50,000
80D Rs. 50,000
80CCD(1B) NPS Rs. 50,000
HRA (assuming metro) Rs. 1,20,000
Total deductions Rs. 4,20,000

Taxable income: Rs. 15L - Rs. 4.2L = Rs. 10.8 lakh Tax (old regime): Rs. 1,00,000 (20% on Rs. 5.8L) + Rs. 10,000 (5% on Rs. 2.5L) = Rs. 1,10,000 + 4% cess = Rs. 1,14,400

New Regime:

Taxable income: Rs. 15L - Rs. 75,000 = Rs. 14.25 lakh Tax: 5% on Rs. 4L + 10% on Rs. 4L + 15% on Rs. 2.25L = Rs. 20,000 + Rs. 40,000 + Rs. 33,750 = Rs. 93,750 + 4% cess = Rs. 97,500

New regime saves Rs. 16,900 even at Rs. 15 lakh income in this scenario.

When Old Regime Wins

For old regime to win over new regime, your total deductions and exemptions must be substantial enough to reduce your taxable income below the point where the new regime’s lower slabs stop helping.

Old regime consistently wins when:

  • You have a large home loan (interest > Rs. 2 lakh per year)
  • You claim full HRA exemption in a high-rent city
  • You invest Rs. 1.5 lakh in 80C + Rs. 50,000 in NPS
  • You have health insurance for parents (80D)
  • You are in the 30% slab (income above Rs. 10 lakh)

At Rs. 20 lakh income with maximum deductions (HRA Rs. 2L, 80C Rs. 1.5L, 80D Rs. 75K, home loan interest Rs. 2L, NPS Rs. 50K = Rs. 6.75L deductions):

Old regime: Taxable Rs. 13.25L, Tax ~Rs. 2.29L New regime: Taxable Rs. 19.25L, Tax ~Rs. 2.24L

At this level, new regime still slightly wins. For Rs. 30 lakh+ with identical maximum deductions, old regime typically starts to win.

Practical Decision Table

Gross Income Typical Deductions Available Better Regime
Up to Rs. 12 lakh Any New (zero tax rebate)
Rs. 12L - Rs. 15L < Rs. 2.5 lakh New
Rs. 12L - Rs. 15L > Rs. 3.5 lakh (HRA + home loan) Old (possibly)
Rs. 15L - Rs. 25L < Rs. 3 lakh New
Rs. 15L - Rs. 25L > Rs. 5 lakh Old
Above Rs. 25L > Rs. 6 lakh Old likely wins

Use the income tax portal’s built-in comparison tool when filing. It shows your exact liability under both regimes and lets you choose.

One-Time Choices vs. Year-to-Year

Salaried employees choose regime for the financial year at the start (when declaring to employer for TDS). You can switch regimes every year when filing ITR if you are salaried. However, once you have business income, you can only switch back from new to old regime once.

Bottom Line

For income below Rs. 12 lakh, the new tax regime is clearly better due to the full rebate. For Rs. 12-20 lakh, the comparison is nuanced - run the actual numbers using the IT portal’s comparison tool. For Rs. 25 lakh and above with a home loan and maximum deductions, old regime often wins. The government made the new regime the default because it is genuinely better for most salaried Indians in the sub-Rs. 15 lakh income range, but the best choice depends on your specific deduction profile.