From FY 2024-25 onwards, the new tax regime became the default for salaried employees. If you do nothing, your employer deducts TDS under the new regime. But "default" does not mean "better." Depending on your salary, investments, and deductions, the old regime could still save you significantly more tax.
This guide does the math for you at common salary levels so you can make an informed choice before the financial year ends.
The Core Difference: What You Lose and Gain in Each Regime
New Tax Regime (default from FY 2024-25): Lower slab rates, but you give up most deductions. No HRA exemption, no 80C, no 80D, no home loan interest deduction under Section 24(b), no LTA. You get only a standard deduction of ₹75,000 and employer NPS contribution is exempt.
Old Tax Regime: Higher slab rates but you can claim HRA, 80C (up to ₹1.5L), 80D health insurance (up to ₹25,000), home loan interest (up to ₹2L), NPS under 80CCD(1B) (₹50,000 extra), and LTA.
New Tax Regime Slabs for FY 2025-26
| Income Slab | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Note: Under the new regime, income up to ₹12 lakh is effectively tax-free due to the Section 87A rebate (for incomes not exceeding ₹12 lakh). Income above ₹12 lakh is taxed at slab rates; the rebate does not apply.
Side-by-Side Calculations at Common Salary Levels
Case 1: Gross Salary ₹10 Lakh (no home loan, basic deductions)
Assumptions: HRA exemption ₹1.2L, 80C ₹1.5L, 80D ₹25,000, standard deduction ₹75,000 (old) / ₹75,000 (new).
Old regime taxable income: ₹10L – ₹75,000 (std) – ₹1.2L (HRA) – ₹1.5L (80C) – ₹25,000 (80D) = ₹6.3L → Tax: ₹33,800 (incl. cess)
New regime taxable income: ₹10L – ₹75,000 (std) = ₹9.25L → Tax: ₹42,500 (incl. cess)
Old regime saves: ₹8,700
Case 2: Gross Salary ₹15 Lakh (with home loan interest ₹2L, full 80C, HRA ₹1.5L)
Old regime taxable income: ₹15L – ₹75,000 – ₹1.5L – ₹1.5L – ₹2L – ₹25,000 = ₹9L → Tax: ₹80,600 (incl. cess)
New regime taxable income: ₹15L – ₹75,000 = ₹14.25L → Tax: ₹1,51,125 (incl. cess)
Old regime saves: ₹70,525
Case 3: Gross Salary ₹20 Lakh (with home loan, NPS, full deductions)
Additional: NPS 80CCD(1B) ₹50,000, total deductions ~₹6.5L
Old regime taxable income: ₹13.5L → Tax: ₹2,19,400 (incl. cess)
New regime taxable income: ₹19.25L → Tax: ₹3,16,875 (incl. cess)
Old regime saves: ₹97,475
The Break-Even Point: When New Regime Wins
The new regime makes sense when your total eligible deductions (HRA + 80C + 80D + home loan interest + NPS) are below approximately ₹3.75 lakh for a ₹15L salary. This typically happens for:
- Young salaried employees living in their own home (no HRA, no home loan EMI yet)
- Employees not investing in 80C instruments like PPF, ELSS, or LIC
- Those with income between ₹7L–₹10L who have limited deductions but benefit fully from the 87A rebate
Use our old vs new tax regime calculator to enter your exact figures and see which regime saves more for your specific situation in under 60 seconds.
Can You Switch Regime Every Year?
Yes, but only if you are a salaried employee with no business income. You can switch between regimes every financial year by informing your employer at the start of the year. If you have business income, you can switch only once from the old to the new regime and not switch back.
What to Tell Your Employer
At the start of each financial year (April), submit a declaration to your HR or payroll department specifying which tax regime you want for TDS deduction. If you do not submit this declaration, your employer will default to the new regime. If you later realise you should have chosen the old regime, you can still file your ITR under the old regime when you file your return. Managing TDS correctly during the year still matters, since a wrong deduction means waiting months for a refund.
Frequently Asked Questions
Is the new tax regime better for everyone in 2026?
No. The new regime is better only if you have total deductions below roughly ₹3–4 lakh. For salaried employees with a home loan, HRA, and regular 80C investments, the old regime almost always saves more tax at income levels above ₹12 lakh.
What happens if I miss telling my employer about my regime choice?
Your employer will deduct TDS under the new regime by default. You can still switch to the old regime when filing your ITR before July 31. You will get a refund of excess TDS, but it takes 2–4 months to process.
Does the new regime allow HRA exemption?
No. HRA exemption is not available under the new tax regime. If you pay significant rent, this is often the single biggest reason the old regime saves more for you.
Can I claim home loan interest under the new regime?
The deduction under Section 24(b) for self-occupied property (up to ₹2 lakh) is not available under the new regime. However, if the property is let out, the actual interest paid can still be deducted from rental income even in the new regime.
