Old vs New Tax Regime

From FY2026-27, the new tax regime is the default for all salaried employees. You can still opt for the old regime by informing your employer at the start of the financial year. The key difference is this: the new regime offers lower tax rates but allows very few deductions, while the old regime has higher base rates but allows substantial deductions that can bring your taxable income down significantly.

Under the new regime, you get a ₹75,000 standard deduction and no other salary-related deductions. The 87A rebate makes income up to ₹12 lakh effectively tax-free (₹60,000 rebate, Budget 2025). Tax rates are 5% (₹4L–8L), 10% (₹8L–12L), 15% (₹12L–16L), 20% (₹16L–20L), 25% (₹20L–24L), and 30% above ₹24L.

Under the old regime, you get ₹50,000 standard deduction plus 80C investments up to ₹1.5L, HRA exemption (if you pay rent), 80D health insurance premium up to ₹25,000 (₹50,000 if you or your insured family member is a senior citizen aged 60+, with a separate ₹25,000–50,000 limit for parents' premiums), 80CCD(1B) NPS contribution of ₹50,000, and home loan interest under Section 24. For someone paying ₹20,000/month rent in Mumbai and investing ₹1.5L in ELSS, the old regime can save ₹30,000–50,000 in annual tax compared to the new regime.

One deduction available under both regimes is often missed: employer contribution to NPS under Section 80CCD(2) — up to 10% of basic salary for private-sector employees (14% for government employees) — reduces your taxable income regardless of which regime you pick. Ask your employer if this is set up as part of your salary structure.

The crossover point where old regime becomes better is approximately ₹3.75 lakh in total deductions annually for salaries around ₹15 LPA — but this threshold rises at higher incomes since the new regime's lower rates compound the benefit; someone at ₹30 LPA may need ₹6L+ in deductions before the old regime wins. This calculator computes the exact rupee difference for your specific situation.