Old vs new tax regime: the actual difference
Two systems, one choice, made fresh each year by most salaried taxpayers.
The new regime has lower rates across wider bands and a ₹75,000 standard deduction, but almost nothing else. The old regime has higher rates and narrower bands, but lets you subtract 80C, 80D, HRA and home-loan interest before the rates apply.
So the question is never "which regime is better". It is: are your deductions large enough to outweigh the rate difference? For most people they are not, which is why the new regime is now the default.
Which regime is the default?
The new regime. You are in it unless you actively opt out.
- Salaried employees can switch each year, by telling the employer and filing the ITR on that basis. Choose wrong in April and you can still correct it when you file.
- Business and professional taxpayers cannot. Opting out to the old regime uses Form 10-IEA and is a once-in-a-lifetime move, with one chance to come back. After that you are locked in.
That asymmetry matters far more than the arithmetic if you have business income.
When does the old regime save more tax?
When your total deductions clear roughly ₹4.25 lakh to ₹4.75 lakh. Below that, the new regime's lower rates usually win.
That is a large number to reach, and in practice it needs several of these at once:
- A full ₹1.5 lakh of 80C — EPF, PPF, ELSS, home-loan principal, life premium, children's tuition.
- Home-loan interest under Section 24(b), up to ₹2 lakh.
- A substantial HRA exemption, which realistically means renting in Mumbai, Delhi, Kolkata or Chennai on a high basic salary.
- 80D health insurance premiums, ₹25,000 or ₹50,000 for senior citizens.
Someone renting in a metro while repaying a home loan on a property elsewhere can clear it comfortably. Someone living in their own home with only EPF and a health policy will not come close.
The threshold is a guide, not a rule — it shifts with income level, because the rate gap between the regimes is not constant across bands. The calculator above runs both on your actual figures, which is the only answer that applies to you.
Is income up to ₹12 lakh really tax-free in the new regime?
Yes, for taxable income up to ₹12 lakh. The Section 87A rebate cancels the slab tax entirely, so the liability is zero.
Add the ₹75,000 standard deduction and a salary of about ₹12.75 lakh can carry no tax at all.
Above ₹12 lakh the rebate stops applying and slab tax returns from the first rupee — but marginal relief softens the edge, capping the tax at the amount by which income exceeds ₹12 lakh. Without it, one rupee over the line would trigger roughly ₹60,000 of tax. With it, one rupee over costs about one rupee.
The old regime has no equivalent relief at its ₹5 lakh rebate threshold, so the cliff there is real, if smaller.
What deductions survive in the new regime?
Very few:
- Standard deduction of ₹75,000 on salary.
- Employer's NPS contribution under Section 80CCD(2), up to 14% of basic.
- Employer contributions to EPF and superannuation, within limits.
Gone: 80C, 80D, HRA, LTA, Section 24(b) home-loan interest on a self-occupied property, 80E education-loan interest, 80G donations, and the ₹50,000 NPS deduction under 80CCD(1B).
Can I switch regimes every year?
Salaried: yes, freely, at the time of filing. The declaration you give your employer in April only sets your TDS — it does not bind your return. If TDS was deducted on the wrong assumption, filing under the other regime corrects it, as a refund or a balance due.
Business or professional income: no. One switch out via Form 10-IEA, one switch back, and that is the whole allowance.
Does the choice affect anything besides tax?
It changes what your saving is worth, not whether it was sensible.
A PPF account, an ELSS fund or a term insurance policy does the same job under either regime. What disappears in the new regime is the deduction, not the instrument — so anything you were holding only for its tax break is worth re-examining, while anything you would hold anyway is unaffected.
Ordering that comparison honestly means valuing each holding on what it does for you, then treating the deduction as a discount on the price rather than the reason for owning it.