Old vs new tax regime: which is cheaper for you?

Steps

1. Write down your yearly salary and any other income, such as interest or rent.
2. Add up the deductions you can really claim in the old regime, such as 80C investments, health insurance, HRA and home loan interest, and check the limit on each.
3. Enter the salary, other income and deductions in the income tax calculator.
4. Compare the two totals. The regime with the lower tax is the cheaper one for you this year.
5. Choose it when you file your return or tell your employer. The new regime applies unless you opt for the old one.

How the two regimes differ

In the new regime, which is the default, income up to ₹4 lakh is not taxed, and then the rate rises in bands of ₹4 lakh: 5%, 10%, 15%, 20%, 25% and 30% above ₹24 lakh. It allows a standard deduction of ₹75,000 and very few other deductions. A rebate of up to ₹60,000 makes the tax nil up to ₹12 lakh of taxable income.

In the old regime income up to ₹2.5 lakh is not taxed, then 5% up to ₹5 lakh, 20% up to ₹10 lakh and 30% above. The standard deduction is ₹50,000, the rebate is up to ₹12,500 for taxable income up to ₹5 lakh, and you can deduct the things you invest in or pay for.

Worked examples for tax year 2026-27

A salary of ₹15,00,000. In the new regime the taxable income is ₹14,25,000 after the ₹75,000 standard deduction, and the tax with 4% cess is ₹97,500. In the old regime with ₹1,50,000 of deductions the taxable income is ₹13,00,000 and the tax with cess is ₹2,10,600, so the new regime costs ₹1,13,100 less.

A salary of ₹10,00,000. In the new regime the tax on the slabs is ₹32,500, and the rebate cancels all of it, so you pay nothing. In the old regime with ₹1,50,000 of deductions you pay ₹75,400.

Just above the rebate limit the tax rises gently, not suddenly. A salary of ₹13,00,000 pays ₹26,000 in the new regime: the tax is capped at the ₹25,000 by which the taxable income exceeds ₹12 lakh, plus cess.

When the old regime wins

The old regime wins when your deductions are large. On a ₹15,00,000 salary, ₹7,00,000 of deductions brings the old-regime tax to ₹65,000, below the ₹97,500 of the new regime. The break-even is ₹5,43,750 of deductions: below that the new regime is cheaper, above it the old regime is. Because the new regime also has lower rates and a rebate up to ₹12 lakh, it suits most people with modest deductions.