Every salaried employee and taxpayer in India faces the same question at the start of each financial year: should I choose the Old Tax Regime or the New Tax Regime? The answer depends on your income, your investments, and your deductions — and getting it wrong means paying more tax than you need to.
This complete guide explains both regimes clearly, compares them with real salary examples, and tells you exactly which one is likely better for your income level.
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The New Tax Regime was made the default regime from FY 2023-24. For FY 2025-26 (AY 2026-27), the slabs under the New Regime are:
| Income Slab | New Regime Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Key benefit: Under the New Regime, income up to ₹12 lakh is effectively tax-free due to the ₹60,000 tax rebate under Section 87A (for incomes up to ₹12 lakh). The standard deduction of ₹75,000 is also available under the New Regime for salaried individuals.
| Income Slab | Old Regime Tax Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 to ₹5,00,000 | 5% |
| ₹5,00,001 to ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
The Old Regime has higher base tax rates, but allows you to reduce your taxable income significantly through deductions and exemptions — which is where it can save more tax for high investors.
| Annual Salary | Tax (Old Regime)* | Tax (New Regime) | Better Choice |
|---|---|---|---|
| ₹6 Lakh | ₹0 (with 80C) | ₹0 (87A rebate) | Either (same) |
| ₹8 Lakh | ~₹25,000 | ~₹20,000 | New Regime |
| ₹10 Lakh | ~₹40,000 (with 80C) | ~₹40,000 | Either |
| ₹12 Lakh | ~₹80,000 (with 80C+HRA) | ₹0 (rebate applies) | New Regime |
| ₹15 Lakh | ~₹1,30,000 (with deductions) | ~₹1,50,000 | Old Regime |
| ₹20 Lakh | ~₹2,50,000 (high deductions) | ~₹3,00,000 | Old Regime |
| ₹30 Lakh | ~₹5,50,000 (max deductions) | ~₹6,80,000 | Old Regime |
*Old regime calculations assume maximum utilization of 80C (₹1.5L), 80D (₹25K), and standard deduction. Actual tax depends on your specific deductions.
💡 Simple rule of thumb: If your total deductions (80C + 80D + HRA + home loan interest) exceed ₹3.75 lakh, the Old Regime is likely better. If your deductions are less than ₹3.75 lakh, the New Regime will save more tax.
Salaried employees can switch between the Old and New regime every year when filing their ITR. However, you must inform your employer about your choice at the start of the year so they deduct the correct TDS. Self-employed individuals and business owners have more restrictions on switching — consult a CA if you run a business.
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