Old vs new tax regime: how to compare them for yourself

Every March, the same question

If you are salaried, you have two ways to be taxed in India: the old regime and the new regime. Since 2023, the new regime is the default – your employer deducts tax assuming it unless you say otherwise. But “default” does not mean “best for you”. The two regimes work quite differently, and which one costs you less depends on your own salary and deductions, not on anyone else’s.

The good news: comparing them is a thirty-minute exercise you can do yourself, once a year. This article shows you how.

The two regimes in plain words

The old regime has higher tax rates, but lets you reduce your taxable income with a long list of deductions and exemptions – the familiar ones like section 80C investments, HRA, home loan interest and medical insurance premiums.

The new regime has lower tax rates and simpler slabs, but gives up almost all of those deductions. You keep only a few, like the standard deduction that salaried people get.

So the comparison always comes down to one question: are your deductions big enough that the old regime’s higher rates still cost less overall?

What the numbers look like now (FY 2026-27)

Under the new regime, the slabs are: nothing up to Rs 4 lakh, then 5% up to Rs 8 lakh, 10% up to Rs 12 lakh, 15% up to Rs 16 lakh, 20% up to Rs 20 lakh, 25% up to Rs 24 lakh, and 30% above that. Salaried taxpayers also get a standard deduction of Rs 75,000. On top of the slabs, a rebate under section 87A wipes out the tax – up to Rs 60,000 – when your total taxable income is Rs 12 lakh or less. That is why a salary up to about Rs 12.75 lakh can end up with zero tax under the new regime.

Two things people often miss. First, the rebate applies to ordinary income like salary – income taxed at special rates, such as capital gains, does not get the rebate even within the Rs 12 lakh limit. Second, “Rs 12.75 lakh tax-free” is not a universal rule: it describes a salaried person with no other taxable income, and it shifts if your situation differs.

Under the old regime, the slabs for most people are: nothing up to Rs 2.5 lakh, 5% up to Rs 5 lakh, 20% up to Rs 10 lakh, and 30% above. The standard deduction here is Rs 50,000. A rebate of up to Rs 12,500 applies when taxable income is Rs 5 lakh or less.

Whichever regime you pick, a 4% health and education cess is added to the final tax.

The deductions the old regime hangs on

The big ones, in plain terms:

• Section 80C – up to Rs 1.5 lakh a year across EPF, PPF, ELSS mutual funds, life insurance premiums, tax-saving fixed deposits and home loan principal.
• HRA – if you rent and get house rent allowance, part of it can be exempt, depending on your rent, salary and city.
• Home loan interest – up to Rs 2 lakh a year on a self-occupied home.
• Section 80D – medical insurance premiums, Rs 25,000 for your family and more for senior-citizen parents.
• NPS – an extra Rs 50,000 under section 80CCD(1B) beyond the 80C limit.

None of these exist under the new regime. If your salary structure includes HRA and you invest for 80C anyway, the old regime has something real to work with. If you claim almost nothing, the new regime’s lower rates usually win by default.

A worked example

Illustration, not advice – the numbers are invented, and your own will differ.

Say your gross salary is Rs 15 lakh, you rent, and you invest Rs 1.5 lakh under 80C and pay Rs 25,000 of medical insurance premium.

New regime: taxable income is Rs 15,00,000 minus Rs 75,000 standard deduction, so Rs 14,25,000. The slabs give a tax of Rs 93,750; with the 4% cess, Rs 97,500.

Old regime: start with Rs 15,00,000 minus Rs 50,000 standard deduction, then subtract your deductions – 80C Rs 1,50,000, an HRA exemption of say Rs 1,50,000, and 80D Rs 25,000. Taxable income: Rs 11,25,000. Tax: Rs 1,50,000; with cess, Rs 1,56,000.

Here the new regime wins by about Rs 58,500. But change the picture and the answer changes: add a home loan interest deduction of Rs 2 lakh and the NPS Rs 50,000, and the old regime’s tax falls to about Rs 91,000 – now the old regime wins. Same salary, different life, different answer. That is the whole point of running your own numbers.

Compare it yourself, step by step

1. Take your gross salary from your payslip or Form 16.
2. List what you can genuinely claim this year: rent for HRA, 80C investments, insurance premiums, home loan interest, NPS.
3. Work out taxable income under both regimes – the new one skips almost all of that list.
4. Apply the slab rates to each, add the 4% cess, and check the rebate if your taxable income is near the limit.
5. Compare the two final numbers. The smaller one is your regime for the year.

You can double-check your arithmetic with the tax calculator on the Income Tax Department’s website. And if you are salaried, you can make this choice fresh every year when you file – it is worth re-running after a salary jump, a new home loan, or a move into your own house, because the winning side can flip.

One honest caveat: tax rules change with budgets. These figures are for FY 2026-27 as of November 2026 – re-check the current numbers when you actually sit down to compare.