The Union Budget 2023 made the New Tax Regime the default for all salaried taxpayers in FY 2023-24, continuing into FY 2025-26. But "default" does not mean "better." Choosing the wrong regime can cost you thousands of rupees annually. Here is how to decide.
The two regimes at a glance
Old Tax Regime: Higher slab rates, but you can claim deductions (80C up to ₹1.5L, HRA, home loan interest under Section 24, 80D medical insurance, LTA, etc.). Works best for those with significant investments and deductions.
New Tax Regime (FY 2025-26 slabs):
Up to ₹3 lakh — Nil
₹3L–7L — 5%
₹7L–10L — 10%
₹10L–12L — 15%
₹12L–15L — 20%
Above ₹15L — 30%
Standard deduction of ₹75,000 is available under the New Regime. No other deductions.
The ₹7.75 lakh rule of thumb
If your total deductions (80C + HRA + home loan + 80D + others) exceed roughly ₹3.75 lakh above the ₹75,000 standard deduction, the Old Regime is likely better. Below that threshold, the New Regime usually wins.
Worked example — ₹12 lakh CTC
Old Regime assumptions: 80C = ₹1.5L, HRA exemption = ₹1L, 80D = ₹25,000, standard deduction = ₹50,000. Total deductions = ₹3.25L. Taxable income = ₹8.75L. Tax = approx ₹87,500.
New Regime: Standard deduction = ₹75,000. Taxable income = ₹11.25L. Tax = approx ₹1,12,500.
In this example, the Old Regime saves ₹25,000. Use our Income Tax Calculator to run the comparison with your exact figures.
When the New Regime wins
If you are a young earner with minimal investments, no HRA (WFH or own house), and no home loan — the New Regime's lower slab rates and simplicity make it better. Same for income above ₹15L where the 30% slab applies in both regimes and having over ₹4L in deductions is rare.