New regime wins below ₹7L (effectively zero tax via 87A rebate) and above ₹15L without major deductions. Old regime wins ₹7L-15L if you claim 80C ₹1.5L + HRA + 80D + home loan interest. Break-even is roughly ₹10-12L of taxable income with a full deduction stack.
Since FY 2023-24 every Indian salaried employee picks one of two tax regimes each year. The default is the new regime (lower brackets, no major deductions); the old regime trades higher rates for the right to claim 80C, HRA, 80D, home-loan interest, and others. Picking wrong can cost you ₹50,000-₹1,00,000 a year. This is the bracket-by-bracket math for 2025-26.
The two regimes side by side (FY 2025-26)
Slab
New regime
Old regime
0 to 4L
Nil
Nil (basic exemption 2.5L)
4 to 8L
5%
5% on 2.5L-5L; 20% on 5-10L
8 to 12L
10%
20%
12 to 16L
15%
30%
16 to 20L
20%
30%
20 to 24L
25%
30%
Above 24L
30%
30%
Standard deduction
₹75,000
₹50,000
87A rebate (if income up to)
₹12L (full rebate)
₹5L (₹12,500)
80C / HRA / home loan
Not allowed
Allowed
87A rebate (new)
₹12 lakh
Zero tax up to this income (new regime)
Std deduction (new)
₹75,000
Salaried filer; old regime ₹50,000
Section 80C cap
₹1.5 lakh
Old regime only; PPF, ELSS, LIC, EPF
Basic exemption
₹4 lakh
New regime; old regime ₹2.5L (₹3L senior)
The income brackets where each regime wins
Below ₹7L gross: new regime, always
The 87A rebate in the new regime makes income up to ₹12L taxable (after ₹75K standard deduction so ~₹12.75L gross) effectively zero-tax. The old regime caps the rebate at ₹5L, so a ₹7L earner pays significant tax there. Use the income tax calculator to confirm, but for any salary below ₹12.75L the new regime is a no-brainer.
₹7L to ₹15L: depends on your deductions
This is the contested band. Old regime gives you back the deductions but at higher rates. The break-even depends on how much you can claim:
Total old-regime deductions
Break-even gross income
Below break-even
Above break-even
₹0 (no claims)
any
New regime always wins
₹1.5L (80C only)
~₹14L
New regime
Old regime
₹2.5L (80C + 80D ₹50K + 80CCD(1B) ₹50K)
~₹11L
New regime
Old regime
₹4L (80C + 80D + NPS + HRA)
~₹9L
New regime
Old regime
₹6L (full stack: 80C + HRA + home loan + 80D + NPS)
~₹8L
New regime
Old regime
Above ₹15L without deductions: new regime
The new regime's 30% bracket starts at ₹24L versus ₹10L in the old. A salaried employee earning ₹20L without major deductions pays ~₹3.5L in new regime versus ~₹4.5L in old.
Above ₹15L with full deductions: old regime, narrowly
If you can deduct ₹6-7L (full 80C + maxed HRA + ₹2L home loan interest + ₹50K NPS + ₹50K health insurance + ₹50K parents medical), the old regime saves ₹50K-₹1L. The maths is tighter than people assume; run both via the income tax calculator.
Worked example: ₹15L gross salary
Software engineer, ₹15L CTC, single, lives in Bangalore (metro = 50% HRA exempt cap), pays ₹25K/month rent.
New regime
Gross ₹15,00,000 minus standard deduction ₹75,000 = ₹14,25,000 taxable
0-4L = 0; 4-8L at 5% = 20,000; 8-12L at 10% = 40,000; 12-14.25L at 15% = 33,750
Total tax = 93,750 + 4% cess = ₹97,500
Old regime
HRA exemption: min(actual HRA paid by employer, rent paid - 10% basic, 50% of basic). Assume HRA ₹3L, basic ₹6L, rent paid ₹3L - so exemption = min(3L, 3L-60K, 3L) = ₹2.4L
Tax: 0-2.5L = 0; 2.5-5L at 5% = 12,500; 5-9.85L at 20% = 97,000; total ₹1,09,500 + 4% cess = ₹1,13,880
Net: new regime saves ₹16,380 for this profile. If the same person had ₹2L home-loan interest (so they own a home), old regime would slightly win.
The decisions that flip the answer
Buy a house with home loan = old regime usually wins (₹2L interest deduction is huge)
Live with family rent-free = new regime almost always wins (no HRA to claim)
Maximize NPS via 80CCD(1B) ₹50K = adds an old-regime advantage
Variable income / freelance = new regime simpler (no need to plan deductions every quarter)
Multiple deductions stacking = the old regime is finally on the back foot for most middle earners; the deduction stack used to be much larger before changes since 2018
Switching between regimes
Salaried employees can switch each year when filing. Business owners and professionals can switch only once in their lifetime back to old after opting new. If you have a side business, factor that constraint in.
Plan deductions before March 31 - 80C ELSS or PPF top-up, 80D health insurance renewal, 80CCD(1B) NPS
If you're close to break-even, the new regime is usually better because it removes paperwork friction
Re-evaluate every November when employer asks for tax-saving proofs
Key takeaways
Default is the new regime since AY 2024-25; opt into old regime explicitly via Form 10-IEA.
Section 87A rebate covers all tax up to Rs 12.75 lakh gross income in the new regime (Budget 2025).
Rough rule: if your total old-regime deductions exceed Rs 4-5 lakh, the old regime usually wins.
HRA exemption, 80C deduction, and Section 24(b) home loan interest are old-regime-only benefits.
Standard deduction: Rs 75,000 in new regime vs Rs 50,000 in old regime.
Salaried employees can switch regime annually; self-employed / business income can switch only once in lifetime.
By audience: what to focus on
Different reader types need different angles on this topic. Pick the one closest to your situation.
Salaried employees
Maximise tax-advantaged retirement contributions (EPF/401(k)/SIPP/RRSP). Check whether your country prefers the old vs new regime, employer-match thresholds, and salary-sacrifice options. Use the calculators below with your CTC / gross income.
Freelancers / self-employed
You bear higher self-employment tax + lose the employer match, but get access to higher contribution limits (Solo 401k, SEP-IRA, NPS Tier-I). Track business expenses meticulously. Quarterly estimated tax payments avoid underpayment penalty.
NRIs / expats
Tax residency rules (183-day, tie-breaker), double-taxation treaties, foreign tax credits all come into play. NRI restrictions on PPF (no new accounts) but expanded options on NPS. Cross-border income often needs specialist advice.
Retirees / pre-retirees
Sequence-of-returns risk in early retirement is the largest threat. Glide-path asset allocation, Roth-conversion analysis in low-income years, Required Minimum Distribution planning, and Medicare/healthcare gap funding (US) are the big items.
Quick reference: 12 specific scenarios
Scan the question list, expand only the rows that match your situation.
Should I choose the old or new tax regime?
Rough rule: if your total old-regime deductions (Section 80C + HRA + 24b + 80D + 80CCD(1B) + standard) exceed about Rs 4-5 lakh, the old regime usually wins. Otherwise the new regime wins, especially below Rs 12.75 lakh gross income where the new regime's 87A rebate gives zero tax. Use our regime comparator below to check both for your exact inputs.
What deductions are available only in the old regime?
Section 80C (Rs 1.5 lakh: PPF, ELSS, EPF, life insurance, home loan principal, tuition fees), HRA exemption, Section 24(b) home loan interest (Rs 2 lakh self-occupied), Section 80D health insurance (Rs 25k self / Rs 50k senior parents), Section 80CCD(1B) NPS (extra Rs 50k), Section 80E education loan interest, Section 80TTA/TTB savings interest. None of these are available in the new regime.
What's available in the new regime?
Lower slab rates (Nil / 5% / 10% / 15% / 20% / 30%) and a higher standard deduction of Rs 75,000 (vs Rs 50,000 in old regime). Section 87A rebate gives full tax waiver up to Rs 12.75 lakh gross income (Budget 2025). Employer NPS contribution (80CCD(2)) up to 14% of basic is allowed in both regimes.
Which regime is the default?
From AY 2024-25 onwards, the NEW regime is the default. To opt into the old regime, salaried employees must explicitly choose it each year via Form 10-IEA (filed before due date) or via the employer's investment declaration. Self-employed / business taxpayers can switch only once.
Can I switch between old and new regime each year?
Salaried employees CAN switch each year, but must signal the choice to the employer before the start of the financial year (or accept the new-regime default). Self-employed / business income taxpayers can switch only once in their lifetime - choose carefully.
How does Section 87A rebate work in the new regime?
Under the new regime, if your total taxable income is below Rs 12.75 lakh (Rs 12 lakh + Rs 75k standard deduction = effective threshold Rs 12.75L gross), the Section 87A rebate covers ALL the tax due, making your effective income tax ZERO. This is the single biggest reason most salaried Indians earning under Rs 13 lakh now prefer the new regime.
What is the marginal relief in the new regime?
If your income marginally exceeds the rebate threshold (Rs 12.75 lakh), the tax can jump significantly. Marginal relief caps the tax increase to the amount by which income exceeds the threshold. So an income of Rs 12.80 lakh doesn't pay full slab tax - the marginal-relief mechanism limits the tax to Rs 5,000 (the income above threshold).
Does HRA exemption apply in the new regime?
No. HRA exemption is an old-regime-only benefit. Under the new regime, the entire HRA you receive is added to taxable income with no exemption. This is a major reason metro-city renters with significant HRA may still find the old regime more tax-efficient.
Can I claim home loan interest in the new regime?
Self-occupied home loan interest (Section 24b, Rs 2 lakh) is NOT available in the new regime. Let-out / rented property home loan interest IS available in BOTH regimes against rental income (but with rental income loss capped at Rs 2 lakh against other heads in both).
How does the regime choice affect my TDS at source?
Your employer deducts TDS based on the regime you declare in your investment declaration (Form 12BB). If you don't declare, the employer applies the new regime by default. You can recover excess TDS by claiming the old regime when filing your ITR if it works out better.
Is the new regime always better for low-income earners?
Below Rs 12.75 lakh gross income, the new regime usually wins because of the 87A rebate covering all tax. Even if you have Rs 1.5 lakh of 80C deductions, the old regime would still pay Rs 50k+ in tax above Rs 7 lakh income, whereas the new regime pays zero up to Rs 12.75 lakh. The old regime wins only at higher incomes with very large deduction stacks.
Does the new regime allow PPF / NPS investments?
Yes, you can INVEST in PPF / NPS in either regime, but you can only CLAIM the deduction in the OLD regime. NPS Tier-I employer contribution (Section 80CCD(2)) up to 14% of basic salary is the one NPS-related deduction allowed in both regimes.
Related topics readers also search for
Common adjacent queries on this topic. Each calculator and explainer linked below covers one or more of these specifically.
old vs new tax regime calculatorsection 87A rebate explainedHRA exemption calculation80C deduction listsection 24b home loan interestnew tax regime slab rates 2026marginal relief new regimeform 10-IEA filingNPS additional deduction 80CCD(1B)standard deduction new regime
