From FY2024-25, the new income tax regime became the default. Employers deduct TDS as per the new regime unless you explicitly opt out to the old regime. The government has made the new regime increasingly attractive with higher basic exemption, expanded slab rates, and the standard deduction of ₹75,000. But for employees with significant deductions, the old regime can still win.
New regime slabs (FY2026-27)
| Income Range | Tax Rate | |---|---| | Up to ₹3 lakh | Nil | | ₹3–7 lakh | 5% | | ₹7–10 lakh | 10% | | ₹10–12 lakh | 15% | | ₹12–15 lakh | 20% | | Above ₹15 lakh | 30% |
Rebate under Section 87A (₹25,000) makes income up to ₹7 lakh effectively tax-free under the new regime.
Old regime deductions that matter
The old regime allows numerous deductions that reduce your taxable income:
- Section 80C: Up to ₹1.5 lakh (ELSS, EPF, PPF, home loan principal, children's tuition)
- Section 80D: ₹25,000 for health insurance (₹50,000 if parents are senior citizens)
- Section 24(b): ₹2 lakh home loan interest for self-occupied property
- HRA exemption: Variable, but can be substantial for metro city residents
- NPS Section 80CCD(1B): Additional ₹50,000
- Standard deduction: ₹50,000 (₹75,000 in new regime)
Who should choose the old regime
The old regime wins when total deductions (beyond the ₹75,000 standard deduction already in the new regime) exceed the "crossover" amount. A rough rule:
- Annual income ₹7–10 lakh: Old regime beneficial if total deductions (80C + HRA + 80D + home loan interest) exceed ₹1.75–2.5 lakh
- Annual income ₹10–15 lakh: Old regime beneficial if total deductions exceed ₹3–3.75 lakh
- Annual income above ₹15 lakh: Old regime beneficial if total deductions exceed ₹5 lakh
For a 30-year-old renting in Mumbai, paying ₹25,000/month in rent, contributing to EPF and ELSS, and paying home loan interest — the old regime likely wins by a significant margin. For a self-employed professional with limited deductions or a first-time earner under ₹7 lakh, the new regime is simpler and tax-equivalent or better.
The practical decision
Use a tax calculator (CBDT's official tool or multiple third-party options) every April with your actual declared deductions. The regime choice can be changed every year for salaried employees. File your investment declarations with your employer before April 30 — errors and late submissions cause avoidable TDS overpayments that you then have to claim back in your ITR.