Think of it like two menus at the same restaurant
Old regime lets you order deductions — 80C, 80D, HRA, home-loan interest — but the base prices (slab rates) are higher.
New regime has lower slab rates and a bigger standard deduction on salary (₹75,000 for AY 2026-27), but most Chapter VI-A items are off the menu. A enhanced rebate u/s 87A can zero out tax for many middle incomes — see 87A in new regime.
You choose each year (with some lock-in rules for business income). Employers may default TDS to new regime — your filing choice can differ, which creates balance tax payable if old regime wins.
New regime — quick picture
| Income slab (₹) | Rate |
|---|---|
| Up to 3,00,000 | Nil |
| 3,00,001 – 7,00,000 | 5% |
| 7,00,001 – 10,00,000 | 10% |
| 10,00,001 – 12,00,000 | 15% |
| 12,00,001 – 15,00,000 | 20% |
| Above 15,00,000 | 30% |
Verify exact slabs in the Finance Act for your AY — budgets move numbers.
Generally not available in new regime: 80C, 80D, HRA exemption, most home-loan interest set-off. Often still available: employer 80CCD(2) NPS within limits.
Old regime — when it still wins
Old regime keeps higher slabs but allows:
- ₹1.5 lakh 80C bundle (PPF, ELSS, EPF employee share, etc.)
- 80D health insurance
- HRA exemption if you pay rent in a metro
- Home-loan interest on self-occupied house (within caps)
Rule of thumb: if your total deductions exceed roughly ₹1.5–2 lakh in tax benefit, old regime deserves a serious look — but only on your rent and investment numbers.
Mini example: ₹10 lakh salary, ₹1.8L 80C, ₹25k 80D, strong HRA
New regime: taxable salary after ₹75k standard deduction, no 80C/HRA → moderate tax, possibly reduced by 87A depending on taxable income.
Old regime: higher slabs but lower taxable income after 80C, 80D, HRA → often lower net tax for renters with proof.
Do not copy this outcome — run both sides. New regime slabs detail has worked arithmetic.
What you should do
- List deductions you actually have proofs for, not what you plan to invest in March
- Include AIS interest — it changes taxable income and rebate eligibility
- Compare net tax payable side-by-side before locking regime on incometax.gov.in
- Use LastMinute regime compare on your Form 16 draft
Common mistake
Choosing regime from Form 16 default. Payroll assumed new regime for TDS; you file old regime with heavy 80C — tax payable surprise at filing. Pay challan before submit.
Another: Ignoring FD interest in AIS when evaluating 87A — extra ₹50k interest can push you over rebate cliff.
Seniors and special cases
Senior citizens get different slab thresholds — see expanded 80TTB / senior guide. Capital gains use special rates regardless — may push you to ITR-2.
FAQ
Can I switch regime every year? Many salaried individuals can — business/profession cases have opt-out lock-in; confirm for your situation.
Does HRA work in new regime? Generally not for typical salaried opt-in — HRA is an old-regime style exemption.