Since the new tax regime became the default, every salaried person in India faces the same yearly question: stick with the new regime's lower slab rates, or the old regime's deductions? The honest answer is that it depends entirely on how much you claim in deductions. Here is how to decide without guessing.
The core trade-off
The new regime has wider, lower slabs and a generous Section 87A rebate, but almost no deductions. For FY 2026-27 the slabs are nil up to Rs 4 lakh, then 5, 10, 15, 20, 25 and 30% in Rs 4 lakh bands, with a Rs 75,000 standard deduction and a rebate that makes taxable income up to Rs 12 lakh tax-free. A salaried person earning up to about Rs 12.75 lakh pays zero tax.
The old regime keeps the Rs 2.5 lakh basic exemption and 5/20/30% slabs, a Rs 50,000 standard deduction, but lets you claim the deductions most people know: Section 80C (up to Rs 1.5 lakh for EPF, PPF, ELSS, life insurance and home loan principal), 80D for health insurance, HRA, and home loan interest under Section 24 (up to Rs 2 lakh).
The break-even rule of thumb
The old regime only wins once your deductions are large enough to overcome the new regime's lower rates. As a rough guide, if your total deductions (beyond the standard deduction) clear roughly Rs 3.5 to 4 lakh, the old regime starts to pull ahead at higher incomes; below that, the new regime is almost always cheaper. The exact crossover shifts with income, so the only reliable way is to compute both.
How to decide in five minutes
- Add up the deductions you actually claim: 80C, 80D, HRA, home loan interest, NPS 80CCD(1B).
- Open the income tax calculator and compute your tax under the new regime.
- Switch to the old regime, enter your total deductions, and compare the two tax figures.
- Pick the lower one. If they are close, the new regime is simpler and needs no investment lock-ins.
When the old regime still wins
The old regime typically makes sense if you have a home loan with substantial interest, pay high rent in a metro (large HRA exemption), and max out 80C and 80D. If you are early in your career, rent little, and do not have a home loan, the new regime is usually both cheaper and far less paperwork.