Since the introduction of the new tax regime in 2020 — and its further revision in Budget 2023 — one of the most common questions for salaried Indians is: which regime should I choose? The answer is not the same for everyone. Let us understand both regimes clearly and help you figure out which one puts more money in your pocket.
The fundamental difference
Old Tax Regime: Lower tax rates were available years ago but have since been updated. It allows you to claim various deductions and exemptions — like Section 80C, HRA, home loan interest, 80D, standard deduction, and more. In exchange, the slab rates are slightly higher.
New Tax Regime: Offers lower tax rates and higher basic exemption limit but eliminates most deductions and exemptions. Very few deductions remain — standard deduction of ₹75,000 (revised in Budget 2023) and NPS employer contribution under 80CCD(2).
Tax slabs under both regimes (FY 2024-25)
New Tax Regime (default from FY 2023-24):
₹0 – ₹3 lakh: Nil
₹3 lakh – ₹7 lakh: 5%
₹7 lakh – ₹10 lakh: 10%
₹10 lakh – ₹12 lakh: 15%
₹12 lakh – ₹15 lakh: 20%
Above ₹15 lakh: 30%
(Income up to ₹7 lakh effectively tax-free due to rebate under Section 87A)
Old Tax Regime:
₹0 – ₹2.5 lakh: Nil
₹2.5 lakh – ₹5 lakh: 5%
₹5 lakh – ₹10 lakh: 20%
Above ₹10 lakh: 30%
Key deductions available in the old regime
Standard deduction: ₹50,000
Section 80C: Up to ₹1.5 lakh (ELSS, PPF, EPF, LIC, home loan principal)
Section 80D: ₹25,000–₹50,000 (health insurance)
HRA exemption: Based on rent paid, salary, and city
Home loan interest (Section 24b): Up to ₹2 lakh
Section 80CCD(1B) — NPS: Up to ₹50,000
Leave Travel Allowance (LTA): Twice in a 4-year block
None of these are available in the new regime (except standard deduction of ₹75,000 and employer NPS contribution under 80CCD(2)).
When is the old regime better?
The old regime is generally better if you have high deductions. The break-even point depends on income, but here are common scenarios where old regime wins:
– You fully utilise 80C (₹1.5 lakh): ELSS, PPF, EPF contribution
– You pay rent and claim HRA exemption
– You have a home loan and claim interest deduction
– You invest in NPS (extra ₹50,000 under 80CCD(1B))
– You pay health insurance premiums
The more deductions you legitimately claim, the more the old regime saves.
When is the new regime better?
The new regime is typically better if:
– You have low or no deductions to claim
– You are a young earner just starting out, without a home loan or large 80C investments
– You have income below ₹7 lakh (effectively zero tax in new regime)
– You do not want the complexity of managing multiple investments just for tax saving
– You are in a job with no HRA or allowances
For income above ₹15 lakh, the new regime’s 30% slab kicks in at the same level as the old regime, but without deductions — so high-income earners with significant deductions often still benefit from the old regime.
How to calculate and decide
The simplest approach:
Step 1: Calculate your gross taxable income.
Step 2: List all deductions you legitimately claim (80C, HRA, 80D, home loan interest, etc.).
Step 3: Calculate tax under old regime: Taxable income after all deductions × applicable old slab rates.
Step 4: Calculate tax under new regime: Gross income minus ₹75,000 standard deduction × new slab rates.
Step 5: Compare. Choose the one with the lower tax.
Most payroll software and online tax calculators (Income Tax Department website, ClearTax) can do this comparison for you in minutes.
The bottom line
There is no universal right answer — it depends on your income level, investments, and life situation. Run the numbers every April using an online calculator. Inform your employer of your choice at the start of the financial year for correct TDS deduction.
If you are unsure, consult a CA or tax advisor for a one-time calculation — the fee is worth the clarity.