The fundamentals
The new regime (Section 115BAC) was made the default in Budget 2023. It has lower slab rates and a wider zero-tax band, but you forfeit nearly every Chapter VI-A deduction — no 80C, no 80D, no HRA, no Section 24 home-loan interest.
The old regime keeps every deduction you grew up hearing about — 80C up to ₹1.5L, NPS ₹50K, 80D health insurance, HRA, home-loan interest under Section 24 — but pays them with higher slab rates and a smaller zero-tax band.
Switching regimes is a once-per-year choice for salaried filers, made at ITR-filing time. (Business-income earners get only one lifetime opt-out.)
The FY 2025-26 slabs side by side
FY 2025-26 slabs · taxable income vs marginal rate
| Taxable income | New regime | Old regime |
|---|---|---|
| ₹0 – ₹2.5L | 0% | 0% |
| ₹2.5L – ₹4L | 0% | 5% |
| ₹4L – ₹5L | 5% | 5% |
| ₹5L – ₹8L | 5% | 20% |
| ₹8L – ₹10L | 10% | 20% |
| ₹10L – ₹12L | 10% | 30% |
| ₹12L – ₹16L | 15% | 30% |
| ₹16L – ₹20L | 20% | 30% |
| ₹20L – ₹24L | 25% | 30% |
| Above ₹24L | 30% | 30% |
§87A rebate: New regime makes tax NIL up to ₹12L taxable; Old regime up to ₹5L. Standard deduction: ₹75K (new) vs ₹50K (old). New regime forfeits 80C / 80D / HRA / Sec 24; old regime keeps all Chapter VI-A deductions.
Why the new regime usually wins
For an ₹18L CTC with the typical Indian salaried deduction stack (₹1.5L 80C + ₹25K 80D + ₹50K NPS = ₹2.25L), the new regime pays ~₹40K LESS tax than the old. The gap closes only when deductions clear roughly ₹3.75L-₹4.5L — usually requiring full HRA + home loan + 80C + NPS together.
When the old regime still wins
You have ALL of: full HRA exemption (metro renter), full ₹2L Section 24 home-loan interest, ₹1.5L 80C, ₹50K NPS 80CCD(1B), ₹25K-₹50K 80D, and possibly ₹50K 80EE if your loan was sanctioned in FY 2016-17 (80EEA expired for new loans after Mar-2022). Total deductions ≥ ~₹4.5L. Few households actually stack all of these.
Worked example
Take a ₹15L CTC salaried employee with HRA of ₹3L, full 80C maxed at ₹1.5L, NPS ₹50K, and 80D health insurance ₹25K. Standard salaried deduction stack. Compare both regimes:
Old regime
Taxable: ₹15L − ₹50K (std ded) − ₹3L (HRA) − ₹1.5L (80C) − ₹50K (NPS) − ₹25K (80D) = ₹9,25,000. Tax: 5% × ₹2.5L + 20% × ₹4.25L = ₹97,500. Plus 4% cess = ₹1,01,400.
New regime
Taxable: ₹15L − ₹75K (std ded) = ₹14,25,000. Tax: 5% × ₹4L + 10% × ₹4L + 15% × ₹2.25L = ₹93,750. Plus 4% cess = ₹97,500.
The new regime saves ~₹3,900 here. Switch direction (10% bracket → 15% bracket → 20% bracket) and run the same math for your numbers; the gap shifts but the new regime stays ahead until your deduction stack approaches ₹4L+.
FY 2025-26. Cess 4% (Health + Education). Surcharge omitted (kicks in above ₹50L). Your actual liability depends on the full deduction stack — Sajag's tax page computes this live against your Form 16.
Important caveats
House-rent allowance (HRA) is the single biggest deduction you give up in the new regime. If you genuinely pay metro rent of ₹40K+/month, run the old regime through a calculator before switching.
Section 87A rebate caps. Under the new regime, taxable income ABOVE ₹12L immediately triggers tax on the full slab (marginal relief applies for incomes just above ₹12L to soften the cliff). Don't confuse the ₹12L tax-free band with a ₹12L exemption.
Standard deduction is ₹75K under new regime vs ₹50K under old.
If you have a home loan and live in the property, Section 24's ₹2L interest deduction is OLD-REGIME ONLY. Loan EMIs change the math significantly — recalculate at every annual filing.
Surcharge changes if income crosses ₹50L (10%), ₹1Cr (15%), ₹2Cr (25%), ₹5Cr (37% under old / 25% capped under new). The new regime's capped surcharge actually makes it the only sensible choice for high earners.
You can switch regimes every year if you're salaried. Re-run the math each March before filing — your deduction stack changes as life does (new home loan, parent's medical, etc.).
Common questions
I've been on the old regime for years. Is switching to new a hassle?
No. For salaried employees with no business income, the choice is per-year at ITR-filing time. Tick the new-regime box in your ITR-1 / ITR-2 form when you file. No advance declaration to your employer needed (though you can tell them, so they reduce TDS proactively in March).
What about home loan interest — does Section 24 work in the new regime?
NO for a self-occupied home — Section 24 interest deduction (up to ₹2L) is old-regime only. For a let-out / rental property, you CAN still claim interest in the new regime, but only against the rental income (no carry-forward of losses to other heads). This single rule decides the regime for most homeowners.
If I'm in the 30% bracket old-regime, do I still need to compare?
Yes. The new regime's slabs are LOWER at every threshold AND the wider ₹4L zero-tax band + ₹4L 5% band shifts a chunk of your taxable income to lower brackets even at high incomes. Most ₹50L+ earners save 5-15% by moving to new — but the answer flips if you carry full HRA + Section 24.
Does the ₹12L tax-free thing in new regime mean I pay zero tax up to ₹12L of CTC?
It applies to TAXABLE income after standard deduction. At ₹12L CTC, standard deduction ₹75K brings taxable to ₹11.25L → rebate makes tax nil. At ₹13L CTC, taxable is ₹12.25L → slab tax applies on ₹12.25L (with marginal relief softening the immediate cliff). The cliff feels harsh because it is.
What if my employer is already deducting TDS based on the old regime?
TDS is just an advance. At ITR time you elect the regime that's better for you; if you owe less tax under the new regime, you get a refund of the excess TDS. Tell your employer in early-Jan so they adjust the March TDS — your ITR corrects it at filing either way.
When this doesn’t apply
- • You live in a metro on rent AND have a home loan AND max out 80C — your deduction stack will likely beat ₹4.5L and the old regime stays ahead.
- • You have meaningful capital-gains income — the regime choice barely affects LTCG/STCG rates, but the basic-exemption stacking interacts. Re-run with capital gains modeled in.
- • You're a senior citizen — the senior-specific basic exemption (₹3L under old, ₹4L under new for super seniors) shifts the math; this guide doesn't cover those edge cases.
Related guides
From article to your numbers
Run this against your actual Form 16.
Sajag reads your Form 16 + 26AS + CAS locally on your Mac and computes the exact number every guide above describes. No spreadsheets, no copy-paste, no cloud upload of your salary slip. One-time purchase. Forever yours.
Get Sajag — ₹99macOS · 30-day refund · no subscription