Key differences at a glance
| Particulars | Old tax regime | New tax regime |
|---|---|---|
| Applicability | Optional | Default |
| Basic exemption limit | ₹2.5 lakh | ₹4 lakh |
| Maximum tax rate | 30% (above ₹10 lakh) | 30% (above ₹24 lakh) |
| Rebate | ₹12,500 | ₹60,000 |
| Standard deduction | ₹50,000 | ₹75,000 |
| Tax-free income | ₹5 lakh | ₹12 lakh |
The new regime offers a higher rebate and standard deduction, making it attractive for individuals with fewer deductions. The old regime, however, allows a wide range of exemptions such as HRA, Section 80C, and Section 80D benefits.
Income tax slabs for FY26New tax regime slabs
| Income | Tax rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4–8 lakh | 5% |
| ₹8–12 lakh | 10% |
| ₹12–16 lakh | 15% |
| ₹16–20 lakh | 20% |
| ₹20–24 lakh | 25% |
| Above ₹24 lakh | 30% |
Old tax regime slabs
| Income | Tax rate |
|---|---|
| Up to ₹2.5 lakh | Nil |
| ₹2.5–5 lakh | 5% |
| ₹5–10 lakh | 20% |
| Above ₹10 lakh | 30% |
Deductions and exemptions: What changes?
Under the old regime, taxpayers can claim multiple deductions that reduce taxable income:
- Section 80C (up to ₹1.5 lakh)
- Health insurance under Section 80D
- Home loan interest up to ₹2 lakh (self-occupied property)
- HRA and LTA
- Donations under Section 80G
Most of these are not available under the new regime. However, both regimes allow standard deduction and certain exemptions such as gratuity and leave encashment.
When is the new regime better?
The new regime is beneficial for individuals with minimal deductions. Its lower slab rates and higher rebate make income up to ₹12 lakh effectively tax-free.
For example, a salaried individual earning ₹10 lakh with limited deductions may pay zero tax under the new regime due to the higher rebate.
When is the old regime better?
The old regime works better if total deductions are substantial. Taxpayers need large deductions—often exceeding ₹5–7 lakh depending on income—to make it more beneficial than the new regime.
For instance, at ₹20 lakh income, even with deductions such as Section 80C, insurance premiums, and home loan interest, the new regime can still result in lower tax due to reduced rates.
Breakeven deductions: When does the old regime become more beneficial?
The table below outlines the level of deductions and exemptions required at different income levels for the old tax regime to be more advantageous than the new regime.
| Gross income | Deduction threshold |
|---|---|
| Up to ₹12 lakh | ₹0 |
| ₹13 lakh | ₹6,87,500 |
| ₹14 lakh | ₹5,18,750 |
| ₹15 lakh | ₹5,43,750 |
| ₹16 lakh | ₹5,68,750 |
| ₹17 lakh | ₹6,08,330 |
| ₹18 lakh | ₹6,41,670 |
| ₹19 lakh | ₹6,75,000 |
| ₹20 lakh | ₹7,08,330 |
| ₹22 lakh | ₹7,54,170 |
| ₹24 lakh | ₹7,87,500 |
| ₹25 lakh | ₹8,00,000 |
If total deductions and exemptions exceed the above thresholds, the old tax regime becomes more beneficial. If they fall short, the new tax regime is likely to result in lower tax liability.
The new tax regime suits taxpayers seeking simplicity and lower tax rates without relying on deductions. The old regime remains relevant for those who actively invest and claim multiple exemptions.
The decision ultimately depends on whether your deductions are high enough to offset the higher tax rates under the old regime.
