The new regime has lower rates and almost no deductions. The old regime has higher rates and lets you subtract things first. The new regime is the default, and for most salaried people it wins.
There is a clean way to decide, and it is a single number: work out how much you would need in deductions for the old regime to beat the new one. If your actual deductions fall short of that, the question is settled.
This is the one tax decision a salaried person makes every year, and it is usually made badly — either by inertia, or by an insurance agent in March. It takes about ten minutes to settle properly.
Rates below are for FY 2026-27 (assessment year 2027-28). Budget 2026 made no changes to the slabs, rebate or standard deduction. Tax rules change with each Budget, so check the current year's position before acting.
The two systems
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Notice the shape. The old regime jumps from 5 per cent straight to 20 per cent at ₹5 lakh, and hits 30 per cent at ₹10 lakh. The new regime climbs gently in ₹4 lakh steps and only reaches 30 per cent above ₹24 lakh. That gentler climb is what the deductions have to overcome.
Start where most first jobs start
Take the ₹6,00,000 salary from session one.
Under the new regime, after the ₹75,000 standard deduction, taxable income is ₹5,25,000 — comfortably under the ₹12 lakh rebate ceiling. Tax payable: nil. No investments, no proofs, no paperwork.
Under the old regime, the same salary less the ₹50,000 standard deduction leaves ₹5,50,000, which attracts ₹23,400 after cess. To bring that to nil you would need to invest ₹1,50,000 under 80C — money locked away for years — in order to save tax you did not owe in the first place.
This is why 80C is not a strategy
An entire industry is built on selling products in January to March on the strength of a deduction. But a deduction only has value if you owe tax without it.
At this salary in the new regime you owe nothing. Locking ₹1,50,000 into a five-year deposit or an insurance policy to save nothing is not tax planning. It is a sale.
Invest because the investment is right for you. If a tax benefit follows, treat it as a discount, never as the reason.
The decision in one number
For any salary, there is a level of deductions at which the two regimes cost exactly the same. Below it the new regime wins; above it the old one does. Here is that level.
| Annual salary | Tax under new regime | Deductions needed |
|---|---|---|
| ₹6,00,000 | Nil | ₹50,000 |
| ₹9,00,000 | Nil | ₹3,50,000 |
| ₹12,00,000 | Nil | ₹6,50,000 |
| ₹15,00,000 | ₹97,500 | ₹5,43,750 |
| ₹18,00,000 | ₹1,50,800 | ₹6,41,667 |
| ₹24,00,000 | ₹2,92,500 | ₹7,87,500 |
| ₹30,00,000 | ₹4,75,800 | ₹8,00,000 |
Now put that in perspective. Full 80C is ₹1,50,000. Health insurance under 80D might add ₹25,000. The additional NPS deduction adds ₹50,000. That is ₹2,25,000 — less than half of what a ₹15 lakh earner needs.
To clear ₹5,43,750 you essentially need substantial house rent allowance in an expensive city, or home loan interest of around ₹2,00,000, on top of everything else. Which is exactly who the old regime still suits: people paying high metro rent, or servicing a home loan, who also use their full 80C and 80D. For everyone else, it usually does not come close.
Working out your own number
Add up what you could actually claim under the old regime: your 80C total (your provident fund contribution counts towards it, so you are part-way there before investing anything extra), 80D health premiums, HRA exemption if you pay rent, home loan interest, the additional NPS deduction, and education loan interest under 80E if you have one.
Compare that total against the row above closest to your salary. If it is comfortably below, the new regime is your answer and you can stop thinking about it. If it is close, the arithmetic is worth doing properly, because the two are within a few thousand rupees of each other and other factors matter more.
One relief: a salaried person may choose afresh each financial year. Picking the new regime this year does not bind you next year, when you may have a home loan and a very different answer. Those with business income face restrictions on switching back and forth, which is a different conversation.
The common mistake
Letting the choice be made by whoever is selling something. A March insurance policy bought for 80C, by someone in the new regime who gets no deduction at all, is money committed for years for a benefit that does not exist.
The second mistake is choosing once and never revisiting. The regimes are compared on your circumstances, and circumstances change — a home loan, a move to a costlier city, a jump in salary. Anyone whose deductions changed materially this year should redo the comparison before declaring to their employer.
Jargon buster
- Standard deduction
- A flat amount subtracted from salary with no proof required — ₹75,000 in the new regime, ₹50,000 in the old.
- Section 87A rebate
- A reduction in tax for lower incomes. Up to ₹60,000 in the new regime, which is what makes ₹12 lakh of taxable income tax-free.
- Section 80C
- Old-regime deduction of up to ₹1,50,000 for specified investments and payments, including your provident fund contribution.
- Section 80D
- Old-regime deduction for health insurance premiums.
- HRA exemption
- Old-regime relief on house rent allowance if you actually pay rent.
- Cess
- A 4% health and education levy added on top of the tax, under both regimes.
- TDS
- Tax your employer deducts monthly based on the regime and declarations you give them.