The government simplified income tax in 2020 with a new regime offering lower rates but no deductions. Every year since, the debate has continued: which regime is better? The honest answer is — it depends entirely on your deductions.
The regimes at a glance
| Income Slab | Old Regime | New Regime |
|---|---|---|
| Up to Rs 2.5L | 0% | — |
| Up to Rs 3L | — | 0% |
| Rs 3L – Rs 7L | 5% (Rs 2.5-5L) | 5% |
| Rs 7L – Rs 10L | 20% | 10% |
| Rs 10L – Rs 12L | 30% | 15% |
| Rs 12L – Rs 15L | 30% | 20% |
| Above Rs 15L | 30% | 30% |
New regime also gives a standard deduction of Rs 75,000 (vs Rs 50,000 in old). But old regime allows 80C (Rs 1.5L), HRA, NPS (Rs 50k extra), home loan interest (Rs 2L) and many others.
The break-even point: if your total deductions (80C + HRA + home loan interest + NPS 80CCD) exceed roughly Rs 3.75 lakh, the old regime saves more tax. Below that, new regime wins.
Who should choose the new regime
The new regime is clearly better for: salaried employees with no home loan, no HRA benefit (own house), those who cannot invest Rs 1.5L under 80C, and income between Rs 7L and Rs 15L where rate differences are starkest.
Who should choose the old regime
The old regime still wins for: people paying significant rent and claiming HRA, home loan holders claiming Rs 2L interest deduction, those maximising NPS (Rs 50k extra under 80CCD), and high earners with full 80C + home loan + HRA combination.
The quick test
Add up: 80C investments + HRA exemption + home loan interest deduction + NPS (Section 80CCD). If this total exceeds Rs 3.75 lakh, run both calculations. Use our Income Tax Calculator to see the exact difference for your numbers in under 30 seconds.