New vs Old Tax Regime - Complete Guide for FY 2026 - 27
The Indian government introduced the New Tax Regime in Budget 2020 as an optional, simplified alternative with lower slab rates but fewer deductions. From FY 2023-24, the new regime became the default — meaning if you don't explicitly opt for the old regime, you're automatically taxed under the new one.
Budget 2024 made the new regime even more attractive by raising the standard deduction from ₹50,000 to ₹75,000 and tweaking slabs, making it the better option for most salaried employees — especially those with limited deductions.
FY 2024-25 tax slab reference
New Regime
Income
Rate
Up to ₹3L
Nil
₹3L – ₹7L
5%
₹7L – ₹10L
10%
₹10L – ₹12L
15%
₹12L – ₹15L
20%
Above ₹15L
30%
Standard deduction: ₹75,000 · Rebate u/s 87A: full rebate up to ₹7L taxable income
Old Regime
Income
Rate
Up to ₹2.5L
Nil
₹2.5L – ₹5L
5%
₹5L – ₹10L
20%
Above ₹10L
30%
Standard deduction: ₹50,000 · Rebate u/s 87A: ₹12,500 up to ₹5L taxable income
When does the old regime still win?
The old regime is better if your total deductions are large enough to offset the higher slab rates. Here's a rough break-even guide at different income levels:
Annual income
Min. deductions for old regime to win
Typical claimants
₹7.5 – ₹10L
₹1.5L+
Basic 80C (PF + ELSS)
₹10 – ₹15L
₹3.0L+
80C + 80D + HRA
₹15 – ₹20L
₹3.75L+
80C + 80D + HRA + NPS + home loan
Above ₹20L
₹4.25L+
All deductions maxed out
Most salaried individuals with only PF and some insurance contributions will find the new regime more beneficial. Use the calculator above to check your specific numbers.
HRA exemption is the minimum of these three values:
①
Actual HRA received from employer
②
Actual rent paid minus 10% of basic salary
③
50% of basic salary (metro) or 40% (non-metro)
You must actually pay rent to claim HRA. Keep rent receipts and a signed rental agreement. If annual rent exceeds ₹1L, your landlord's PAN is required. HRA exemption is not available in the new regime.
Frequently asked questions about income tax
Which regime is better for me - new or old?▼
Use the calculator above - it automatically shows which regime gives you a lower tax bill and by how much. As a rule of thumb: if your total deductions (80C + HRA + 80D + home loan interest + NPS) exceed roughly ₹3–3.75 lakh and your income is between ₹10–20L, the old regime is likely better. For most salaried individuals with only PF and basic insurance, the new regime wins from FY 2024-25 onwards.
Can I switch between old and new regime every year?▼
Salaried individuals (without business income) can switch between regimes every financial year. You make the choice at the time of filing your ITR. However, taxpayers with business or professional income can switch only once — once you opt out of the new regime to the old regime, you can't switch back (with some exceptions).
What is the Section 87A rebate and who gets it?▼
Section 87A provides a tax rebate - effectively making your total tax payable zero — if your taxable income is below a threshold. Under the new regime (FY 2024-25): full rebate if taxable income ≤ ₹7 lakh, meaning no tax on gross incomes up to roughly ₹7.75L (after ₹75K standard deduction). Under the old regime: rebate of up to ₹12,500 if taxable income ≤ ₹5 lakh.
What is the standard deduction for salaried employees?▼
The standard deduction is a flat deduction from your gross salary that reduces your taxable income — no bills or receipts required. For FY 2024-25: ₹75,000 under the new regime (raised from ₹50,000 in Budget 2024) and ₹50,000 under the old regime. Pensioners also get the standard deduction. It's automatically applied — you don't need to claim it separately.
When does surcharge apply, and at what rate?▼
Surcharge is an additional tax on top of your income tax, applicable only for high incomes. Rates for FY 2024-25: 10% on tax if income is ₹50L–₹1Cr; 15% for ₹1Cr–₹2Cr; 25% for ₹2Cr–₹5Cr; and 37% for above ₹5Cr (old regime) — but note that the new regime caps surcharge at 25% for all income levels.
What is the NPS additional deduction under Section 80CCD(1B)?▼
Over and above the ₹1.5L limit of Section 80C, you can claim an additional deduction of up to ₹50,000 per year for contributions to the National Pension System (NPS Tier-1 account) under Section 80CCD(1B). This is exclusive to NPS and is available only in the old regime.
How is tax deducted by my employer (TDS)?▼
Your employer deducts Tax Deducted at Source (TDS) from your salary every month and deposits it with the government on your behalf. At the start of the year, your HR/payroll team asks you to declare your investment proofs and regime preference. At year-end you submit actual investment proofs — if you over-declared investments, you claim the excess tax back as a refund when filing your ITR.
What is Form 16 and why do I need it?▼
Form 16 is a TDS certificate issued by your employer by 15 June every year. It has two parts: Part A shows the TDS deposited with the government, and Part B shows the detailed salary breakup, deductions, and tax computation. Form 16 is the single most important document for filing your ITR as a salaried employee.
