Old vs New Tax Regime: How to Choose the Right One

Individuals in India can choose between two income tax regimes: the new regime, with lower slab rates but very few deductions, and the old regime, with higher rates but many deductions and exemptions. Choosing correctly can save you a meaningful amount of tax.

Note: the Income-tax Act, 2025 has replaced the Income-tax Act, 1961 from 1 April 2026. Section numbers have changed, but the concepts explained here continue. Always check the provisions that apply to your financial year.

The new regime is the default

The new regime applies automatically unless you opt for the old one. Its slabs have been made more attractive in recent budgets, with a higher rebate so that many middle-income earners pay little or no tax.

What you give up in the new regime

Most popular deductions and exemptions are not available, such as:

• Investments like PPF, ELSS and life insurance premiums
• Health insurance premiums
• House rent allowance (HRA) exemption
• Interest on a home loan for a self-occupied house
• Leave travel allowance

A standard deduction for salaried people and the employer’s contribution to NPS remain available.

Who benefits from the old regime?

• People with a large home loan on a self-occupied house.
• Those who pay high rent and receive HRA.
• People who already invest heavily in tax-saving instruments and insurance.

Who benefits from the new regime?

• Young earners with few investments or deductions.
• People who prefer flexibility over locking money into tax-saving products.
• Most taxpayers at lower and middle income levels.

How to decide

1. List all deductions and exemptions you can actually claim.
2. Compute tax under both regimes.
3. Choose the lower one – but also consider whether you would invest in those instruments anyway.

Switching rules

Salaried people without business income can choose each year when filing their return. People with business or professional income have limited options to switch back and forth.

Let us compare both regimes for you when we file your return: ITR filing.

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Frequently Asked Questions

Q1. Which regime applies if I don't choose?

The new regime applies by default.

Q2. Can I switch regimes every year?

Salaried individuals without business income can choose each year; business owners have restrictions.

Q3. Is the standard deduction available in the new regime?

Yes, for salaried taxpayers.

Q4. Should I tell my employer which regime I choose?

Yes, so TDS is calculated correctly, though you can still choose finally while filing if eligible.