Old vs new tax regime: which should you choose?
There is a rebate cliff where one extra rupee of income costs you ₹62,416. There is also a break-even point most people are nowhere near. Both matter more than the slab tables.
Calci Editorial · · 5 min read
Every February this argument restarts and every February it is framed wrongly.
The question is not which regime is better. Neither is better. The question is where your numbers put you, and there are exactly two things that decide it — one of which almost nobody mentions.
Start with the cliff, because it is the strangest thing in the system
Under the new regime, taxable income up to ₹12,00,000 pays no tax at all. Section 87A wipes it out.
At ₹12,00,001 the rebate does not shrink. It vanishes.
| Taxable income | Total tax |
|---|---|
| ₹12,00,000 | ₹0 |
| ₹12,00,100 | ₹62,416 |
One hundred rupees of extra income costs ₹62,416.
Not a higher rate on the extra. The tax is computed from the first slab upward as though the rebate never existed.
With the ₹75,000 standard deduction, a salaried person can earn ₹12,75,000 gross and pay nothing. Earn ₹12,80,000 and you owe around ₹63,000.
If your taxable income is landing anywhere between ₹12,00,001 and roughly ₹12,60,000, you are worse off than someone earning less than you. An employer NPS contribution under 80CCD(2) — the one deduction that survives in the new regime — that pushes you back under the line is worth many times its face value.
That is the single most valuable thing to check before March. Nobody's payroll department will check it for you.
The new regime, in practice
| Gross salary | Tax | Effective rate |
|---|---|---|
| ₹8,00,000 | ₹0 | 0% |
| ₹10,00,000 | ₹0 | 0% |
| ₹12,75,000 | ₹0 | 0% |
| ₹15,00,000 | ₹97,500 | 6.50% |
| ₹20,00,000 | ₹1,92,400 | 9.62% |
| ₹30,00,000 | ₹4,75,800 | 15.86% |
Someone on ₹20 lakh is a "30% taxpayer" and pays 9.62% of their salary.
That is because slabs are slices. Each rate applies only to the money inside its band, not to everything you earned. A raise never reduces your take-home pay — the cliff above is the one exception and it is a rebate, not a slab.
Where the old regime starts winning
The old regime has higher rates and a long list of deductions. It needs enough of them to overcome the gap.
Tip: The income tax calculator runs both regimes on your numbers at once and names the cheaper one.
On a ₹15,00,000 salary:
| Deductions claimed | New regime | Old regime | Better |
|---|---|---|---|
| ₹0 | ₹97,500 | ₹2,57,400 | New |
| ₹1,50,000 | ₹97,500 | ₹2,10,600 | New |
| ₹3,50,000 | ₹97,500 | ₹1,48,200 | New |
| ₹5,00,000 | ₹97,500 | ₹1,06,600 | New |
| ₹5,50,000 | ₹97,500 | ₹96,200 | Old, barely |
About ₹5.4 lakh of deductions before the old regime wins.
What does ₹5.4 lakh actually look like? The full ₹1.5 lakh of 80C, ₹50,000 of extra NPS, ₹2 lakh of home loan interest, and roughly ₹1.4 lakh of HRA exemption.
So: paying substantial rent, servicing a home loan, and maxing out your 80C investments — simultaneously. That is a real person, and it is not most people.
And note how narrow the win is even then. ₹1,300 a year. That is not worth restructuring your finances for.
What each regime actually allows
Both:
- Standard deduction — ₹75,000 new, ₹50,000 old
- Employer NPS under 80CCD(2), up to 14% of basic in the new regime
- Employer EPF contribution within limits
Old regime only:
- 80C up to ₹1.5 lakh — EPF, PPF, ELSS, life insurance, home loan principal, children's tuition
- 80CCD(1B), an extra ₹50,000 for NPS
- 80D — health insurance, ₹25,000 for yourself, ₹50,000 for senior citizen parents
- HRA exemption under 10(13A)
- Home loan interest under 24(b), up to ₹2 lakh on a self-occupied property
- 80E, education loan interest, uncapped
- 80TTA and 80TTB on deposit interest
That HRA line matters more than the list length suggests. In Mumbai or Bengaluru, rent alone can carry someone past the break-even. Everywhere else it usually cannot.
The part that changed quietly
Two things worth knowing that get lost in the slab comparisons.
The new regime is the default. Since FY 2023-24 you have to opt out of it. Doing nothing means you are in it. A lot of people are in the new regime without having decided anything.
Home loan tax benefits are gone for most people. Under the new regime, neither the ₹2 lakh interest deduction nor the 80C principal exists. For a taxpayer who has moved across — as most have, because it is cheaper without large deductions — a home loan carries no tax benefit whatsoever.
That has not filtered through. Property is still sold on "tax saving" and for most buyers now there isn't any.
Switching
Salaried: you choose fresh every year when you file. Nothing is locked. Compute both, pick the cheaper, done.
Business or professional income: one move back to the old regime, using Form 10-IEA, and once you return to the new one you cannot go back again. That makes it a genuine commitment for the self-employed rather than an annual decision.
One more thing that catches people: your employer's TDS follows whatever you declared to them. Your return does not have to. If you told HR "new" and the old regime works out better, claim it when filing and take the difference as a refund. You have financed the government in the meantime, which is an argument for getting the declaration right — not for feeling stuck with it.
Surcharge, briefly
Above ₹50 lakh of taxable income a surcharge applies on the tax, not the income.
The new regime caps it at 25%. The old regime goes to 37% above ₹5 crore.
On very high incomes that difference alone decides the regime, and it decides it in favour of the new one regardless of deductions.
What to actually do
Three steps, once a year, in about ten minutes.
- Add up your real deductions — not what you could theoretically claim. What you actually invested, actually paid in rent, actually paid in home loan interest.
- Compute both regimes with that number.
- Check the cliff. If new-regime taxable income lands just over ₹12 lakh, see whether an employer NPS contribution pulls it back under.
That is it. The rest of the annual argument is noise.
Where these slabs come from
Every number in this comparison is set in the Finance Act and changes with the Budget, which is why a regime comparison written a year ago can quietly mislead.
The slabs, the standard deduction, the rebate and the surcharge thresholds for the current year are published on the Income Tax Department's portal, which is also where the department's own regime comparison sits. The deductions that make the old regime worth keeping — 80C, the HRA exemption, home loan interest — are defined there too, and their limits have not moved in step with the slabs.
Two figures decide this for most people: your total eligible deductions, and the point at which they exceed what the new regime gives away for free. Both are on that portal, and both are worth checking against your own payslip rather than against an example.
The income tax calculator runs both regimes side by side and shows which one is cheaper for your numbers, including the rebate cliff. If HRA is what tips the balance for you, the HRA exemption calculator works out which of the three limits is binding — usually not the one people expect. And if you are considering NPS for the extra ₹50,000, the NPS calculator shows what the compulsory annuity at the end actually costs.