Choosing between the new and old tax regimes
How both regimes are built for FY 2025-26, the deduction threshold at which the old one starts winning, and the rebate cliff that makes one extra rupee cost thousands.
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In short
- The new regime is the default. You have to opt out of it, not into it.
- The old regime only wins once deductions are large. On a ₹15 lakh salary it takes about ₹5.4 lakh of them before it beats the new regime.
- The 87A rebate is a cliff, not a slope. Taxable income of ₹12,00,000 pays nothing; ₹12,00,001 pays from the first slab upward.
- Salaried taxpayers may switch regimes every year. Anyone with business income gets one switch back, permanently.
- Surcharge is charged on the tax, not the income, and the new regime caps it at 25% where the old goes to 37%.
India has run two parallel income tax systems since 2020. The new regime has lower rates and almost no deductions; the old regime has higher rates and a long list of them. Since FY 2023-24 the new one is the default, so doing nothing means being taxed under it.
Which costs less depends entirely on how much you can actually deduct — not on which sounds better.
The slabs
Tax is charged slice by slice, not at one rate on the whole income:
tax = Σ (income falling in each slab × that slab's rate)
total = (tax − rebate + surcharge) × 1.04 — the 4% health and education cess applies to tax plus surcharge, after the rebate.
New regime, FY 2025-26:
| Taxable income | Rate |
|---|---|
| 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% |
Old regime:
| Taxable income | Rate |
|---|---|
| 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% |
The old regime reaches 30% at ₹10 lakh; the new one does not until ₹24 lakh. That gap is why the new regime wins for anyone without substantial deductions.
Both add health and education cess of 4% on the tax, and both apply surcharge above ₹50 lakh of taxable income.
Slabs are slices, not a single rate
The most common misunderstanding about Indian income tax is that crossing into a higher slab taxes your whole income at that rate. It does not. Each slab applies only to the portion of income inside it.
On ₹20,00,000 of salary under the new regime, after the ₹75,000 standard deduction leaves ₹19,25,000 taxable:
| Slab | Income taxed | Rate | Tax |
|---|---|---|---|
| Up to ₹4,00,000 | ₹4,00,000 | 0% | ₹0 |
| ₹4L – ₹8L | ₹4,00,000 | 5% | ₹20,000 |
| ₹8L – ₹12L | ₹4,00,000 | 10% | ₹40,000 |
| ₹12L – ₹16L | ₹4,00,000 | 15% | ₹60,000 |
| ₹16L – ₹19.25L | ₹3,25,000 | 20% | ₹65,000 |
| Tax | ₹1,85,000 | ||
| Cess 4% | ₹7,400 | ||
| Total | ₹1,92,400 |
The effective rate is 9.6%, not the 20% of the top slab reached. A raise never reduces your take-home pay.
The rebate, and why it is a cliff
Section 87A gives a rebate that wipes out the tax entirely below a threshold: taxable income up to ₹12,00,000 under the new regime pays nothing. Under the old regime the threshold is ₹5,00,000, delivered as a credit of up to ₹12,500.
With the ₹75,000 standard deduction, a salaried person can earn about ₹12.75 lakh gross and pay no tax at all.
The important word is cliff. The rebate is not tapered — it applies in full below the limit and not at all above it. Taxable income of ₹12,00,000 pays nothing. Taxable income of ₹12,00,001 pays tax computed from the first slab upward, which comes to ₹62,416 including cess.
One rupee of extra income costs roughly ₹62,400. If your taxable income lands just above the line, an additional deduction — an employer NPS contribution, for instance — that brings it back under is worth far more than its face value. This is the single most valuable thing to check before the financial year closes.
Where the old regime starts winning
The old regime's higher rates have to be outweighed by its deductions. The break-even point depends on income.
On a ₹15,00,000 salary:
| Deductions claimed | New regime tax | Old regime tax | Better |
|---|---|---|---|
| ₹0 | ₹97,500 | ₹2,57,400 | New |
| ₹2,00,000 | ₹97,500 | ₹1,95,000 | 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, narrowly |
On this salary the old regime needs roughly ₹5.4 lakh of deductions before it wins. That is a full ₹1.5 lakh under 80C, ₹50,000 of NPS, ₹2 lakh of home loan interest and around ₹1.2 lakh of HRA exemption — achievable, but only for someone who is simultaneously paying rent, servicing a home loan and saving heavily.
The threshold rises with income, because the new regime's wider slabs help more as you earn more.
What each regime allows
Both regimes allow:
- Standard deduction — ₹75,000 in the new regime, ₹50,000 in the old, on salary and pension only
- Employer NPS contribution under 80CCD(2), up to 14% of basic in the new regime
- Employer contribution to EPF within limits
Only the old regime allows:
- 80C, up to ₹1,50,000 — EPF, PPF, ELSS, life insurance, principal repaid on a home loan, children's tuition
- 80CCD(1B), an extra ₹50,000 for NPS
- 80D — health insurance premiums, ₹25,000 for yourself and ₹50,000 for senior citizen parents
- HRA exemption under 10(13A)
- Home loan interest under section 24(b), up to ₹2,00,000 on a self-occupied property
- 80E, education loan interest, with no cap
- 80TTA and 80TTB on savings and deposit interest
If you pay significant rent or service a home loan, those two alone often decide it.
Surcharge
Above ₹50 lakh of taxable income an additional surcharge applies on the tax, not on the income:
| Taxable income | New regime | Old regime |
|---|---|---|
| ₹50L – ₹1Cr | 10% | 10% |
| ₹1Cr – ₹2Cr | 15% | 15% |
| ₹2Cr – ₹5Cr | 25% | 25% |
| Above ₹5Cr | 25% | 37% |
The new regime caps surcharge at 25%, which is a meaningful advantage at the top: on ₹6 crore of taxable income the difference between a 25% and a 37% surcharge runs into several lakh.
Marginal relief applies at each threshold, so crossing ₹50 lakh by a small amount does not cost more in surcharge than the income gained.
Switching between them
Salaried taxpayers choose afresh every year when filing. Nothing is locked in, so the sensible approach is to compute both each year and pick the cheaper — which is what this calculator does automatically.
Anyone with business or professional income gets one move back to the old regime, using Form 10-IEA, and after returning to the new regime cannot go back again. That makes the choice a genuine commitment for the self-employed rather than an annual decision.
Note that your employer's TDS follows whichever regime you declared to them, but the return you file can use the other one. If you declared new and the old works out better, you claim the difference as a refund.
Before the financial year closes
Three checks are worth running in February or early March, while there is still time to act on them.
Are you just above the rebate cliff? If your taxable income under the new regime lands between ₹12,00,001 and roughly ₹12,60,000, an additional deduction that brings it under ₹12,00,000 saves far more than it costs. An employer NPS contribution under 80CCD(2) is the only meaningful lever available in the new regime, and it has to be routed through payroll rather than paid yourself.
Have you actually made the investments you declared? Employers collect declarations in January and proof by March. Tax is deducted on the declaration and reconciled against the proof, so an investment declared and not made shows up as a large deduction in the March salary.
Does the regime you told your employer still match the better one? Your TDS follows the declaration; your return does not have to. If the numbers have changed — a bonus, a new home loan, a rent increase — recompute both and file under whichever is cheaper. The difference comes back as a refund, though you have financed the government in the meantime, which is a reason to get the declaration right rather than to rely on the refund.
What this calculator assumes
- FY 2025-26 rates for both regimes.
- Salary or pension income only. Capital gains are taxed at their own rates and are not modelled here.
- The standard deduction applies only where income type is set to salaried.
- Deductions entered are assumed to be within their individual statutory caps.
- Marginal relief on surcharge is not applied, so figures just above ₹50 lakh may be slightly overstated.