Since FY 2020-21, Indian taxpayers have had the option to choose between two income tax regimes: the old regime with higher slab rates but many deductions and exemptions, and the new regime with lower slab rates but fewer deductions. From FY 2024-25, the new regime is the default regime. If you want to opt for the old regime, you must explicitly indicate this when filing your return. The decision of which regime saves you more tax depends primarily on your income level, the value of deductions you can legitimately claim, and whether you have a home loan interest deduction. Use the Income Tax Calculator to enter your exact numbers and compare both regimes instantly.
Income Tax Slabs: Old Regime (FY 2024-25)
- Up to Rs 2.5 lakh: Nil
- Rs 2.5 lakh to Rs 5 lakh: 5 percent
- Rs 5 lakh to Rs 10 lakh: 20 percent
- Above Rs 10 lakh: 30 percent
Under the old regime, a standard deduction of Rs 50,000 applies for salaried individuals. Section 87A rebate is available for income up to Rs 5 lakh, reducing net tax to zero for those with taxable income at or below this threshold after deductions.
Income Tax Slabs: New Regime (FY 2024-25)
- Up to Rs 3 lakh: Nil
- Rs 3 lakh to Rs 7 lakh: 5 percent
- Rs 7 lakh to Rs 10 lakh: 10 percent
- Rs 10 lakh to Rs 12 lakh: 15 percent
- Rs 12 lakh to Rs 15 lakh: 20 percent
- Above Rs 15 lakh: 30 percent
Under the new regime, a standard deduction of Rs 75,000 applies for salaried individuals (increased from Rs 50,000 in Budget 2024). Section 87A rebate is available for taxable income up to Rs 7 lakh, meaning net tax is zero for individuals earning up to approximately Rs 7.75 lakh after standard deduction.
Key Deductions Available Only in Old Regime
- Section 80C: Up to Rs 1.5 lakh (EPF, PPF, ELSS, life insurance, home loan principal)
- Section 24b: Up to Rs 2 lakh on home loan interest for self-occupied property
- Section 80D: Up to Rs 25,000 on health insurance premium (Rs 50,000 for senior citizens)
- HRA exemption: Based on actual rent, 40 to 50 percent of basic salary, and actual HRA received
- Leave Travel Allowance exemption, professional tax deduction, and various other allowances
Who Benefits More from the Old Regime
The old regime saves more tax when your total deductions exceed a breakeven threshold. For an annual income of Rs 10 lakh, the breakeven deduction amount is approximately Rs 1.75 lakh. If your Section 80C, 80D, home loan interest, HRA, and other deductions together exceed Rs 1.75 lakh, the old regime results in lower tax. At Rs 15 lakh income, the breakeven deduction amount is approximately Rs 2.5 lakh. Taxpayers with a large home loan (Section 24b interest above Rs 1.5 lakh), maximum Section 80C investments, and health insurance typically save significantly more under the old regime.
Who Benefits More from the New Regime
The new regime is better for individuals with few or no deductions: young earners who have not yet started investing in 80C instruments, renters in cities where HRA exemption is minimal, individuals without a home loan, and those earning below Rs 7.75 lakh who pay zero tax under the new regime due to the standard deduction and rebate combination. The new regime also has a lower complexity burden since you do not need to track and document deductions.
Frequently Asked Questions
Can I switch between old and new regime every year?
Salaried individuals can switch between regimes every financial year when filing the income tax return. Business owners and professionals with business income can switch only once from the new regime back to the old regime. After switching back to the old regime, they cannot switch to the new regime again (with limited exceptions). Salaried individuals have more flexibility and should evaluate both regimes every year as deductions, income, and regime rules may change.
Which regime applies if I do not make any choice?
From FY 2024-25, the new regime is the default. If you do not explicitly opt for the old regime when filing your ITR, the new regime rates apply automatically. Inform your employer at the start of the financial year which regime you want for TDS purposes, since the employer deducts TDS based on your declared regime choice.
Is the new regime always better for income below Rs 7 lakh?
For most individuals with income below Rs 7.75 lakh (taxable income below Rs 7 lakh after the Rs 75,000 standard deduction), the new regime results in zero tax due to the Section 87A rebate. However, if your deductions under the old regime are very large and would bring your taxable income below Rs 5 lakh, the old regime also results in zero tax. The new regime is simpler in this bracket; the old regime may provide the same zero-tax outcome with more documentation effort.
Are capital gains taxed differently under old vs new regime?
Capital gains (LTCG and STCG) are taxed at special rates that are the same under both regimes. The choice of old vs new regime affects only your regular income tax slab rate, not the rate applied to capital gains. The Capital Gains Tax Calculator calculates capital gains tax independently of your income regime choice.