What the two regimes are
India offers two ways to calculate personal income tax. The old regime uses higher slab rates but allows a wide range of deductions and exemptions. The new regime uses lower slab rates but removes most of those deductions. The new regime is now the default, so you have to actively opt for the old regime if it suits you better.
Slab rates compared
The headline difference is the slab structure. The table below shows the general shape of the two regimes. Confirm the exact figures for the relevant financial year, as slabs are revised in the annual Budget.
| Annual income | Old regime | New regime |
|---|---|---|
| Up to ₹2.5 lakh | Nil | Nil |
| ₹2.5–5 lakh | 5% | Lower / nil |
| ₹5–10 lakh | 20% | Reduced slabs |
| Above ₹10 lakh | 30% | Reduced slabs |
| Deductions (80C, 80D, HRA, etc.) | Available | Mostly not available |
| Standard deduction (salaried) | Available | Available |
Deductions and exemptions
This is where most of the decision is made. Under the old regime you can reduce taxable income through investments and expenses such as 80C (up to the prescribed limit), 80D health insurance, HRA, home loan interest and more. Under the new regime these are largely unavailable, though salaried individuals still get the standard deduction.
The practical question is simple: do your genuine deductions save you more tax than the new regime's lower rates would? If yes, the old regime is likely better.
Who each regime suits
The old regime tends to suit people with a home loan, significant 80C investments, health insurance and rent paid against HRA. The new regime tends to suit those early in their careers, those who do not invest heavily in tax-saving instruments, or anyone who prefers a simpler filing with fewer documents to maintain.
How to decide
Add up the deductions and exemptions you can genuinely claim for the year. Compute your tax under the old regime with those deductions, then compute it under the new regime without them. Whichever produces the lower liability is your regime for that year. Because your situation changes year to year, it is worth repeating this check each filing season.