Old vs new tax regime: how to decide which is better for you

The short answer

For many salaried people the new regime now costs less, because income up to Rs 12 lakh pays no tax after the rebate and the standard deduction is Rs 75,000. The old regime can still win if you have large deductions.

Deductions that favour the old regime

• Home loan interest (up to Rs 2 lakh on a self-occupied house)
• HRA exemption if you pay high rent
• Section 80C investments such as PPF, EPF and ELSS (up to Rs 1.5 lakh)
• Health insurance under 80D
• NPS under 80CCD(1B), up to Rs 50,000

How to compare in three steps

• Write down your yearly income and each deduction you actually have.
• Enter them into the Income Tax Calculator India; it shows both regimes side by side.
• Pick the regime with the lower total tax and tell your employer.

A rule of thumb

If your deductions are small, the new regime is usually better. If they add up to more than about Rs 3.75 lakh to Rs 4 lakh on top of the standard deduction, test the old regime. Your own numbers decide.

Good to know

Salaried people can switch regimes every year. Rules change in each Budget, so confirm with the income tax department or a tax professional before you file. This article is general information, not tax advice.