From FY 2024–25, the new tax regime became the default — you must actively opt out to file under the old regime. With the Budget 2025 raising the rebate threshold to ₹12 lakh under the new regime, many salaried taxpayers will find the new regime more beneficial. But it's not universal.
Quick Decision Matrix
| Annual Income | Best Regime | Approximate Saving |
|---|---|---|
| Up to ₹12,00,000 | New Regime | Zero tax with rebate |
| ₹12L – ₹15L (few deductions) | New Regime | ₹15,000 – ₹40,000 |
| ₹12L – ₹15L (max 80C+HRA+loan) | Old Regime | ₹10,000 – ₹30,000 |
| ₹15L – ₹25L (moderate deductions) | Case-specific | Get a CA calculation |
| Above ₹25L (high deductions) | Old Regime | ₹50,000 – ₹2,00,000+ |
| ₹50L+ HNI (max deductions) | Old Regime | ₹2,00,000+ |
The Critical Breakeven Calculation
The old regime is better only if your total deductions exceed the 'breakeven deduction'. For a person in the 30% bracket, this is approximately ₹3.75 lakh in deductions. If your deductions (80C + HRA + home loan + 80D + others) exceed this, stick with old regime.
Deductions Only in Old Regime
- Section 80C: Up to ₹1.5 lakh (ELSS, PPF, LIC, EPF, home loan principal)
- HRA Exemption: Actual rent paid minus 10% of basic salary
- Home Loan Interest (Sec 24b): Up to ₹2 lakh (self-occupied)
- Section 80D: Health insurance — ₹25,000 self + ₹50,000 parents (senior)
- LTA (Leave Travel Allowance): Actual travel cost exemption
- Section 80E: Education loan interest (100% of interest, 8 years)
- Section 80G: Charitable donations (50% or 100% depending on institution)
Benefits Available in Both Regimes
- Standard Deduction: ₹75,000 for salaried (FY 2025–26)
- NPS Employer Contribution: Section 80CCD(2) — up to 10% of salary
- Gratuity Exemption: Statutory limit
- Leave Encashment: On retirement (₹25 lakh limit)
- Section 87A Rebate: Under new regime, no tax if income ≤ ₹12 lakh
Note: Salaried employees: You can switch regimes every year when filing ITR. Business owners/professionals: Switching is allowed once in a lifetime (old to new). Plan carefully.