Two Regimes, One Choice Each Year—And It Can Save You ₹20K to ₹1L
India offers two income tax regimes, and the wrong choice can cost you ₹20,000 to ₹1 lakh in extra tax every year. The Old Regime allows deductions under 80C (₹1.5L), 80D (₹25K–75K), HRA, LTA, home loan interest, and others, but has higher tax slab rates. The New Regime (default from FY 2023-24) has lower slab rates and a higher standard deduction (₹75,000) but removes almost all other deductions. You can choose either regime each financial year, and you should run the numbers every April. The right choice depends entirely on your income, investments, rent, and home loan, not on what your colleague chose or what someone said online. This guide explains both regimes in detail so you can make an informed decision for FY 2024-25 and beyond.
Key Takeaways
- New is default: If you don't choose, New Regime applies. Opt for Old via ITR or declaration if it saves tax
- Compare both: Use a calculator. Break-even often when deductions cross ₹2.5–3L
- Slabs differ: New has lower rates up to ₹15L income; Old has higher rates but deductions reduce tax
- Switch yearly: Choice is per financial year. Recalculate each April
- Rebate 87A: New Regime offers zero tax for income up to ₹7L (effectively ₹12L with standard deduction)
Old Regime: Tax Slabs (FY 2024-25)
📊 General taxpayer (below 60)
New Regime: Tax Slabs (FY 2024-25)
📊 Default regime
What Old Regime Allows (That New Doesn't)
- Section 80C: Up to ₹1.5L (EPF, PPF, ELSS, LIC, NSC, home loan principal, etc.)
- Section 80D: Up to ₹25K–75K for health insurance
- HRA exemption: Based on rent paid, basic, and actual HRA
- LTA: Leave travel allowance exemption (subject to rules)
- Home loan interest (24b): Up to ₹2L for self-occupied property
- Other 80-series: 80E (education loan), 80G (donations), 80TTA/TTB (interest), etc.
- Entertainment allowance, professional tax (as deduction)
What New Regime Allows
- Standard deduction: ₹75,000 (vs ₹50,000 in Old)
- Employer NPS contribution: Deductible up to 10% of basic + DA
- Agri income (for specified limit) and allowances for transport, per diem as per notification
- No 80C, 80D, HRA, LTA, or home loan interest deduction for most taxpayers.
When Old Regime Usually Wins
Old Regime tends to be better when your total deductions (80C + 80D + HRA + home loan interest + others) are significant (typically ₹2.5L or more). Example: ₹80C ₹1.5L + 80D ₹25K + HRA ₹1.5L = ₹3.25L deductions. At 30% slab, that saves ₹97,500 in tax. The higher slabs in Old Regime may not erase this benefit. Run the numbers: the break-even depends on income level and deduction mix.
When New Regime Usually Wins
New Regime often wins when you have minimal investments, don't pay rent (no HRA), have no home loan, or earn up to ₹15L with few deductions. The lower slabs and ₹75,000 standard deduction can result in less tax than Old Regime even with moderate 80C. Example: ₹12 LPA, no HRA, ₹1L in 80C. New Regime may save ₹15–25K. Always use a calculator; rules of thumb can be wrong for your case.
How to Opt for Old Regime
- Salaried: File Form 10IE before the due date (usually July 31) or inform employer via declaration. Employer will apply Old Regime for TDS.
- Filing ITR: Select Old Regime when filing. Ensure all deductions are claimed with proof.
- Default: If you do nothing, New Regime applies. You must actively opt for Old if you want it.
Use Our Tax Regime Calculator
Enter your income, 80C, 80D, HRA, home loan interest, and other details. The calculator shows tax under both regimes and recommends the one that saves you more. Re-run when salary or investments change.
Disclaimer
Tax slabs and rules are as per prevailing law. Verify with current Finance Act. Consult a CA for your specific situation.