Published 9 May 2026
Which Regime Saves You More Money?
The new tax regime offers an automatic standard deduction of INR 75,000. The old regime offers a standard deduction of INR 50,000 plus access to the entire Chapter VI-A architecture -- section 80C, section 80D, section 80E, section 80G, House Rent Allowance, home loan interest, and more. The trade-off is between simplicity and savings. This guide gives you the decision framework with worked examples.
What Each Regime Offers -- A Direct Comparison
Below is a feature-by-feature comparison. Items marked 'preserved' continue to be available even if you remain in the new (default) regime.
Feature | New Regime (Default) | Old Regime (Form 10-IEA) |
|---|---|---|
Standard Deduction | INR 75,000 (Finance Act, 2024 No. 2) | INR 50,000 |
Section 87A Rebate | INR 25,000 (income up to INR 7 lakh) | INR 12,500 (income up to INR 5 lakh) |
Section 80C investments | Not available | Up to INR 1.5 lakh |
Section 80D health insurance | Not available | Up to INR 1 lakh (self plus senior parents) |
Section 80E education loan | Not available | No cap, eight-year window |
Section 80G donations | Not available | 50% / 100% with / without gross-total-income cap |
Section 80TTA / 80TTB | Not available | INR 10,000 / INR 50,000 (senior citizen) |
Section 80U (self disability) | Not available | INR 75,000 / INR 1.25 lakh |
House Rent Allowance under section 10(13A) | Not available | Available (50% / 40% based on city) |
Leave Travel Allowance under section 10(5) | Not available | Available (two trips in a four-year block) |
Home loan interest under section 24(b) | Self-occupied: not available | Self-occupied: up to INR 2 lakh |
Section 80CCD(2) Employer National Pension System | Up to 14% of basic salary (preserved) | Up to 10% of basic salary |
Section 80JJAA Additional employee deduction | Available (preserved) | Available |
Section 80M Inter-corporate dividend | Available (preserved) | Available |
Section 80LA International Financial Services Centre | Available (preserved) | Available |
Section 80CCH Agniveer Corpus Fund | Available (preserved) | Available |
Decision Matrix -- Income Bands
There is no universal answer; it depends on actual deduction profile. Here is the decision matrix our practice uses with salaried clients during the annual tax planning conversation.
Income Band | Generally Better | Threshold to Tip Old Regime |
|---|---|---|
Up to INR 7 lakh | New regime (zero tax via section 87A) | Old needs INR 5 lakh aggregate deductions |
INR 7 to 10 lakh | Borderline; depends on profile | Old wins with INR 3 lakh of deductions |
INR 10 to 15 lakh | Old regime (with deductions) | Aggregate deductions of INR 3 lakh or more |
INR 15 to 50 lakh | Old regime (with deductions) | Aggregate deductions of INR 4 lakh or more |
INR 50 lakh to 2 crore | Mixed -- recompute case by case | Surcharge brackets shift the answer |
Above INR 5 crore | New regime (25% surcharge cap) | Saves approximately 12% absolute over old |
When the Old Regime Decisively Wins
- Home loan with INR 1.5 lakh or more in principal repayment plus INR 2 lakh or more in interest -- giving INR 3.5 lakh of exclusive deductions (section 24(b) plus section 80C).
- House Rent Allowance exemption with rent in Mumbai or Delhi at INR 50,000 or more per month -- typically INR 4 lakh or more in exemption.
- Section 80C maxed (Public Provident Fund plus Life Insurance Corporation premiums plus Equity Linked Savings Scheme), section 80D at INR 75,000 (self plus senior parents), and section 80E education loan -- giving INR 2.5 lakh of certain deductions.
- Donations under section 80G exceeding INR 50,000 to qualified institutions.
- Senior citizen with fixed deposit interest exceeding INR 50,000 plus section 80D senior medical claims plus section 87A rebate.
When the New Regime Decisively Wins
- Young professional with no home loan and limited investment activity -- the new regime is simpler and produces lower tax.
- High-net-worth individual earning above INR 5 crore -- the 25% surcharge cap (versus 37% in the old regime) saves substantial absolute tax.
- Senior citizen with only pension income below INR 7 lakh -- the section 87A rebate eliminates tax entirely.
- Limited compliance documentation appetite; willing to forgo deductions in exchange for simplicity.
Switching Mechanics -- Form 10-IEA
Form 10-IEA -- Critical Compliance Notes Salaried taxpayers (no profits and gains of business or profession): can switch annually, before the section 139(1) due date for filing the return. Profits and gains of business or profession assessees / professionals: ONE-TIME election under Finance Act, 2023. Reverting back to the new regime is allowed only ONCE; thereafter, you cannot return to the old regime. Form 10-IEA filed late means the new regime is the defaulted treatment for that year; the old regime is denied. Recommended: compute liability under both regimes annually; advise the client based on the actual deduction profile. |
Worked Example -- Salaried at INR 12 Lakh
Profile: salary INR 12 lakh; section 80C invested INR 1.5 lakh; section 80D INR 25,000; home loan interest under section 24(b) INR 2 lakh.
Item | New Regime (INR) | Old Regime (INR) |
|---|---|---|
Gross Salary | 12,00,000 | 12,00,000 |
Less: Standard Deduction | 75,000 | 50,000 |
Less: Section 80C / 80D / 24(b) | 0 | 3,75,000 |
Taxable Income | 11,25,000 | 7,75,000 |
Tax on Slabs (before rebate) | 68,750 | 67,500 |
Section 87A Rebate | 0 | 0 |
Health and Education Cess at 4% | 2,750 | 2,700 |
Total Tax | 71,500 | 70,200 |
Verdict: Old regime saves INR 1,300 -- marginal At INR 12 lakh income with INR 3.75 lakh in deductions, the regimes are nearly tied. The decision flips with each incremental INR 25,000 of deductions or income increase. Recompute annually under both regimes before filing. |
Key Takeaways
- The new regime is the default under Finance Act, 2023; the old regime requires Form 10-IEA election.
- Standard deduction is INR 75,000 in the new regime versus INR 50,000 in the old regime -- automatic in both.
- The old regime needs aggregate deductions of INR 4 to 5 lakh or more to consistently win at incomes of INR 12 lakh and above.
- With home loan plus House Rent Allowance plus section 80C maxed, the old regime saves INR 1 lakh or more annually for senior salaried taxpayers.
- For high-net-worth taxpayers above INR 5 crore, the new regime's 25% surcharge cap beats the old regime's 37% rate.
- Form 10-IEA must be filed before the section 139(1) due date for the old regime election to take effect.
Disclaimer: This article is for general information only. It does not constitute tax / legal advice. Please consult a qualified Chartered Accountant or tax practitioner for advice specific to your circumstances. The legal position is current as of FA 2024 (No. 2) / FA 2025; subsequent amendments and CBDT notifications may modify the position.