Old vs New Tax Regime Explained: Slabs, Rules & Savings

India offers two income tax systems: the traditional Old Tax Regime and the simplified, low-rate New Tax Regime. Under recent Union Budgets, the New Regime has been designated as the default tax option, featuring a higher standard deduction and wider tax slabs.

Understanding the Dual Tax System

The Old Regime permits numerous deductions (such as Section 80C, 80D, and HRA) but charges higher tax rates. In contrast, the New Regime eliminates most deductions in exchange for lower progressive tax slabs and a higher tax rebate, meaning net taxable income up to ₹7,00,000 pays zero tax.

Slab Rates Comparison (FY 2025-26 / AY 2026-27)

Review the primary tax brackets applicable for individuals below 60 years of age:

Deductions: What You Keep vs What You Lose

Under the Old Regime, you can deduct expenses to lower taxable income, including:

• Section 80C: Up to ₹1.5 Lakhs in PPF, EPF, ELSS, Life Insurance.
• Section 80D: Medical insurance premiums up to ₹25,000 (self/family) and ₹50,000 (parents).
• Section 24(b): Home loan interest deduction up to ₹2,00,000.
• HRA Exemption: Deduct house rent from salary.

The New Regime disables these deductions, retaining only the standard deduction (₹75,000 for salaried employees) and employer contributions to NPS (Section 80CCD(2)).

How to Decide the Best Regime for You

As a rule of thumb: if your total annual deductions (80C, 80D, HRA, etc.) exceed ₹2.5 Lakhs to ₹3 Lakhs, the Old Regime may save more money. Otherwise, the New Regime is highly advantageous, hassle-free, and requires no investment lock-ins.