New vs Old Tax Regime — Which Should You Choose? — Tax Year 2026/27
Since Budget 2020, Indian salaried employees can choose between two tax regimes every year. The New Regime (default from 2023-24 onwards) offers lower rates with no deductions. The Old Regime has higher rates but allows deductions like HRA, 80C, and home loan interest. Which one wins depends entirely on your deductions.
The Simple Decision Rule
Choose New Regime if…
- ✓ You have few or no investments (low 80C)
- ✓ You live in a company-owned / family house (no HRA)
- ✓ Your CTC is ≤ ₹12,75,000 (zero tax anyway)
- ✓ You want simplicity with no declarations
- ✓ You don't have a home loan
Choose Old Regime if…
- ✓ You max out 80C (EPF + ELSS/PPF = ₹1.5L)
- ✓ You pay high rent and claim HRA
- ✓ You have a home loan (₹2L interest deduction)
- ✓ You invest in health insurance (80D)
- ✓ Combined deductions exceed the break-even point
Break-Even Deduction Analysis
The Old Regime only wins if your total deductions (80C + HRA + 80D + 24b etc.) exceed the break-even threshold shown below. Below that, New Regime saves more.
| Annual CTC | Approx. Break-Even Deductions | Typical Verdict |
|---|---|---|
| Up to ₹12.75L | N/A (both = ₹0 tax) | New Regime |
| ₹15L | ~₹2.5L | Often New |
| ₹20L | ~₹3.75L | Depends |
| ₹30L | ~₹4.25L | Depends |
| ₹50L+ | ~₹5L+ | Often New |
Figures are approximate. Use the comparison calculator for your exact numbers.
What Deductions Count for Old Regime?
Standard Deduction₹50,000Flat, no proof needed
Employee EPF (12% of Basic)Part of 80C (auto)Always deducted; counts toward ₹1.5L 80C cap
Section 80C (ELSS/PPF/LIC etc.)Up to ₹1,50,000 total incl. EPFMax combined with EPF
HRA ExemptionVaries (see formula)Only if paying rent; not in New Regime
Section 80D (health insurance)Up to ₹25,000–₹1,00,000Includes parents' premiums
Home Loan Interest (Sec 24b)Up to ₹2,00,000Self-occupied property only
NPS 80CCD(1B)Additional ₹50,000Over and above 80C limit
When Can You Switch?
Salaried employees:You can switch between regimes every year. You tell your employer at the start of the financial year (via Form 12BB / declaration). Your employer deducts TDS accordingly.
Business income:Once you opt out of the New Regime (chose Old Regime), you can only switch back once in a lifetime if you have business income.
If you miss the employer deadline:You can still choose the correct regime when filing your ITR. Your employer will TDS under the default (New Regime), but you can claim any Old Regime deductions in your return.