Old vs new tax regime for salaried employees

All slabs and limits below are those announced in Union Budget 2025 (from FY 2025-26). The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026 and renumbers sections, so references such as 80C or 87A are 1961-Act numbers. Confirm the rates for the current year before deciding.

The two regimes at a glance

New regime slabs

The same slabs apply at every age in the new regime.

Old regime slabs

The old regime jumps from 5% to 20% at ₹5 lakh and reaches 30% at ₹10 lakh. That steep climb is what the deductions have to offset.

Standard deduction, rebate and marginal relief

Salaried employees get the standard deduction without any proof: ₹75,000 in the new regime, ₹50,000 in the old.

The rebate removes tax entirely below a threshold. In the new regime, slab tax on ₹12 lakh of taxable income is ₹60,000 and the rebate cancels it, so salary up to ₹12,75,000 with no other income pays no tax. In the old regime the rebate only covers taxable income up to ₹5 lakh.

Marginal relief in the new regime smooths the cliff just above ₹12 lakh: tax cannot exceed the amount by which taxable income crosses ₹12 lakh. Someone with taxable income of ₹12,10,000 pays ₹10,000 plus ₹400 cess, not ₹61,500 plus cess.

Deductions available only in the old regime

These are the main items salaried employees lose by staying in the new regime:

• HRA exemption for rent paid, based on the lowest of actual HRA, rent paid minus 10% of salary, and 50% or 40% of salary depending on the city.
• 80C up to ₹1,50,000: employee PF, PPF, ELSS funds, life insurance premium, children's tuition fees, home-loan principal and similar.
• 80D health insurance premium for self, family and parents, within limits.
• Home-loan interest on a self-occupied house, up to ₹2,00,000.
• Leave travel allowance for eligible domestic travel.
• Professional tax deducted by the employer (a state levy of at most ₹2,500 a year).
• Others such as the additional NPS deduction, education-loan interest and donations.

Employer contribution to NPS is deductible in both regimes, up to 14% of basic + DA in the new regime. It is worth checking whether your CTC structure already includes it.

Worked comparisons at four salary levels

Assumptions: gross taxable salary as shown, no other income, age below 60. For the old regime the employee claims ₹1,50,000 under 80C, ₹25,000 under 80D and ₹2,400 professional tax, a total of ₹1,77,400, with no HRA exemption or home loan. No surcharge applies at these levels. Cess is rounded to the nearest rupee.

With a typical ₹1.77 lakh of deductions, the old regime is more expensive at every level shown. The gap narrows only when HRA exemption and home-loan interest are added.

Break-even: how much you need to deduct

A more useful question is: how much would you need to claim in the old regime, beyond the ₹50,000 standard deduction, for your tax to equal the new regime? Include HRA exemption, 80C, 80D, home-loan interest, professional tax and every other old-regime item.

Up to ₹12,75,000 the new regime tax is nil, so the old regime can only tie by bringing taxable income down to ₹5 lakh. That is why the break-even at ₹12 lakh (₹6.5 lakh) is higher than at ₹15 lakh.

From about ₹24,75,000 gross, both regimes tax each extra rupee at 30%, so the break-even stays at ₹8 lakh of deductions until surcharge levels. Check at ₹15 lakh: ₹15,00,000 − ₹50,000 − ₹5,43,750 leaves ₹9,06,250 taxable, and old-regime tax of ₹12,500 + ₹81,250 = ₹93,750 equals the new regime's slab tax.

Which regime suits which employee

• No big rent or home loan: 80C and 80D alone max out around ₹1.75 lakh to ₹2.5 lakh. That is well short of break-even at any salary, so the new regime usually wins.
• Salary up to ₹12.75 lakh: new regime tax is nil. The old regime rarely beats zero.
• High metro rent or a home loan, on top of full 80C and 80D: deductions can approach ₹5 lakh to ₹8 lakh. Run both calculations.
• Committed long-term products: don't keep a policy or loan only for the tax break without comparing the actual saving.

The salary TDS calculator compares both regimes with your own numbers in a minute.

Choosing the regime with your employer

If you do nothing, your employer deducts TDS under the new regime. To use the old regime for TDS, tell your employer, usually when asked for tax declarations at the start of the year or when you join. Guidance under the 1961 Act said this choice is generally made once for the year and not changed midway; your employer may have its own cut-off.

The employer's choice only controls monthly TDS. A salaried employee with no business income can still choose either regime in the return, and any difference becomes a refund or extra tax. People with business or professional income face tighter limits on switching, so check with a CA. Our guide to TDS on salary shows how employers apply the choice month by month.

Employers using Swastik Payroll's salary management should note that the software does not record regime choices or compute tax. It records the TDS amount you arrive at as a payslip deduction.

Frequently asked questions

This guide is general information for employers and employees in India, not legal or tax advice. Statutory rates, limits and forms change; confirm the current position with EPFO, ESIC, the Income Tax Department or your CA before acting on it.