Old vs New Tax Regime: When Does the Old One Still Win?

When the old regime still wins

Payroll asks you to pick a regime every April, and the default isn't always the cheaper one.

The new regime under Section 202 (formerly Section 115BAC) has lower slabs and a ₹75,000 standard deduction but drops almost every deduction. The old regime keeps them, at higher rates. It wins only when your deductions close that gap, which usually takes a combination: HRA in your salary while you pay rent, a loan on a home you live in, and the full Section 123 and Section 126 limits. Up to ₹12.75 lakh of salary, the rebate under Section 156 (formerly Section 87A) brings new-regime tax to nil, so the old regime can at best match it.

Break-even by salary

A single rule of thumb for deductions is easy to quote and often wrong for your salary.

These are the deductions, beyond the old regime's ₹50,000 standard deduction, at which both regimes give the same tax. Above the figure, the old regime is lower.

From ₹25 lakh to ₹50 lakh the break-even holds at ₹8,00,000, because each extra rupee is taxed at 30% under both regimes. The table assumes no employer pension contribution; the calculator includes it.

An ₹18 lakh salary, worked through

Break-even figures are easier to trust on a real payslip.

Take ₹18 lakh gross, ₹7.2 lakh basic + DA, ₹3.6 lakh HRA and rent of ₹30,000 a month in one of the eight cities. The HRA exemption is ₹2,88,000: the smallest of HRA received (₹3,60,000), rent minus 10% of basic (₹2,88,000) and 50% of basic (₹3,60,000).

With HRA and the full Section 123, 126 and 124(3) limits, deductions reach ₹5,13,000, short of the ₹6,41,667 break-even, so the new regime is lower by ₹40,144. Add ₹2,00,000 of interest on a loan for a home you live in, under Section 22(2) (formerly Section 24(b)), and deductions reach ₹7,13,000: the old regime is then lower by ₹22,256. Both claims can apply together when you rent where you work and own a home elsewhere that isn't let out.

What each regime allows

Section numbers changed on 1 April 2026, so older checklists no longer match your payslip.

The Income-tax Act, 2025 renumbered the deductions without changing their limits. Only the old regime allows:

Both regimes allow your employer's pension contribution under Section 124(1)–(2) (formerly Section 80CCD(2)), up to 14% of basic + DA in the new regime and 10% in the old for a private employer, and interest on a let-out home, set only against its rent in the new regime. Under the new regime, choose investments for the goal, not the tax break.

• HRA exemption: the smallest of HRA received, rent minus 10% of basic + DA, and 50% of basic + DA in Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad (40% elsewhere). Bengaluru, Hyderabad, Pune and Ahmedabad join the 50% list this tax year.
• Section 123 (formerly Section 80C): up to ₹1,50,000 across EPF, PPF, life cover premiums, tuition fees, home-loan principal and similar items.

• Section 126 (formerly Section 80D): health cover premiums up to ₹25,000 for you and your family and ₹25,000 for parents, each ₹50,000 if the person insured is 60 or older.

• Section 124(3) (formerly Section 80CCD(1B)): up to ₹50,000 of your own pension scheme contribution.

• Section 22(2) (formerly Section 24(b)): up to ₹2,00,000 of interest on a loan for a home you live in.

Choosing, and switching, each year

Many people think the regime they declared to payroll in April is locked for the year.

It isn't. What you tell your employer only sets the tax deducted from each salary. With no business income, the choice that counts is the one in your return for the year, filed by the due date, under Section 202(4) and Rule 136 of the Income-tax Rules, 2026. If more tax was deducted than you owe, the difference comes back as a refund; if less, you pay the balance. With business or professional income it's stricter: after opting out, you can return to the new regime only once.

Common mistakes

Most people overpay through habit, not through the slabs.

• Keeping last year's regime without comparing again.
• Comparing slabs alone, without HRA, home-loan interest and the employer pension contribution.
• Counting EPF on top of the ₹1,50,000 Section 123 limit, when it already counts within it.
• Assuming the ₹12 lakh rebate also covers tax on equity gains.
• Claiming HRA without the landlord's PAN once rent passes ₹1,00,000 a year.
• Buying something in March for a deduction your regime won't give.