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Old vs new tax regime: how to decide for this year
A simple three-step framework, common profiles and the rules on switching between the two regimes.
The basic trade-off
Both regimes tax the same income. The difference is in rates versus deductions:
- New regime: lower slab rates and a higher rebate, but most deductions and exemptions are not available. Salaried taxpayers still get a standard deduction, and the employer’s contribution to NPS is allowed.
- Old regime: higher slab rates, but you can claim deductions such as section 80C (PF, PPF, ELSS, life insurance, tuition fees), 80D (health insurance), HRA, LTA, interest on a home loan for a self-occupied house, and donations under 80G.
So the question is simple: are your deductions large enough to make up for the lower rates of the new regime?
A three-step way to decide
- List the deductions you will actually claim this year, using real amounts rather than limits. Many people assume they will use the full 80C limit and then don’t.
- Work out your tax under both regimes using the slab rates for the current year. The income tax department’s online calculator works, or we can do it for you.
- Compare the two and choose the lower, keeping in mind next year’s plans, such as a new home loan or a change in salary structure.
Which regime usually suits whom
| Profile | Usually better |
|---|---|
| Young professional with no home loan and few investments | New regime |
| Senior citizen with mainly pension and interest income | New regime, in most cases |
| Salaried, paying high rent in a metro, using full 80C and 80D | Compare both. The old regime may win |
| Home loan on a self-occupied house plus full 80C and 80D | Compare both. The old regime may win |
| Business owner or professional with few personal deductions | New regime, in most cases |
Rules on switching
- Salaried individuals (with no business income) can choose a regime afresh every year when they file their return, even if they declared a different one to their employer for TDS.
- Individuals with business or professional income who want the old regime must file Form 10-IEA by the return due date. They can switch back to the new regime only once.
Remember: slab rates, rebate limits and the standard deduction can change in every Union Budget. Always compare using the current year’s figures.
How we can help
We prepare a side-by-side tax calculation under both regimes before filing your return, and help you plan investments and salary structure for the year ahead.
Have a question about this topic?
Speak with our team about your situation.
This article is for general information only and is not professional advice. Laws and procedures change through amendments, notifications and circulars. Please consult us before acting on it.