For years, the debate between old and new tax regimes was finely balanced. A few deductions for investments, health insurance, HRA and suddenly the old regime looked better.
Over the last couple of years, this equation has shifted.
Since tax slabs and rebate structures remain unchanged from last year, the advantage continues to lie with the new regime. For the average taxpayer, this is no longer a marginal difference. The government is gradually nudging taxpayers toward the new regime by making the system simpler.
The numbers
Under the old regime, the rebate shields income only up to ₹5 lakh. In the new regime, it stretches all the way to ₹12 lakh. Add the higher standard deduction of ₹75,000, and a salaried individual can walk away tax-free up to ₹12.75 lakh.
Now, the deductions required to make the old regime work are unrealistically high. Here’s a table that shows how much in deductions (breakeven amount) you need at different income levels for the old regime to even match the new.
How to use this table?
- If your total deductions > breakeven → the old regime wins.
- If your total deductions < breakeven → the new regime is better.
A few things to keep in mind:
- The breakeven figures exclude the ₹50,000 standard deduction under the old regime.
- For tax calculation under both regimes, we’ve already accounted for the standard deduction: ₹75,000 in new, ₹50,000 in old.
- If you don’t have salary income (and therefore no standard deduction), your numbers will change.
What this means?
For most of us, the old regime now requires unusually high deductions to match the new regime. Think of a taxpayer earning ₹12 lakh, they would need ₹6.5 lakh in deductions just to keep pace with the new regime. That’s a tall ask.
Only taxpayers with large HRA + home loan interest or education loan interest might tip the scales. But that’s a narrow slice of taxpayers, maybe under 10%.
And then a handful of deductions still survive under the new regime like employer NPS contributions and interest on let-out property loans. These should still be factored into your math.
There’s another cost to the old regime. The government is tightening disclosures for every deduction you claim. More details, more proofs, more hassle. So if the tax savings are marginal, I’d ask: is it worth the time and peace of mind?
To conclude, the old regime isn’t dead by law. But for most taxpayers, it’s dead in practice. Unless your deductions comfortably cross past the breakeven line, sticking with the new regime isn’t just better–it’s common sense.
Frequently asked questions
Can I switch between regimes every year?
Yes, if you’re a salaried individual or earn income from sources other than business/profession, you can choose your regime while filing your ITR. If you have business income, switching is restricted; you can only switch back to the new regime once in your lifetime after opting for the old regime.
Which regime is better if I have a home loan?
It depends on your total amount of deductions. If your home loan interest + other deductions (Section 123, Section 126, HRA) exceeds the breakeven level for your income, the old regime may still be beneficial. However, for most individuals earning under ₹15 lakh with typical home loan interest of ₹2–3 lakh, the new regime still tends to be more favorable.
I invest heavily under Section 123 instruments. Should I continue?
Yes, even though these investments don’t provide deductions under the new regime, options like EPF, PPF, and ELSS are still excellent for long-term wealth building. Tax savings are just one part of the equation – compounding, discipline, and asset allocation matter just as much.
What regime should I choose if I’m 65 years old?
Senior citizens (60-80 years) get a higher basic exemption of ₹3 lakh under the old regime, and super senior citizens (80+) get ₹5 lakh. However, the new regime doesn’t differentiate based on age. Even then, for many seniors with limited deductions and income in the ₹10–15 lakh range, the new regime often still works out better due to the ₹12 lakh rebate.