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Salary · PF and Tax Regime

Old vs New Tax Regime: Which Is Better For You?

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  1. Facts

    The most important annual tax decision for every salaried employee. New regime: lower rates, no deductions. Old regime: higher rates, many deductions. The winner depends entirely on HOW MUCH you invest and claim. Rule of thumb: if deductions > ₹3,75,000 per year → old regime is better. Below that → new regime wins. Calculate, don't guess.

  2. Provisions and law

    • Sec 202 (old 115BAC)

  3. Analysis

    Break-even deduction analysis, the key table: Income ₹10L. Old regime: taxable = ₹10L − ₹75K std − ₹1.5L Sec 123, Income-tax Act 2025 (old Sec 80C) − ₹25K Sec 126 (old Sec 80D) − ₹2L Sec 22(1)(b) (old Sec 24(b)) = ₹5.5L. Tax = 20% × (₹5.5L − ₹5L) + 12,500 = ₹22,500. New regime: taxable = ₹10L − ₹75K std = ₹9.25L. Tax = 5% × ₹4L (₹3-7L) + 10% × ₹2.25L (₹7-9.25L) = ₹20,000 + ₹22,500 = ₹42,500. OLD REGIME WINS if you have home loan + Sec 123 (old Sec 80C) investments. When new regime wins clearly: (1) No home loan. (2) No Sec 123 (old Sec 80C) investments beyond EPF (which is forced, not a choice). (3) No HRA (own accommodation). (4) Young employee, just started working, no investments yet. (5) Income below ₹7L, new regime Sec 156 (old Sec 87A) rebate makes tax zero. (6) Very high income (₹30L+) where deductions (capped at ₹3.75L) have limited impact on marginal tax.

  4. Conclusion

    1. List all deductions you actually use: Sec 123 (old Sec 80C; EPF + investments), Sec 126 (old Sec 80D; health insurance), Sec 22(1)(b) (old Sec 24(b); home loan interest), HRA
    2. Add standard deduction ₹75K to both regime computations
    3. Compute actual old regime tax: salary − ₹75K std − Sec 123 (old Sec 80C) − Sec 126 (old Sec 80D) − HRA − Sec 22(1)(b) (old Sec 24(b))
    4. Compute new regime tax: salary − ₹75K std − Sec 124 (old Sec 80CCD(2); if activated) → apply new slabs
    5. If old regime tax < new regime tax: opt for old regime. If new < old: new regime.
    6. Sec 156 (old Sec 87A) rebate check: if total income ≤ ₹7L in new regime → zero tax. Very powerful for lower incomes.

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