Old vs New Tax Regime: How to Actually Decide Using Your Own Numbers

What's actually different between the two regimes?

The new tax regime offers wider income slabs and generally lower rates, but disallows most deductions and exemptions: no Section 80C, no 80D, no HRA exemption, and no 80TTA/80TTB on savings interest. The old regime keeps narrower slabs and higher headline rates, but lets you claim the full range of deductions if you actually have them to claim.

Because of this trade-off, which regime works out cheaper depends entirely on how much you can actually deduct under the old regime, not on which one sounds better in the abstract. For the full slab-by-slab rates under both regimes, see Income Tax Slabs for FY 2025-26; this article focuses specifically on how to decide between them once you know your own numbers.

A worked comparison

Consider a taxpayer with a modest salary, a small amount of taxable interest income, and a short-term capital gain of a couple thousand rupees, alongside a ₹1,50,000 contribution to a PPF account.

Under the new regime:

• Salary and interest together might fall well within the new regime's nil-rate band (up to ₹4,00,000), meaning slab-rate tax comes to zero regardless of income level below that threshold.
• The PPF contribution provides no benefit at all, since 80C isn't available under the new regime.
• The short-term capital gain is still taxed at its flat 20% rate. That doesn't change based on regime.

Under the old regime:

• The same salary and interest, before deductions, might sit above the old regime's ₹2,50,000 nil-rate band, creating some slab-rate tax.
• The ₹1,50,000 PPF contribution under Section 80C directly reduces taxable income, potentially bringing it back under the exemption threshold if the numbers are close.
• The same short-term capital gain is still taxed at 20%, unchanged.

In a case where total income (before deductions) is low enough that it sits under the new regime's ₹4,00,000 threshold anyway, both regimes can land on an identical tax bill, because the new regime's wider 0% band and the old regime's 80C deduction end up achieving the same result through different mechanisms. The PPF contribution isn't "wasted" in any real sense. It's simply not needed to bring tax to zero in that specific scenario, though it remains valuable for its own retirement-savings purpose.

This is the core insight worth taking from any old-vs-new comparison: the two regimes converge in outcome most often at the lower end of the income scale, where the new regime's wider bands do the same job the old regime's deductions would have. The gap between them tends to widen as income rises and as the value of unused deductions (80C, 80D, HRA, home loan interest) grows. For a fuller list of what's available beyond 80C, see tax rebates and deductions beyond Section 80C.

One thing that doesn't change between regimes

Capital gains taxed at special rates, short-term gains on listed equity at 20%, long-term gains on equity and equity mutual funds at 12.5% with the ₹1.25 lakh exemption, are computed the same way regardless of which regime you pick. Regime choice affects your slab-rate income and your deductions; it doesn't touch how capital gains themselves are taxed. See how mutual fund capital gains are actually taxed for the full breakdown.

How to actually decide

Rather than guessing based on general advice, add up your actual eligible deductions under the old regime (80C, 80D, HRA, home loan interest, 80TTA/TTB, and anything else you'd genuinely claim) and compare your tax liability both ways using your real numbers. If that total is small relative to your income, the new regime's simpler, wider slabs will usually come out ahead or equal. If you have substantial deductions (a large home loan, meaningful 80C investments, health insurance for a family), the old regime is worth running the numbers on before defaulting to the new one.