Old regime or new?
Every year you can choose between two tax systems. The right choice depends on how much you can genuinely claim in deductions.
The trade-off
The new regime (the default) has lower rates and wider slabs, but allows almost no deductions: essentially the standard deduction and your employer's NPS contribution under 80CCD(2).
The old regime has higher rates but allows many deductions: 80C up to ₹1.5 lakh, 80D for health insurance, 80CCD(1B) for NPS up to ₹50,000, HRA exemption, home loan interest up to ₹2 lakh and more.
Finding the break-even
For every income there's a level of deductions at which both regimes produce the same tax. Below it, the new regime wins; above it, the old one does. At ₹18 lakh salary, that break-even is roughly ₹6.4 lakh of deductions and exemptions beyond the standard deduction.
Few people genuinely reach that without a home loan and large HRA. That's why the new regime suits most salaried taxpayers since Budget 2025.
Don't buy products for deductions
Deductions only help if they are things you would do anyway: EPF, health insurance, a home loan you needed, NPS you wanted. Buying an insurance policy or a product purely for 80C often costs more than the tax it saves.
Key takeaways
- 1New regime: lower rates, few deductions. Old: higher rates, many deductions.
- 2Compare using your real deductions, every year.
- 3Never buy a product only to save tax.
Try it with your own numbers
Finish this lesson
Reaching the end marks it complete. You can also mark it yourself.
Educational content, not investment advice. Figures are illustrative.