Old regime or new — the break-even deduction test
There is one number that decides it. Work out the total deductions you can genuinely claim, and compare it to the break-even for your income.
The regime choice is presented as complicated. It reduces to a single comparison: the new regime offers lower rates and almost no deductions; the old regime offers higher rates and a long list of deductions. Whichever produces less tax wins.
The test
For every income level there is a break-even deduction amount. Claim more than that under the old regime and it wins. Claim less and the new regime wins.
The critical word is genuinely. Not deductions you could theoretically claim if you rearranged your finances — deductions you actually have.
What only exists in the old regime
- Section 80C: EPF, PPF, ELSS, life premiums, principal on a home loan, children's tuition
- Section 80D: health insurance premiums
- HRA exemption, if you rent and receive HRA
- Home loan interest on a self-occupied property
- 80CCD(1B): the additional NPS contribution
- 80TTA/80TTB: savings and deposit interest
- Donations, education loan interest, and several smaller heads
The new regime keeps the standard deduction and the employer's NPS contribution, and drops nearly everything else.
Where each tends to win
New regime usually suits: people who do not rent or do not get HRA, those without a home loan, anyone whose 80C is filled only by the mandatory EPF deduction, and people who dislike locking money into tax-saving instruments.
Old regime usually suits: those paying substantial rent with HRA, home loan borrowers still in the interest-heavy early years, people supporting parents with health insurance premiums, and anyone already committed to PPF and ELSS.
Do not buy products to win the comparison
Investing ₹1,50,000 in a five-year lock-in you did not want, in order to save ₹45,000 in tax, is not a saving. You have committed ₹1,50,000 of liquidity to keep ₹45,000. If the underlying instrument is one you would have chosen anyway, the deduction is a bonus. If not, it is a cost dressed as a benefit.
This is the single most reliable way tax-saving season loses people money.
Compute both
Practical notes
Salaried employees can generally switch regimes each year at filing, so a declaration made to your employer in April is not permanent — though getting it wrong means TDS is deducted on the wrong basis all year and refunded later. Business income is treated more restrictively.
Recompute annually. A home loan ending, a move out of rented accommodation, or a change in slab structure can flip the answer.
Open the income tax calculator
Where these figures come from
- Income Tax Department, Government of India — Slabs, deductions, exemption limits and holding periods
Published by FinClamp. This guide is information, not financial advice — see the disclaimer.