Old or new tax regime: how to decide each year

Last reviewed October 2026

The short answer

Work out your tax both ways every year and pick the lower one; for most people today, that is the new regime. The old regime only wins when your deductions are large: for a salaried person earning ₹15–30 lakh, that usually means roughly ₹5.5–8 lakh of deductions on top of the standard deduction.

If your salary is up to about ₹12.75 lakh, the new regime normally brings your tax to zero, so there is little to decide. Above that, it depends on three things: how much rent you pay (and claim as HRA), whether you pay interest on a home loan, and how much you already put into PF, PPF, insurance and health cover.

Why the new regime wins more often now

The new regime has lower slab rates, a ₹75,000 standard deduction for salaried people, and a rebate that makes taxable income up to ₹12 lakh tax-free. The old regime has higher rates and a ₹50,000 standard deduction, but lets you claim deductions such as 80C (up to ₹1.5 lakh), 80D for health insurance, HRA, and interest on a home loan for a self-occupied house (up to ₹2 lakh). The Budget in February 2026 left the slabs and standard deduction unchanged, and the new Income-tax Act that came into force in April 2026 broadly carries both regimes forward.

So the question each year is simple: are your deductions big enough to make up for the old regime’s higher rates?

A rupee example

Take Arun, a salaried employee in Bengaluru earning ₹18 lakh a year. Here is his tax (including 4% cess) under each regime, in two situations.

In the first case, the new regime saves Arun nearly ₹1.5 lakh. In the second, the old regime saves him only about ₹10,000, even with ₹6.75 lakh of deductions. At his income, the break-even is roughly ₹6.4 lakh of deductions. That is why we say: do the sum, don’t go by habit.

One point mutual fund investors often miss

In the new regime, the rebate that makes income up to ₹12 lakh tax-free does not cover capital gains taxed at special rates, such as equity fund gains. So if your income is just under ₹12 lakh and you also book equity gains, you may still owe tax on those gains above the ₹1.25 lakh yearly exemption for long-term equity gains.

What we’d usually suggest

• Do the comparison every April. Rent, home loans, children’s school fees and salary all change. Last year’s answer may not be this year’s.
• Tell your employer early. Your choice at the start of the year decides how much TDS is cut each month. If you are salaried, you can still pick the other regime when you file your return.
• List only deductions you would claim anyway. EPF, a home loan you already have, rent you already pay, your family’s health cover. Don’t count investments you would only make to save tax.
• Don’t buy a product just to save tax. If the new regime suits you, there is no reason to keep an ELSS or insurance policy only for 80C. Keep investing if it fits your goals; stop if it was only for the deduction. We earn on ELSS, and we still tell clients this.
• Keep your health cover regardless. Losing the 80D deduction is no reason to drop it.

When it’s different

• Business owners and professionals. If you have business income, the new regime is the default. You can opt out by filing a form before the return due date, but once you have opted out, you can come back to the new regime only once. Choose carefully and think a few years ahead. We work with many business owners who check this with their chartered accountant before filing.
• Senior citizens. The old regime gives a higher basic exemption (₹3 lakh from age 60, ₹5 lakh from 80) and larger health insurance deductions. Retirees living on pension and interest may find the gap smaller, so compare both.
• A heavy year. A large home loan in its early years, high rent in a big city, plus a full 80C can tip the balance towards the old regime, as in Arun’s second case.
• Missing the deadline. If you file after the due date, you generally lose the choice and are taxed under the new regime.

CurateMyMoney is an AMFI-registered mutual fund distributor (ARN-184811). Mutual fund investments are subject to market risks. Read all scheme-related documents carefully. Tax rules mentioned are as applicable at the time of writing and may change; please check the current rules or consult a tax professional before acting.