Learn · Your first salary
Old or new tax regime: which one is yours
Two ways to work out income tax. How to tell which leaves more in your bank.
4 min read
Two sets of rules, you pick one
Every year you choose how your income tax is worked out. The new regime has lower rates and very few deductions. The old regime has higher rates but lets you subtract things like 80C investments, health insurance and HRA.
₹12.75 lakh
Salary with zero tax under the new regime (FY 2026-27)
₹75,000 standard deduction brings it to ₹12 lakh taxable, and a rebate covers the tax up to there.
The new regime is the default
If you don't tell your employer, they use the new regime. Rates: nil up to ₹4 lakh, then 5% to 30% in ₹4 lakh steps, plus 4% cess. Standard deduction is ₹75,000.
Side by side
The two regimes
New regime
- Lower rates, nil up to ₹4 lakh
- ₹75,000 standard deduction
- Almost no other deductions
- No tax up to ₹12.75 lakh salary
Old regime
- Higher rates
- ₹50,000 standard deduction
- 80C, 80D, HRA, home loan count
- Wins only with large deductions
Below about ₹12.75 lakh of salary, the new regime usually wins because of the rebate.
Guess first
₹15 lakh salary. You claim ₹1.5 lakh under 80C, ₹25,000 under 80D and ₹2 lakh of HRA. Which regime costs less?
See the answer
New regime. New regime tax is about ₹97,500. Old regime tax is about ₹1,40,400. Even with all those deductions, the new regime is about ₹43,000 cheaper. Run your own numbers before you decide.
Myth
Investing in ELSS or PPF always saves tax.
Fact
Only under the old regime. In the new regime, 80C investments don't reduce your tax at all.
When you can switch
Salaried people can pick again every year when filing their return, even if they told their employer something else. People with business income can switch back only once.
Words from this lesson
- Cess: An extra 4% on top of your income tax, for health and education.
- ELSS: Equity linked savings scheme: an equity fund with a 3-year lock-in and an 80C deduction.
- New tax regime: The default way to work out income tax: lower rates, few deductions.
- Old tax regime: The optional way to work out tax: higher rates, but with deductions like 80C, 80D and HRA.
- PPF: Public Provident Fund: a 15-year government savings scheme.
- Section 80C: Deductions up to ₹1.5 lakh a year for things like EPF, PPF, ELSS and life insurance. Old regime only.
- Section 80D: A deduction for health insurance premiums. Old regime only.
- Section 87A rebate: A rebate that cancels tax below a certain income.
- Standard deduction: A flat amount taken off salary before tax, with no proof needed.
Next in Your first salary: Reading your Form 16