The new regime under Section 115BAC is now the default. But default is not optimal for everyone. A CA-grade head-to-head with the break-even calculation, worked examples across nine income brackets, and the switching rules founders keep getting wrong.
Since Assessment Year 2024-25, the new tax regime under Section 115BAC has been the default. If you do nothing, the portal files your return under the new regime. But 'default' is not the same as 'best' — and for a large minority of salaried employees and almost every business owner with meaningful deductions, the old regime still saves ₹20,000 to ₹1.5 lakh a year.
This is the exact framework Taxpex CAs use to make the old-vs-new decision for every client, every year. It's arithmetic, not ideology. Read it once and you'll never rely on a WhatsApp forward to make this call again.
| Income slab | Rate |
|---|---|
| Up to ₹3,00,000 | Nil |
| ₹3,00,001 – ₹7,00,000 | 5% |
| ₹7,00,001 – ₹10,00,000 | 10% |
| ₹10,00,001 – ₹12,00,000 | 15% |
| ₹12,00,001 – ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
| Income slab | Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
The new regime is superficially attractive because the slabs are wider and lower — 5% starts at ₹3L instead of ₹2.5L, 20% doesn't kick in until ₹12L instead of ₹5L, and 30% waits until ₹15L instead of ₹10L. But the old regime lets you subtract a stack of deductions before you even reach the slabs. The question is whether your deduction stack is big enough to beat the new regime's headline savings.
| Deduction / exemption | Old regime | New regime |
|---|---|---|
| Standard deduction (salaried) | ₹50,000 | ₹75,000 |
| Section 80C (LIC, PPF, ELSS, EPF, tuition, home-loan principal) | Up to ₹1.5L | Not allowed |
| Section 80D (health insurance) | Up to ₹75K | Not allowed |
| Section 80CCD(1B) — additional NPS | ₹50,000 | Not allowed |
| Section 80CCD(2) — employer NPS | 10%/14% of basic | 10%/14% of basic (allowed) |
| Section 24(b) — home-loan interest (self-occupied) | Up to ₹2L | Not allowed |
| Section 24(b) — let-out property interest | Full interest (subject to loss cap) | Full interest, but loss capped |
| Section 80E — education loan interest | Full, 8 years | Not allowed |
| Section 80G — donations | 50%/100% as applicable | Not allowed |
| Section 80TTA/TTB — savings interest | ₹10K/₹50K | Not allowed |
| HRA exemption | Available | Not allowed |
| LTA exemption | Twice in 4 years | Not allowed |
| Leave encashment on retirement | Up to ₹25L (private) | Up to ₹25L (private) |
| Gratuity on retirement | Up to ₹20L | Up to ₹20L |
| Section 87A rebate (income limit) | Up to ₹5L income | Up to ₹7L income |
| Section 87A max rebate amount | ₹12,500 | ₹25,000 |
| Family pension deduction | ₹15,000 | ₹25,000 (from AY 2024-25) |
Many salaried employees assume the new regime blocks all deductions. It doesn't — 80CCD(2) employer NPS (up to 14% of basic for corporate employees), standard deduction (₹75K), family pension deduction (₹25K), gratuity and leave encashment exemptions on retirement, and agnihotra allowance for certain professions are all still permitted. Ask your employer to restructure part of your CTC into NPS — you gain a fully-deductible allocation even in the new regime.
The break-even point — the level of deductions at which both regimes give you the same tax — depends on your income level. Below that break-even, the new regime is cheaper. Above it, the old regime wins.
| Gross income (salaried) | Break-even deductions* | Winning regime below break-even |
|---|---|---|
| ₹7L | Any (new regime is nil due to 87A) | New |
| ₹10L | ~₹2.5L | New |
| ₹12L | ~₹3.0L | New |
| ₹15L | ~₹3.75L | New |
| ₹20L | ~₹4.5L | New |
| ₹25L | ~₹5L | New |
| ₹50L | ~₹5.75L | New |
*Break-even deductions include everything beyond the standard deduction differential (₹25K) — so 80C + 80D + HRA + home-loan interest + 80CCD(1B). If your realistic deduction stack is above the break-even for your income, old regime wins.
New regime: standard deduction ₹75K → taxable ₹6.25L → tax before rebate ~₹22,500 → 87A rebate wipes it out → **tax nil**. Old regime: standard ₹50K → taxable ₹6.5L → tax ₹42,500 → 87A doesn't apply (income > ₹5L) → tax ₹42,500. **New wins by ₹42,500.**
Deductions available: 80C ₹1.5L + 80D ₹25K + HRA ₹1L = ₹2.75L. New regime tax ~₹71,500. Old regime tax ~₹85,000. **New wins by ₹13,500.**
Deductions: 80C ₹1.5L + 80D ₹25K + HRA ₹1.5L + NPS ₹50K = ₹3.75L. New regime tax ~₹1,30,000. Old regime tax ~₹1,06,000. **Old wins by ₹24,000.**
Deductions: 80C ₹1.5L + 80D ₹75K + HRA ₹2L + home-loan interest ₹2L + 80CCD(1B) ₹50K = ₹6.75L. New regime tax ~₹2,60,000. Old regime tax ~₹1,60,000. **Old wins by ~₹1,00,000.**
Deductions: 80C ₹1.5L only = ₹1.5L. New regime tax ~₹4,10,000. Old regime tax ~₹4,90,000. **New wins by ₹80,000** — because the deduction stack is far below break-even.
Under 44ADA: deemed income 50% = ₹20L. New regime tax ~₹2,00,000 (standard deduction not available for professional income). Old regime with 80C ₹1.5L + 80D ₹25K = ₹1,75,000 taxable ₹18.25L → tax ~₹1,63,000. **Old wins by ₹37,000.**
Old regime: 80TTB ₹50K + 80D ₹50K (senior citizen) + standard ₹50K + 80C ₹1.5L = deductions ₹3L → taxable ₹9L → tax ~₹67,500 (with higher exemption ₹3L for seniors). New regime: standard ₹75K → taxable ₹11.25L → tax ~₹73,750. **Old wins by ₹6,250.**
Deductions: HRA ₹3L (Bengaluru rent ₹35K/mo) + 80C ₹1.5L + 80D ₹50K = ₹5L. Old regime tax ~₹1,45,000. New regime tax ~₹1,85,000. **Old wins by ₹40,000** — HRA alone tips the balance in metros.
Deductions: 80C ₹1.5L + 80D ₹75K + 80CCD(1B) ₹50K = ₹2.75L (no HRA — founder-owned home, no home-loan interest deduction available on capitalised property). New regime tax ~₹5,40,000. Old regime tax ~₹5,80,000. **New wins by ₹40,000.**
You can toggle between regimes every single year. If you filed under the new regime for AY 2025-26, you can switch to the old regime for AY 2026-27 simply by selecting it inside the ITR utility before submission — no separate form required.
Once you have business/professional income, the rules tighten. You are default in the new regime. To opt out into the old regime, you must file **Form 10-IEA** before the due date of ITR (31 July or 31 October, as applicable). Having opted out, you can return to the new regime **only once** — after that, you're locked in the old regime forever.
Form 10-IEA must be filed BEFORE the ITR itself. Filing the ITR first and Form 10-IEA later does not opt you into the old regime — the ITR gets processed under the default new regime, and you lose the year's regime choice entirely. This is one of the most expensive mistakes we see freelancers make in the September–October rush.
At the start of each financial year (typically April), your employer asks you to declare your regime choice for TDS computation purposes. This declaration is provisional — your final regime is locked only at ITR filing. But the wrong provisional declaration causes real cash-flow pain: over-TDS if you pick old-regime but eventually can't produce deduction proofs, or under-TDS if you pick new-regime and end up owing tax with 234B/234C interest.
Best practice: compute both regimes on your April CTC letter, pick the winner as your provisional choice, and revise mid-year (in December or January) if your circumstances change (new home loan, marriage triggering HRA, spouse's health insurance addition, etc.).
For income above ₹5 crore, the new regime caps surcharge at 25%, while the old regime imposes 37%. This is a subtle but powerful edge for very high earners. Combined with the flat 30% top slab, the maximum marginal rate is 39% in the new regime versus 42.744% in the old regime — a full 3.7 percentage point difference on every incremental rupee above ₹5 crore.
Suppose a doctor operating as a proprietor filed under the old regime for years, then in AY 2025-26 opted out and moved to the new regime via not filing 10-IEA. In AY 2026-27, she realises the old regime saved her more and files Form 10-IEA to opt back into the old regime. That's her one and only switch. From AY 2027-28 onward, she is permanently in the old regime with no further option to return to the new.
For consulting and freelancing careers where income and deductions change dramatically year to year, this one-time-switch rule is a genuine constraint. Plan the switch for a year of maximum deduction advantage, and don't waste it in a low-deduction year.
HUFs face the same rules as individuals. Partnership firms and LLPs cannot avail Section 115BAC (which is only for individuals and HUFs) — they pay a flat 30% under the regular regime. Companies have their own concessional regimes under 115BAA (22%) and 115BAB (15% for new manufacturing) with a similar 'one-way switch' rule.
Existing domestic companies can opt for 115BAA at 22% (effective 25.17% with cess and surcharge) by filing Form 10-IC — a one-time irrevocable choice. Manufacturing companies incorporated after 1 October 2019 and commencing production by 31 March 2024 can opt for 115BAB at 15% — the lowest corporate tax rate in India.
It depends on deductions. If you have 80C ₹1.5L + 80D ₹25K + HRA ₹1L = ₹2.75L of deductions, the new regime saves roughly ₹13,500. If you also have home-loan interest of ₹2L and 80CCD(1B) NPS of ₹50K (total deductions ~₹5.25L), the old regime saves roughly ₹45,000. Always compute both.
If you have only salary/other income, yes — freely, every year. If you have business or professional income, you can switch out of the new regime once via Form 10-IEA, switch back once, and then you're locked in the old regime permanently.
For a self-occupied property, no — Section 24(b) is disallowed in the new regime. For a let-out property, the interest is allowed as it's part of the income computation, but the loss under 'house property' is restricted to ₹2L (matching the old regime's restriction). The truly discretionary self-occupied home-loan interest deduction of ₹2L is gone in the new regime — the single biggest 'silent cost' of switching.
Yes. Employer NPS contribution under 80CCD(2) is allowed in both regimes — up to 14% of basic salary for corporate/private-sector employees and 10% for central/state government employees. This is the biggest 'stealth deduction' available in the new regime and worth restructuring your CTC for.
₹75,000 for salaried employees (from AY 2024-25 onward, increased from ₹50,000). Family pensioners get ₹25,000 (increased from ₹15,000). This higher standard deduction is one of the reasons the new regime looks so competitive for pure-salary income up to ₹15L.
In the new regime, income up to ₹7L is fully rebated — effective tax nil. In the old regime, only income up to ₹5L is rebated with a maximum rebate of ₹12,500. Marginal relief above the ₹7L threshold in the new regime ensures your tax cannot exceed the excess over ₹7L — a subtle but useful cushion for salaries around ₹7L–₹7.5L.
Yes. As long as the revised return is filed before 31 December 2026 (for AY 2026-27), you can switch regimes in the revision — provided you're eligible to switch. Salaried employees can switch freely; business income taxpayers are bound by the Form 10-IEA one-time switch rule.
For at least four categories, absolutely: (1) salaried employees with home-loan interest above ₹1.5L, (2) HRA-heavy metro employees, (3) high earners with maxed-out 80C + 80CCD(1B) + 80D + 80G stacks, and (4) senior citizens with 80TTB interest deductions. For pure-salary employees under ₹12L with minimal deductions, the new regime is decisively better.
The old-vs-new regime debate has become oddly emotional in social-media discussions — as if the old regime is 'traditional' and the new regime is 'progressive'. In truth, they are two mathematical formulas for computing your tax, and the correct answer for you in AY 2026-27 depends entirely on the specific numbers on your Form 16, your rent receipts, your home-loan certificate and your 80C statements.
Run the arithmetic every year. If you're salaried, run it in April (for TDS) and again in July (for ITR). If you have business income, plan the once-in-a-lifetime switch decision with a professional. And never, ever, let 'default' become your default — a two-hour spreadsheet exercise is worth ₹20,000 to ₹1,00,000 of extra refund every single year.
Senior contributor at Taxpex Consultancy. Reviewed by a practising Chartered Accountant. Published on 6 June 2025 · Updated on 6 June 2025.
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The new regime is the default. You must actively opt for the old regime while filing.
via Income Tax Calculator FY 2025-26Always. We run both computations and pick the lower one for you.
via Income Tax Return FilingMost Chapter VI-A deductions (80C, 80D, 80E, HRA, LTA) are NOT available in the new regime. Only NPS employer contribution and standard deduction survive.
via Income Tax Calculator FY 2025-26A full tax rebate if your taxable income does not exceed ₹12L (new) or ₹5L (old). Effectively zero tax up to those thresholds.
via Income Tax Calculator FY 2025-26