Every salaried taxpayer in India chooses between two ways of calculating income tax. The new regime has lower slab rates and a higher standard deduction, but allows very few deductions. The old regime has higher rates but lets you subtract investments, insurance, house rent and home-loan interest before tax is worked out.
Neither is better for everyone. The right choice depends on how much you can genuinely claim in deductions.
What you give up in the new regime
Under the new regime, most Chapter VI-A deductions and exemptions are not available. The ones that matter most for salaried people are:
- Section 80C — EPF, PPF, ELSS, life-insurance premiums, children's tuition fees and home-loan principal.
- Section 80D — health-insurance premiums for yourself, your family and your parents.
- HRA exemption — if you pay rent and receive house rent allowance.
- Home-loan interest on a self-occupied house (Section 24(b)).
- 80CCD(1B) — your own additional NPS contribution.
The new regime still gives a standard deduction for salaried employees and pensioners, and a rebate that brings tax to zero up to a certain taxable income. FID's income tax calculator uses the current slabs and limits for each financial year.
A practical way to decide
- List deductions you already have. Your EPF contribution, existing insurance premiums, rent you pay and home-loan interest count. Do not include investments you would only make to save tax.
- Run both regimes. Enter your salary and those deductions into the calculator. It shows tax under each regime and the monthly take-home difference.
- Compare the gap with the cost. If the old regime saves tax only because you would lock money into a product you do not otherwise want, the saving may not be worth it.
- Revisit every year. A new home loan, a move to a rented flat, or a salary jump can change the answer.
Rules of thumb
- If your deductions are small — say only EPF and a modest insurance premium — the new regime usually costs less.
- If you pay high rent in a metro and claim HRA, or have a home loan with large interest, the old regime is more likely to win.
- The closer your income is to the new regime's rebate limit, the more attractive the new regime becomes.
Switching
Salaried taxpayers without business income can usually choose their regime each year when filing the return, even if they told their employer something different for TDS. Those with business income face stricter limits on switching. Check the current rules on the income-tax department's website before filing.
Once you have decided, save the result as your salary profile in FID. Your monthly take-home then flows into budgets and forecasts automatically.