Everything you need to know about the New Tax Regime - deductions allowed, comparison with old regime, and which one is better for you
The New Tax Regime was introduced in Budget 2020 to simplify India's tax structure by offering lower tax rates in exchange for fewer deductions and exemptions.
Since FY 2023-24, the New Tax Regime has become the default option for all taxpayers. This means if you do nothing, you'll automatically be taxed under the New Regime.
The New Tax Regime just became extremely attractive:
The New Tax Regime is based on a simple trade-off: Lower tax rates with higher SD and rebate, but fewer deductions. The idea is to make tax calculation simpler and more straightforward, without the complexity of tracking multiple investments for tax savings.
The most significant difference between the two regimes is the tax slab structure.
| Income Range | Tax Rate | Tax on Range |
|---|---|---|
| Up to ₹4,00,000 | Nil | ₹0 |
| ₹4,00,001 to ₹8,00,000 | 5% | ₹20,000 |
| ₹8,00,001 to ₹12,00,000 | 10% | ₹40,000 |
| ₹12,00,001 to ₹16,00,000 | 15% | ₹60,000 |
| ₹16,00,001 to ₹20,00,000 | 20% | ₹80,000 |
| ₹20,00,001 to ₹24,00,000 | 25% | ₹1,00,000 |
| Above ₹24,00,000 | 30% | - |
New Tax Regime: ₹75,000 for salaried individuals
Old Tax Regime: ₹50,000 for salaried individuals
New Tax Regime Rebate:
Old Tax Regime Rebate:
| Income Range | Tax Rate | Tax on Upper Limit |
|---|---|---|
| Up to ₹2,50,000 | Nil | ₹0 |
| ₹2,50,001 to ₹5,00,000 | 5% | ₹12,500 |
| ₹5,00,001 to ₹10,00,000 | 20% | ₹1,12,500 |
| Above ₹10,00,000 | 30% | - |
Standard Deduction: ₹50,000 for salaried individuals
Tax Rebate (Section 87A): If your total income is up to ₹5,00,000, you get a rebate of up to ₹12,500. This means effectively no tax up to ₹5 lakh income (after deductions).
Note: In both regimes, add 4% Health & Education Cess on the total tax amount.
This is the most important section. The New Tax Regime has very limited deductions compared to the Old Regime.
| Deduction | Section | Maximum Limit | Details |
|---|---|---|---|
| Standard Deduction | - | ₹50,000 | For salaried individuals (automatic) |
| Employer's NPS Contribution | 80CCD(2) | 14% of salary | Only employer's contribution, not yours |
| Transport Allowance | 10(14)(ii) | ₹3,200/month | For specially-abled persons only |
| Conveyance Allowance | 10(14)(i) | ₹1,600/month | For specially-abled persons only |
| Professional Tax | 16(iii) | As applicable | State-level professional tax paid |
These are the ONLY deductions allowed in the New Tax Regime. Everything else that you're used to claiming under the Old Regime is NOT available.
Here's the comprehensive list of popular deductions that are not available in the New Tax Regime:
| Deduction Type | Section | What You Lose (Max) |
|---|---|---|
| 80C Investments PPF, ELSS, Life Insurance, EPF, NSC, Tax Saver FD, etc. |
80C | ₹1,50,000 |
| Health Insurance Premium For self, spouse, children, parents |
80D | ₹25,000 - ₹1,00,000 |
| NPS (Your Contribution) | 80CCD(1B) | ₹50,000 |
| Home Loan Interest For self-occupied property |
24(b) | ₹2,00,000 |
| HRA (House Rent Allowance) | 10(13A) | Varies |
| LTA (Leave Travel Allowance) | 10(5) | Varies |
| Education Loan Interest | 80E | No Limit |
| Donations to Charity | 80G | 50-100% of donation |
| Savings Account Interest | 80TTA/80TTB | ₹10,000 - ₹50,000 |
| Medical Treatment (Specified Diseases) | 80DDB | ₹40,000 - ₹1,00,000 |
| Disability Deduction | 80U | ₹75,000 - ₹1,25,000 |
| Other Allowances Children education, hostel, uniform, books, etc. |
10(14) | Varies |
If you were claiming maximum deductions under Old Regime:
Calculate which regime is better for you
Here's a simple decision framework to help you choose:
Add up all your potential deductions under old regime (80C + 80D + HRA + Home Loan Interest + NPS + Others)
If Total Deductions < ₹2,50,000: New Regime likely better
If Total Deductions > ₹2,50,000: Old Regime likely better
Calculate actual tax in both regimes (use calculator above or file with CA)
Think about simplicity, time saved, and investment goals beyond just tax savings
| Regime | Calculation | Tax Amount |
|---|---|---|
| New Regime |
Taxable Income: ₹9,25,000 (₹10L - ₹75K SD) Tax: ₹4-8L: ₹20,000 ₹8-9.25L: ₹12,500 Subtotal: ₹32,500 Less: Rebate u/s 87A: ₹32,500 (Income ≤ ₹12L) Tax after rebate: ₹0 Cess: ₹0 |
₹0 |
| Old Regime |
Taxable Income: ₹8,50,000 (₹10L - ₹50K SD - ₹1L EPF) Tax: ₹2.5-5L: ₹12,500 ₹5-8.5L: ₹70,000 Subtotal: ₹82,500 (No rebate: Income > ₹5L) Cess @ 4%: ₹3,300 |
₹85,800 |
🎉 Verdict: New Regime - Pay ZERO Tax! (Old Regime: ₹85,800)
| Regime | Calculation | Tax Amount |
|---|---|---|
| New Regime |
Taxable Income: ₹11,25,000 (₹12L - ₹75K SD) Tax: ₹4-8L: ₹20,000 ₹8-11.25L: ₹32,500 Subtotal: ₹52,500 Less: Rebate u/s 87A: ₹52,500 (Income ≤ ₹12L) Tax after rebate: ₹0 Cess: ₹0 |
₹0 |
| Old Regime |
Taxable Income: ₹9,75,000 (₹12L - ₹50K SD - ₹1.5L 80C - ₹25K 80D) Tax: ₹2.5-5L: ₹12,500 ₹5-9.75L: ₹95,000 Subtotal: ₹1,07,500 (No rebate: Income > ₹5L) Cess @ 4%: ₹4,300 |
₹1,11,800 |
🎉 Verdict: New Regime - Pay ZERO Tax! (Old Regime: ₹1,11,800)
Despite having ₹1.75L in deductions, New Regime is still better due to ₹75K SD and ₹60K rebate!
| Regime | Calculation | Tax Amount |
|---|---|---|
| New Regime |
Taxable Income: ₹17,25,000 (₹18L - ₹75K SD) Tax: ₹4-8L: ₹20,000 ₹8-12L: ₹40,000 ₹12-16L: ₹60,000 ₹16-17.25L: ₹25,000 Subtotal: ₹1,45,000 (No rebate: Income > ₹12L) Cess @ 4%: ₹5,800 |
₹1,50,800 |
| Old Regime |
Taxable Income: ₹12,50,000 (₹18L - ₹50K SD - ₹5L deductions) Tax: ₹2.5-5L: ₹12,500 ₹5-10L: ₹1,00,000 ₹10-12.5L: ₹75,000 Subtotal: ₹1,87,500 (No rebate: Income > ₹5L) Cess @ 4%: ₹7,500 |
₹1,95,000 |
Verdict: New Regime still better by ₹44,200!
The higher SD (₹75K vs ₹50K) and better slab rates offset the ₹5L deductions.
If you want to stick with the Old Regime (since New is default), you need to:
Yes, but with implications:
Just because the New Regime has fewer deductions doesn't mean you can't plan your taxes! Here are powerful strategies still available:
Employer's contribution to EPF remains tax-efficient within limits, even in the New Tax Regime.
How it works:
Scenario:
Tax Treatment in New Regime:
Action: Ensure your employer is contributing the maximum 12% to EPF. This builds your retirement corpus tax-efficiently.
Ask your employer to contribute to NPS (National Pension System) on your behalf. This is deductible under 80CCD(2) even in New Regime.
Long-term capital gains (LTCG) are taxed differently and offer planning opportunities even in New Regime.
Key LTCG Benefits:
Smart Strategies:
March 2026:
March 2027:
You can reduce family tax burden by distributing income across family members in lower tax slabs.
Safe Strategies:
Your Situation:
Option 1: You invest ₹10 lakh
Option 2: Gift to mother → She invests
Important: This is legal, but maintain proper documentation of the gift. Also, consider family dynamics and ensure parents agree to this arrangement.
Critical Warning: Always document gifts properly and consult a CA to ensure clubbing provisions don't apply to your specific situation.
Optimize your CTC to minimize taxable income:
Since deductions are limited, focus on earning tax-free income:
If possible, manage when you receive income:
Even in New Tax Regime with limited deductions, smart tax planning can save you significant money through employer contributions (EPF & NPS), capital gains optimization, salary restructuring, and legal income splitting. The key is to be strategic and use what's still available!
Many people assume one regime is better without actually calculating. Always use a calculator or consult a CA.
Even in New Regime, employer's NPS contribution is deductible. Many forget to ask employer to include this.
If you want Old Regime but don't inform employer, they'll deduct TDS as per New Regime, causing refund delays.
Even with ₹5-6 lakh income, if you have substantial deductions (HRA + 80C), Old Regime can be better.
Consider your long-term financial goals. Sometimes investing for future (even without tax benefit) is better than saving taxes now.
Our tax experts will analyze your income, investments, and deductions to recommend the best regime for maximum savings
✓ Regime Comparison • ✓ Tax Optimization • ✓ Maximum Refund • ✓ 100% Accurate
The New Tax Regime vs Old Tax Regime debate doesn't have a one-size-fits-all answer. The right choice depends on your individual financial situation, investments, and goals.
Remember: Lower tax is good, but smart financial planning is better. Don't let tax tail wag the investment dog!