India has two income tax regimes. The new regime has lower slab rates but allows very few deductions. The old regime has higher rates but lets you claim deductions and exemptions such as Section 80C investments, health insurance under Section 80D, HRA and home loan interest.
Slab rates and limits change with each Union Budget, so this guide explains the method rather than quoting numbers. Always use the rules for the financial year you are filing for.
Step by step#
- Write down your gross income for the year from all sources.
- List the deductions and exemptions you will genuinely claim under the old regime, with proof.
- Work out tax under the old regime on income minus those deductions.
- Work out tax under the new regime on income minus only the deductions it allows.
- Compare the two totals, including cess and any rebate.
What usually decides it#
If your deductions are small, the new regime usually costs less. If you pay significant rent or home loan interest and already invest under Section 80C, the old regime can still come out ahead. Do not make investments only to save tax; compare the regimes on what you would do anyway.