Every year around January, salaried employees get an email from HR asking them to submit their investment proofs. Most people scramble. Some submit whatever they have. A few actually sit down, run the numbers, and figure out which tax regime saves them more money.
This guide is for that third group, and for anyone who wants to get there.
Two Regimes, One Choice
From FY 2023-24 onwards, the New Tax Regime is the default. If you don't actively choose the Old Regime, your employer will calculate TDS under the New Regime. You can switch once a year when filing your ITR (with some restrictions for business income).
Here is the core difference:
Old Tax Regime: Higher base tax rates, but you can claim a wide range of exemptions and deductions. Works well if you pay rent, have a home loan, invest in 80C instruments, and buy health insurance.
New Tax Regime: Lower tax rates, but almost no deductions allowed (except the standard deduction of Rs 75,000 from FY 2024-25). Works better if you don't have many qualifying deductions.
Tax Slabs for FY 2024-25
Old Tax Regime (below 60 years)
| Income (Rs) | Tax Rate |
|---|---|
| Up to 2,50,000 | Nil |
| 2,50,001 to 5,00,000 | 5% |
| 5,00,001 to 10,00,000 | 20% |
| Above 10,00,000 | 30% |
Section 87A rebate applies: if taxable income is up to Rs 5 lakh, your net tax is zero.
New Tax Regime (all ages, FY 2024-25)
| Income (Rs) | Tax Rate |
|---|---|
| Up to 3,00,000 | Nil |
| 3,00,001 to 7,00,000 | 5% |
| 7,00,001 to 10,00,000 | 10% |
| 10,00,001 to 12,00,000 | 15% |
| 12,00,001 to 15,00,000 | 20% |
| Above 15,00,000 | 30% |
Section 87A rebate: if taxable income is up to Rs 7 lakh under the New Regime, tax is zero. This is a meaningful threshold. A lot of salaried employees fall under it.
Add 4% Health and Education Cess on whatever tax you compute.
Key Deductions Under the Old Regime
These are the ones that actually move the needle for most salaried people.
Standard Deduction: Rs 75,000 flat for salaried employees in FY 2024-25 (was Rs 50,000 earlier). No proofs required. Available under both regimes.
Section 80C (up to Rs 1,50,000): EPF contribution, PPF, ELSS mutual funds, life insurance premiums, home loan principal repayment, children's school fees. Most people hit this limit through EPF alone.
Section 80D (health insurance): Up to Rs 25,000 for self and family. An additional Rs 50,000 if your parents are senior citizens. Buy health insurance anyway, but it also reduces your tax.
HRA Exemption: If you pay rent and receive HRA, a portion of your HRA is exempt. The exempt amount is the lowest of: actual HRA received, 50 percent of basic (metro) or 40 percent (non-metro), and actual rent paid minus 10 percent of basic. Use the HRA Calculator to get the exact number.
Section 24(b): Interest on home loan, up to Rs 2,00,000 per year for a self-occupied property.
Which Regime is Better For You
Run the math. It is genuinely impossible to say without knowing your specific numbers because it depends on your income, the deductions you actually claim, and your rent situation.
As a rough guide:
If your total deductions (80C + 80D + HRA + home loan interest + standard deduction) exceed Rs 3.75 lakh, the Old Regime likely works out better for a person with income in the Rs 10 to 15 lakh range. Below that, the New Regime often wins.
The easiest way to compare is to use the Old vs New Tax Regime Calculator. Enter your income and deductions and it shows you the tax under both regimes side by side.
A Quick Example
Ravi earns Rs 14,00,000 CTC. His gross salary is Rs 12,20,000 (after removing employer EPF and gratuity). He pays rent of Rs 15,000 per month in Pune and has basic salary of Rs 5,00,000.
Under the Old Regime, he claims:
- Standard deduction: Rs 75,000
- 80C (EPF + PPF): Rs 1,50,000
- 80D (health insurance): Rs 20,000
- HRA exemption: approximately Rs 70,000
Total deductions: Rs 3,15,000. Taxable income: Rs 9,05,000. Tax: around Rs 1,12,500 plus cess.
Under the New Regime, taxable income is Rs 11,45,000 (after standard deduction only). Tax: around Rs 1,19,250 plus cess.
Old Regime saves Ravi about Rs 7,000 here. His specific situation matters. Someone with a home loan interest deduction of Rs 2 lakh would save significantly more in the Old Regime.
What You Actually Need to Do
Before February (when most employers freeze TDS declarations), decide your regime and submit your investment proofs if you're going with the Old Regime. Use the PagarKit tax tools to run the numbers. And keep your rent receipts, insurance premium statements, and 80C investment proofs ready for your ITR filing in July.