Income Tax Calculator Guide: Old vs New Regime & How Tax Slabs Work

Since the new tax regime was introduced, every salaried person in India faces the same question every year: "Old regime or new regime — which saves me more tax?"

This guide breaks down both regimes, current tax slabs, and shows a worked example so you can estimate your own liability.

New Tax Regime Slabs (Default Regime)

Income SlabTax Rate
Up to ₹3,00,000Nil
₹3,00,001 – ₹6,00,0005%
₹6,00,001 – ₹9,00,00010%
₹9,00,001 – ₹12,00,00015%
₹12,00,001 – ₹15,00,00020%
Above ₹15,00,00030%

Plus a standard deduction of ₹75,000 for salaried individuals, and a rebate under Section 87A that makes income up to ₹7 lakh effectively tax-free.

Note: Slabs are revised in Union Budgets — always verify current figures before filing.

Old Tax Regime Slabs

Income SlabTax Rate
Up to ₹2,50,000Nil
₹2,50,001 – ₹5,00,0005%
₹5,00,001 – ₹10,00,00020%
Above ₹10,00,00030%

The old regime allows deductions: Section 80C (₹1.5L), HRA, home loan interest (Section 24), 80D health insurance, and more — but has fewer, wider slabs.

Old vs New: Which Should You Pick?

The answer depends entirely on how many deductions you claim.

Rule of thumb: If your total deductions (80C + HRA + home loan interest + others) exceed roughly ₹3.5-4 lakh, the old regime often works out cheaper. If you have few deductions, the new regime's lower slabs usually win.

Worked Example: ₹12,00,000 Annual Salary

New RegimeOld Regime (with ₹2.5L deductions)
Gross income₹12,00,000₹12,00,000
Deductions₹75,000 (standard)₹75,000 + ₹2,50,000 = ₹3,25,000
Taxable income₹11,25,000₹8,75,000
Tax payable (approx, before cess)₹78,750₹90,000

In this case, new regime works out better despite the old regime's deductions — because the new regime's lower rates at each slab outweigh the deduction benefit here. The exact crossover point depends on your specific deduction amount.

Step-by-Step: How Tax Is Calculated (Slab-Wise, Not Flat)

A common misunderstanding: people think if you earn ₹12L and fall in the "30% slab," your entire income is taxed at 30%. That's wrong. Tax is calculated progressively — each slab is taxed at its own rate, only on the portion of income within that slab.

Example (New Regime, ₹9,00,000 taxable income):

  • ₹0 – ₹3L: Nil tax = ₹0
  • ₹3L – ₹6L (₹3L at 5%): ₹15,000
  • ₹6L – ₹9L (₹3L at 10%): ₹30,000
  • Total tax = ₹45,000 (not ₹90,000 which flat 10% on full amount would suggest)

Cess: Don't Forget This

A 4% Health & Education Cess is added on top of the calculated tax (both regimes). So if your calculated tax is ₹78,750, add 4% cess = ₹3,150, making your final liability ₹81,900.

Common Deductions Available (Old Regime Only)

  • Section 80C (up to ₹1.5L): PPF, ELSS, life insurance premium, EPF, principal repayment on home loan
  • Section 24(b) (up to ₹2L): Home loan interest
  • Section 80D: Health insurance premium (₹25,000-₹1L depending on age)
  • HRA exemption: Based on rent paid, salary, and city of residence
  • Section 80CCD(1B) (up to ₹50,000): Additional NPS contribution

Frequently Asked Questions

Q: Can I switch between old and new regime every year?Salaried individuals can switch each financial year. Those with business income have more restricted switching rules — check current IT department guidance.
Q: Is the new regime always simpler?Yes — it needs no proof of investments/deductions, which reduces paperwork, even if it's not always the lower-tax option.
Q: What income is fully tax-free?Under the new regime, taxable income up to ₹7 lakh is effectively tax-free due to the Section 87A rebate (subject to conditions) — but this is different from the basic exemption slab of ₹3 lakh.
Q: Does this apply to freelancers and business owners?The slabs are the same, but business income calculation and available deductions differ (e.g., business expenses vs salaried deductions). Consult a CA for business-specific tax planning.

Compare your exact tax under both regimes. Use our free Income Tax Calculator →

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