Old regime or new: which one actually costs you less
The answer is not a rule of thumb, it is arithmetic. Here is the break-even point, and the mistake that makes people choose wrongly every year.
Every year the same question, and every year the same bad answers: "the new regime is better for everyone now", "the old regime wins if you have a home loan". Both are guesses. The honest answer takes about ninety seconds of arithmetic.
What actually separates the two
The new regime gives you wider slabs and a larger standard deduction. The old regime gives you narrower slabs but lets you claim HRA exemption and Chapter VI-A deductions — 80C, 80D, 80CCD(1B) and the rest.
So the whole question reduces to one thing: are your genuine deductions worth more than the slab advantage? Not the deductions you could theoretically claim. The ones you actually claim, with receipts.
The break-even, roughly
For most salaried people the crossover sits somewhere between ₹3 lakh and ₹4.5 lakh of total deductions, depending on income level. Below that, the new regime usually wins. Above it, the old regime starts to pull ahead — but only if you are genuinely claiming that much.
"Roughly" is doing real work in that sentence. The crossover moves with your income, your rent, and whether you have a home loan. Rather than trusting a range, run both: the Income Tax Calculator computes each regime with slabs, rebate, surcharge and cess, and shows the working line by line.
The mistake that costs the most
People add up what they could claim. The 80C limit is ₹1.5 lakh, so they write ₹1.5 lakh — when their actual PF, insurance and ELSS come to ₹80,000. They pick the old regime on a number that does not exist, and pay more tax than they needed to.
Use last year's Form 16 and your actual investment proofs. If the number embarrasses you, that is useful information too.
Marginal relief, and why your tax can look strange
Just above the rebate threshold, and just above each surcharge threshold, tax would otherwise jump by more than the extra income you earned. Marginal relief caps that increase. It is why someone earning slightly over the threshold pays much less than a straight slab calculation suggests — and why calculators that ignore it give the wrong answer at exactly the incomes where the choice is tightest.
Things that do not change the answer
- Standard deduction — available in both, just larger in the new regime.
- Employer NPS contribution under 80CCD(2) — available in both.
- Retirement exemptions like gratuity and leave encashment — available in both. Check with the Gratuity Calculator and the Leave Encashment Calculator.
Can you switch later?
A salaried person with no business income chooses each year. Someone with business income who opts out of the new regime can return to it only once, so that decision deserves more thought.
Do this, not that
Do not pick a regime in April and forget it. Run both in January, when you know what you have actually invested, and tell your employer before the last payroll cycle so the TDS lands close to reality. Then confirm the final position when you file.
If your affairs involve capital gains, house property losses or arrears, have a chartered accountant look at it. The CA Toolkit has the tools they will reach for.