Old vs. New Tax Regime: Which one saves you more money? Check the math before filing your ITR..

Old vs. New Tax Regime Deduction Calculator: As the time to file income tax returns approaches, the biggest question facing every salaried individual and taxpayer is: which is better—the old tax regime or the new tax regime?

According to tax experts, this choice cannot be made simply by looking at tax slabs. It depends entirely on the amount of investments you can claim under the old tax regime. The easiest way to make the right decision is to understand the 'break-even deduction.' This is the 'magic figure' where your tax liability becomes exactly the same under both tax systems. Let us understand what this figure is based on your salary.

What is the break-even deduction?
In simple terms, the break-even deduction is a 'threshold limit.' If your investments are below this limit, the new tax regime will be more beneficial for you, resulting in lower tax liability. Conversely, if your investments exceed this limit, the old tax regime will prove to be the better option.

Check the full list of break-even deductions based on salary

According to tax experts, the break-even deduction figures for different income levels are as follows:

Check the full list of break-even deductions based on salary

For example: If your annual income is ₹12.5 lakh, you would need to show total investments of ₹4.75 lakh under the old regime to equalize the tax liability between the two regimes. If your investments are less than ₹4.75 lakh (e.g., ₹3 lakh), choose the new regime. If your investments exceed this amount, stick with the old regime.

Which deductions should be included when calculating for the old regime?

According to Harshit Agarwal, a partner at HJ Agarwal & Co., taxpayers should aggregate all eligible investments and exemptions available under the old tax regime before making a comparison. These include:

Section 80C: PPF, EPF, ELSS (mutual funds), and life insurance premiums (up to a maximum of ₹1.5 lakh).

Section 80D: Health insurance premiums for yourself and your family.

Section 80CCD(1B): Additional voluntary contribution of ₹50,000 to NPS.

Section 24(b): Deduction of up to ₹2 lakh on home loan interest.

Other deductions: Section 80G (donations) and Section 80E (interest on education loans).

Expert Tip: Keep in mind that benefits such as the employer's contribution to NPS (Section 80CCD(2)) and the standard deduction are available under both tax regimes; therefore, do not mistakenly include them only in the calculations for the Old Regime.

A Note of Caution Regarding Short-Term and Long-Term Capital Gains

Harshit Agarwal has highlighted an important technical aspect: the rebate under Section 87A—available in the New Tax Regime—does not apply to income taxed at special rates.

Examples include Short-Term Capital Gains (STCG) under Section 111A or Long-Term Capital Gains (LTCG) under Section 112A.

Therefore, if you have such income, do not blindly assume a zero-tax liability under the New Regime; instead, calculate the exact figures with the help of a Chartered Accountant (CA).

Don't Make Decisions Based on Others

Chartered Accountant Shreya Gupta Goyal advises that taxpayers should never choose a tax regime based on assumptions or by simply following what others are doing. Since tax slabs, rebates, and deduction rules can change annually via the Union Budget, you should recalculate your break-even point afresh each year before filing your ITR, rather than relying on estimates from the previous year. The best tax regime is the one that leaves more money in your pocket, rather than causing confusion in your calculations.

Disclaimer: This content has been sourced and edited from Money Control. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.