Income Tax in India — Old vs New Regime, Deductions & Filing
The 2025-26 tax playbook for salaried Indians: which regime to pick, every deduction that still works, and how to file without an agent.
Tax is the single biggest expense in most salaried Indians' lives — larger than rent, EMIs, or investments — yet most people spend more time picking a phone than picking a tax regime. This guide gives you the numbers to decide old vs new, the deductions that still legitimately reduce your bill, and the exact steps to file your own ITR.
FY 2025-26 slab rates side by side
| Income slab | New regime rate | Old regime rate |
|---|---|---|
| Up to ₹3L | Nil | Nil (up to ₹2.5L) |
| ₹3L–₹7L | 5% | 5% (₹2.5L–₹5L), then 20% |
| ₹7L–₹10L | 10% | 20% |
| ₹10L–₹12L | 15% | 30% |
| ₹12L–₹15L | 20% | 30% |
| Above ₹15L | 30% | 30% |
Both regimes add 4% Health & Education Cess on the tax computed, plus surcharge above ₹50L income. Salaried employees get a ₹75,000 standard deduction under the new regime (₹50,000 under old).
Section 87A rebate
New regime: no tax at all up to ₹7 lakh taxable income (rebate wipes out the tax). Old regime: same rebate up to ₹5 lakh. This is why the new regime is a slam-dunk for salaries under ~₹7.5L.
Old vs new — a decision framework
The new regime removes almost every deduction (no 80C, no HRA, no LTA, no home loan interest on self-occupied property). In exchange it offers lower slab rates. The old regime is only better if your legitimate deductions cross a break-even threshold.
| Gross salary | Break-even deductions (old wins above this) |
|---|---|
| ₹7.5L | New regime always wins |
| ₹10L | ~₹1.5L |
| ₹15L | ~₹3.75L |
| ₹20L | ~₹4.25L |
| ₹30L | ~₹4.5L |
| ₹50L+ | ~₹4.75L |
'Deductions' here means everything you can legitimately claim under old regime: 80C (₹1.5L), 80D (₹25k–75k), HRA, home-loan interest, NPS 80CCD(1B) (₹50k). If you can genuinely tick most of these boxes, old regime is worth the paperwork. If you're renting a modest place with no home loan and only 80C fills up, new regime wins.
Every old-regime deduction, ranked by usefulness
| Section | Max deduction | What qualifies |
|---|---|---|
| 80C | ₹1,50,000 | EPF, PPF, ELSS, life insurance premium, home loan principal, kids' tuition, NSC |
| 80CCD(1B) | ₹50,000 | NPS Tier-1 contribution (over and above 80C) |
| 80D | ₹25k self + ₹25k parents (₹50k if senior) | Health insurance premium |
| HRA | Formula (see below) | Rent paid, if you receive HRA and don't own the home you live in |
| 24(b) | ₹2,00,000 | Interest on home loan for self-occupied property |
| 80E | No cap | Interest on education loan (8 years) |
| 80TTA / 80TTB | ₹10k / ₹50k | Savings account interest / senior citizen deposits |
| 80G | 50% or 100% | Donations to approved charities |
HRA formula (old regime only)
Least of: (1) Actual HRA received, (2) 50% of basic if metro / 40% if non-metro, (3) Rent paid − 10% of basic. Metros for HRA = Mumbai, Delhi, Kolkata, Chennai only. Bengaluru, Pune, Hyderabad are 'non-metro'.
Worked example — ₹18 LPA salary
Ayesha, 29, unmarried, lives in Bengaluru. Gross ₹18L, HRA ₹3.6L, basic ₹6L, rent ₹25k/month. She has EPF ₹1.2L/yr, plans an extra ELSS ₹30k for 80C, NPS ₹50k, health insurance ₹18k.
| Line item | Old regime | New regime |
|---|---|---|
| Gross salary | ₹18,00,000 | ₹18,00,000 |
| Standard deduction | −₹50,000 | −₹75,000 |
| HRA exemption (least of formula) | −₹2,40,000 | Not allowed |
| 80C (EPF ₹1.2L + ELSS ₹30k) | −₹1,50,000 | Not allowed |
| 80CCD(1B) NPS | −₹50,000 | Not allowed |
| 80D health insurance | −₹18,000 | Not allowed |
| Taxable income | ₹12,92,000 | ₹17,25,000 |
| Tax + 4% cess | ₹1,99,472 | ₹2,00,850 |
For Ayesha the two regimes tie almost exactly. In her case, new regime is easier (no proof-collection) for near-identical tax. But if her rent were ₹35k or she bought a home with a loan, old would pull decisively ahead. Run your own numbers on incometax.gov.in's calculator every year — the answer shifts as your life changes.
Filing your ITR yourself in 45 minutes
- 1Collect: Form 16 from employer, AIS/TIS from incometax.gov.in (shows all your reported income), bank interest certificates, any capital gains statements from your broker.
- 2Log into incometax.gov.in with your PAN. Pre-filled ITR is available from mid-June onward.
- 3Pick the right form: ITR-1 (salary + one house + interest, income under ₹50L). ITR-2 if you have capital gains, more than one house, or foreign income. ITR-3 for business/professional income.
- 4Verify pre-filled data against Form 16 and AIS. Discrepancies are your biggest audit risk — reconcile before submitting.
- 5Add anything missing: FD interest, dividends, small freelance receipts. The AIS increasingly catches these; not declaring is not an option.
- 6Choose regime (you can switch year-to-year if you have no business income).
- 7Submit and e-verify via Aadhaar OTP or net-banking. Deadline: 31 July for most, 31 October if audit applies.
The AIS is watching
The Annual Information Statement shows the tax department everything reported against your PAN — dividends, FD interest, mutual fund redemptions, credit card spends over ₹1L abroad, cash deposits. Assume they know, and file honestly. Penalties for under-reporting run 50–200% of the tax owed.
Common mistakes to avoid
Picking old regime out of habit
The new regime has been the better choice for most salaried people since 2023. Recompute every year with a calculator — don't default to what you did last time.
Buying insurance in March to 'save tax'
Endowment plans sold as 80C tools return 4–5%. You'd pay less tax and end up richer by using ELSS or PPF instead.
Ignoring the AIS
Every dividend, every big transaction is reported. Filing an ITR that doesn't match the AIS invites a notice — sometimes years later.
Missing 31 July, then never filing
Late filing costs ₹5,000 and blocks you from carrying forward capital losses. Belated ITRs can still be filed until 31 December.
Not switching to old regime the year you actually can benefit
Bought a house? Started paying big rent? Recompute — you may have crossed the break-even without realising.
Your action checklist
- Recompute old vs new regime every April using actual expected deductions
- Declare regime to employer by April to avoid excess TDS
- Track HRA rent receipts monthly (not scrambling in March)
- Health insurance premium paid before 31 March
- 80C investments made before 31 March (not settled overnight)
- AIS downloaded and reconciled before filing
- ITR filed and e-verified before 31 July
- Copy of filed ITR + acknowledgement saved for 8 years