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Income Tax Return 2026: Every year, when the Income Tax Return (ITR) filing season begins, the primary question facing taxpayers is whether to opt for the old tax regime or the new one. While everyone calculates their tax liability based on their specific circumstances, certain "rules of thumb" have emerged that help clarify the tax liability situation significantly. However, individual taxpayers must remember that salary structures vary from person to person, and no single rule can provide a complete, accurate picture of one's specific tax liability.

This is why expert advice is often necessary. Another important point to note is that the new tax regime is now the default option; this means that if you do not make a specific choice while filing your ITR, your return will automatically be processed under the new tax regime. Given this, the question arises: is it still beneficial to actively opt for the old tax regime? Let us try to understand the underlying mathematics.

What does the tax math say?

According to a comparative calculation conducted by Grant Thornton Bharat for the financial year 2025-26, the new tax regime offers substantial savings across several salary slabs. This calculation is based on a salaried individual under the age of 60 who claims total deductions amounting to ₹4.25 lakh under the old regime. This includes the following deductions:

Under Section 80C: ₹1,50,000 (Section 80C of the 1961 Act / Section 123 of the 2025 Act)

Under Section 80D: ₹25,000 (Section 80D of the 1961 Act / Section 126 of the 2025 Act)

HRA (House Rent Allowance): ₹2,00,000

Standard Deduction: ₹50,000

In contrast, the New Tax Regime includes a standard deduction of only ₹75,000. Applicable surcharges and the 4% Health and Education Cess have also been factored into this calculation.

Tax Liability at Various Salary Levels

At a salary of ₹25 lakh: The tax liability under the Old Tax Regime is ₹4,52,400, whereas under the New Tax Regime, it is only ₹3,19,800. This results in a direct saving of ₹1,32,600 by choosing the New Tax Regime.

At a salary of ₹50 lakh: Here too, the tax difference between the two regimes remains ₹1,32,600, with the New Tax Regime proving more beneficial.

At salaries of ₹75 lakh and ₹1 crore: A 10% surcharge becomes applicable at this level. Despite this, taxpayers achieve a direct saving of approximately ₹1.46 lakh under the New Tax Regime.

So, has the Old Tax Regime been completely phased out?

This cannot be said for all taxpayers. The Old Tax Regime competes effectively with the New Tax Regime only when your deductions significantly exceed this standard basket. This applies if you have substantial deductions, such as:

A deduction of up to ₹2 lakh on home loan interest under Section 24(b). Higher HRA received due to living in metro cities.

Contributions to the NPS (National Pension System) under Section 80CCD(1B).

Substantial health insurance premiums paid for senior citizen parents under Section 80D.
If you combine all these and your total deductions exceed the break-even threshold, the Old Regime might be better. Under the current tax slabs, this break-even point generally falls around a total deduction of ₹8 lakh for most income levels. In other words, an individual with a large home loan and a full HRA claim could reach this limit, whereas someone relying solely on Section 80C and a standard health insurance policy would not be able to match the benefits of the New Regime.

Richa Sawhney, Tax Partner at Grant Thornton Bharat, states that choosing between the old and new tax regimes is not a "one-size-fits-all" decision. While the New Regime offers lower tax rates and greater simplicity, the Old Regime can yield better results for specific categories of taxpayers who avail themselves of significant deductions and exemptions. Therefore, instead of relying merely on headline tax rates, taxpayers should perform a personalized tax calculation before making a decision.

Flexibility to switch regimes annually

A positive aspect for salaried taxpayers is that they are not locked into a single regime. According to Richa Sawhney, salaried taxpayers have the flexibility to choose between the two regimes every year. They can evaluate their situation annually based on their income profile, deductions, and exemptions, and select the option that is more beneficial.

This annual flexibility also holds practical significance.

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.