Choosing between the old and new tax regimes isn't just about comparing tax slabs. Experts say the right choice depends on how much you can claim as deductions under the old regime. Here's how to decide which option works best for you.

With the income tax return (ITR) filing season underway, one question continues to puzzle salaried taxpayers: Should you opt for the old tax regime or the new one?

According to tax experts, the answer varies from person to person. Instead of looking only at tax rates, taxpayers should calculate their break-even deduction—the point where the tax liability under both regimes becomes the same.

Understanding this figure can help you select the regime that leaves more money in your pocket.

What Is Break-Even Deduction?

A break-even deduction is the total amount of eligible deductions that makes your tax liability identical under both tax regimes.

Here's how it works:

• If your total deductions are below the break-even figure, the new tax regime is generally more beneficial.
• If your deductions are above the break-even figure, the old tax regime may help you save more tax.

Rather than making assumptions, taxpayers should calculate this amount before filing their return.

Example: Annual Income of ₹12.5 Lakh

Tax professionals explain that if your annual salary is around ₹12.5 lakh, you would need eligible deductions of approximately ₹4.75 lakh under the old regime to make it as tax-efficient as the new regime.

For example:

• Deductions below ₹4.75 lakh: The new regime may result in lower tax.
• Deductions above ₹4.75 lakh: The old regime could offer greater tax savings.

The exact break-even amount depends on your income level and eligible deductions.

Deductions to Consider Under the Old Tax Regime

Before comparing both regimes, taxpayers should add up all deductions available under the old tax system.

Some of the major deductions include:

Section 80C

Investments and expenses such as:

• Employees' Provident Fund (EPF)
• Public Provident Fund (PPF)
• ELSS mutual funds
• Life insurance premiums

Maximum eligible deduction: ₹1.5 lakh

Section 80D

Deduction for health insurance premiums paid for yourself and eligible family members.

Section 80CCD(1B)

Additional deduction of up to ₹50,000 for voluntary contributions to the National Pension System (NPS).

Section 24(b)

Deduction of up to ₹2 lakh on home loan interest for eligible self-occupied properties.

Other Eligible Deductions

Depending on individual circumstances, deductions may also be available under provisions such as:

• Section 80G (donations)
• Section 80E (education loan interest)

Important Calculation Tip

Tax experts advise taxpayers not to count certain benefits as exclusive to the old regime.

These include:

• Standard deduction (where applicable under current rules).
• Employer's contribution to NPS under Section 80CCD(2).

Since these benefits are available under both regimes (subject to applicable tax provisions), they should not be treated as additional advantages of the old regime while comparing tax liability.

Capital Gains Require Extra Attention

If your income includes Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) that are taxed at special rates, your tax calculation may become more complex.

Experts point out that the Section 87A rebate may not apply to certain incomes taxed at special rates under the applicable provisions.

Therefore, taxpayers with capital gains should calculate their tax carefully instead of assuming the new regime will automatically result in zero tax.

Don't Copy Someone Else's Choice

Financial experts recommend avoiding decisions based on friends, colleagues, or social media advice.

The better option depends on several personal factors, including:

• Annual income
• Total deductions
• Investments
• Home loan benefits
• Insurance premiums
• Capital gains
• NPS contributions

Since tax rules may change through every Union Budget, taxpayers should compare both regimes each financial year before filing their return.

Which Tax Regime Should You Choose?

In general:

• Choose the new tax regime if you claim limited deductions and prefer a simplified tax structure.
• Consider the old tax regime if your eligible deductions and exemptions are substantial enough to reduce your taxable income significantly.

The best tax regime is the one that minimizes your tax liability based on your own financial profile—not someone else's.

Disclaimer: Income tax calculations depend on individual income, deductions, exemptions, and applicable tax laws. Taxpayers should verify the latest provisions or consult a qualified tax professional before filing their Income Tax Return (ITR).