Income Tax Slabs in India: Old vs New Regime Explained with Examples

 

Introduction: Why Income Tax Slabs Matter More Than Ever

Choosing the right income tax regime in India is no longer a routine annual task—it has become a critical financial decision. Since the introduction of the New Tax Regime, taxpayers now face a real dilemma: Should you stick with the Old Regime and claim deductions, or switch to the New Regime with lower slab rates but fewer benefits?

This choice directly impacts your take-home salary, savings strategy, long-term investments, and overall financial planning. Many taxpayers unknowingly pay more tax than necessary simply because they don’t fully understand how both regimes work.

This article explains Income Tax Slabs in India – Old vs New Regime in a clear, practical, example-driven way, so that you can confidently decide what works best for you.

 

Background: How India’s Income Tax Slab System Evolved

India follows a progressive income tax system, meaning tax rates increase as income rises. For decades, taxpayers followed a single tax regime supported by deductions under sections like 80C, 80D, HRA, and LTA.

In Union Budget 2020, the government introduced an optional New Tax Regime, offering lower slab rates but removing most exemptions and deductions. The idea was to simplify tax compliance and reduce dependency on tax-saving investments.

Over subsequent budgets, the New Regime was further refined and is now the default regime, though taxpayers can still choose the Old Regime if beneficial.

 

What Are Income Tax Slabs?

Income tax slabs define how much tax you pay based on your income level. Each portion of income is taxed at a specific rate, not the entire income at one rate.

For example:

• Income up to a certain limit may be tax-free
• The next portion is taxed at a lower rate
• Higher income portions attract higher rates

This system ensures fairness and equity in taxation.

 

Overview of Old vs New Tax Regime

Feature	Old Tax Regime	New Tax Regime
Tax Slab Rates	Higher	Lower
Deductions & Exemptions	Allowed	Mostly Not Allowed
Complexity	Higher	Simpler
Investment-linked tax saving	Yes	No
Flexibility	More planning	Less planning

 

Income Tax Slabs – Old Tax Regime

Slab Rates (Old Regime)

Income Range	Tax Rate
Up to ₹2.5 lakh	Nil
₹2.5 – ₹5 lakh	5%
₹5 – ₹10 lakh	20%
Above ₹10 lakh	30%

Plus applicable Health & Education Cess @ 4%

 

Why the Old Regime Exists

The Old Regime encourages:

• Savings and investments
• Retirement planning
• Insurance coverage
• Housing ownership
• Medical security

It aligns taxation with long-term financial discipline.

 

Key Deductions & Exemptions Under Old Regime

Popular Deductions

• Section 80C – PPF, EPF, ELSS, LIC (₹1.5 lakh)
• Section 80D – Health Insurance
• HRA – House Rent Allowance
• LTA – Leave Travel Allowance
• Standard Deduction – ₹50,000
• Home Loan Interest – Section 24(b)
• Education Loan Interest – Section 80E

These deductions can significantly reduce taxable income.

 

Income Tax Slabs – New Tax Regime

Slab Rates (New Regime)

Income Range	Tax Rate
Up to ₹3 lakh	Nil
₹3 – ₹6 lakh	5%
₹6 – ₹9 lakh	10%
₹9 – ₹12 lakh	15%
₹12 – ₹15 lakh	20%
Above ₹15 lakh	30%

Plus applicable Health & Education Cess @ 4%

 

Why the New Tax Regime Was Introduced

The government aimed to:

• Simplify tax filing
• Reduce paperwork
• Remove forced tax-saving investments
• Improve voluntary compliance
• Increase transparency

It is designed for taxpayers who do not claim many deductions.

 

Who Is Affected by This Choice?

• Salaried employees
• Freelancers & professionals
• Small business owners
• First-time taxpayers
• High-income earners
• Young professionals
• Retirees

Each group experiences different outcomes under each regime.

 

Applicability Analysis: Who Can Choose What?

• Salaried Individuals: Can choose Old or New every year
• Business/Professional Income: Limited switching flexibility
• New Regime is default, but Old can be opted explicitly

Understanding eligibility is crucial before deciding.

 

Practical Examples: Old vs New Regime Compared

Example 1: Salary ₹6,00,000

Old Regime

• Standard Deduction: ₹50,000
• 80C: ₹1,50,000
• Taxable Income: ₹4,00,000
• Tax: ₹7,500 (after rebate)

New Regime

• No deductions
• Taxable Income: ₹6,00,000
• Tax: ₹15,000

✅ Old Regime wins

 

Example 2: Salary ₹10,00,000

Old Regime

• Total Deductions: ₹2,00,000
• Taxable Income: ₹7,50,000
• Tax: ~₹52,500

New Regime

• No deductions
• Tax: ~₹60,000

✅ Old Regime still better

 

Example 3: Salary ₹15,00,000 (Minimal Deductions)

Old Regime

• Deductions: ₹50,000
• Tax: ~₹2,73,000

New Regime

• Tax: ~₹2,10,000

✅ New Regime better

 

Common Mistakes Taxpayers Make

• Choosing New Regime blindly
• Ignoring long-term savings impact
• Not calculating both regimes
• Overlooking HRA and home loan benefits
• Assuming lower slab = lower tax always

 

Consequences & Impact Analysis

Short-Term Impact

• Higher or lower take-home pay

Long-Term Impact

• Reduced retirement savings
• Lower insurance coverage
• Missed compounding benefits

Tax decisions affect financial security, not just tax payable.

 

Why This Matters Now (Discover Signal)

• New Regime is default
• Annual confusion during ITR filing
• Rising salaries & inflation
• Increased scrutiny by tax department
• Growing number of first-time taxpayers

This topic remains highly relevant and time-sensitive.

 

Expert Insights (E-E-A-T Signal)

From professional experience, most taxpayers benefit from:

• Old Regime if deductions exceed ₹2–2.5 lakh
• New Regime if income is high and deductions are minimal

The mistake is not choosing a regime—it’s choosing without calculation.

 

What Taxpayers Should Do Now

1. List all deductions available
2. Calculate tax under both regimes
3. Consider long-term goals
4. Use a tax calculator
5. Re-evaluate every year

Tax planning should align with life planning.

 

Frequently Asked Questions (FAQs)

1. Can I change tax regime every year?

Yes, salaried individuals can choose annually.

2. Is New Regime mandatory?

No, Old Regime is optional but must be selected.

3. Which regime is better for middle-class?

Usually Old Regime, due to deductions.

4. Is standard deduction available in New Regime?

Currently, yes (as notified).

5. Does New Regime remove all deductions?

Most, but not all—some limited benefits remain.

6. Should young professionals choose New Regime?

Often yes, if deductions are low.

 

Suggested Internal Links

• How to Calculate Income Tax in India
• Section 80C Deductions Explained
• Income Tax Return Filing Guide

 

Conclusion

There is no universally better tax regime—only the one that suits your income, deductions, and financial goals. The Old Regime rewards disciplined savings, while the New Regime offers simplicity and flexibility.

An informed taxpayer always calculates, compares, and chooses wisely.

 

Author Box  

Written by Manoj Kumar
Tax & Accounting Expert with 11+ years of experience in Income Tax, GST, Accounting, Compliance, and Tax Education.
Manoj Kumar simplifies complex tax laws for Indian taxpayers through Manika TaxWise.

 

Editorial Disclaimer

Disclaimer:
This article is for educational and informational purposes only. It does not constitute legal, tax, or financial advice. Readers should consult a qualified tax professional before making decisions.