Every Indian taxpayer needs to compare income tax under both regimes at the start of each financial year. The Income Tax Department makes this mandatory — your employer will ask you to declare which regime you prefer for TDS deduction. This guide shows you exactly how to compare income tax, step by step.
Why Compare Income Tax Regimes Every Year?
The comparison is not a one-time exercise. Your ideal regime can change year to year because:
- Your income changes (salary hike, bonus, side income)
- Your deductions change (new home loan, increased PPF, parents' health insurance)
- Budget changes the slabs or rebate limits
The Income Tax Department requires salaried employees to inform their employer at the start of the financial year. Missing this default to the new regime for TDS.
Step-by-Step: How to Compare Income Tax
- Calculate taxable income under Old Regime:
Gross income − Standard deduction (₹50,000) − HRA exemption − 80C − 80D − Home loan interest − Other deductions - Apply Old Regime tax slabs to taxable income → add 4% cess
- Calculate taxable income under New Regime:
Gross income − Standard deduction (₹75,000) - Apply New Regime tax slabs → add 4% cess → check 87A rebate (if income ≤ ₹7 lakh)
- Compare the two totals → choose the regime with lower tax
Income Tax Comparison Table (Salaried, No Rent)
| Gross Income | Old Regime (80C only ₹1.5L) | New Regime | Saving |
|---|---|---|---|
| ₹6,00,000 | ₹7,800 | ₹0 | ₹7,800 — New wins |
| ₹8,00,000 | ₹46,800 | ₹20,800 | ₹26,000 — New wins |
| ₹10,00,000 | ₹75,400 | ₹54,600 | ₹20,800 — New wins |
| ₹12,00,000 | ₹1,04,000 | ₹83,200 | ₹20,800 — New wins |
| ₹15,00,000 | ₹1,56,000 | ₹1,17,000 | ₹39,000 — New wins |
Income Tax Comparison with Full Deductions
| Gross Income | Deductions (80C+HRA+80D+Loan) | Old Regime | New Regime | Winner |
|---|---|---|---|---|
| ₹12,00,000 | ₹4,00,000 | ₹62,400 | ₹83,200 | Old wins |
| ₹15,00,000 | ₹5,00,000 | ₹78,000 | ₹1,17,000 | Old wins |
| ₹20,00,000 | ₹6,00,000 | ₹1,95,000 | ₹2,73,000 | Old wins |
Role of the Income Tax Department
The Income Tax Department allows taxpayers to switch regimes every year (for salaried employees). However, if you have business income, you can switch only once. Use the ITD's official e-filing portal to verify your tax computation and file returns after the due date of July 31.
Deductions like housing loan interest, tax return filing incentives, and the due date for advance tax payment (June 15 first installment) all factor into your final annual tax outflow.