Old tax regime

The old tax regime is the older of the two ways personal income tax is charged, and since the financial year 2023-24 it is the opt-in choice rather than the default. It offers higher slab rates than the new regime, but in exchange it allows the full set of exemptions and deductions, from Section 80C and health insurance to house rent allowance and home-loan interest. For decades it was the only regime; today it is the alternative a taxpayer chooses when their deductions are large enough to make it worthwhile.

The trade at its heart is simple to state. The new tax regime gives lower rates and a rebate that makes income up to Rs. 12 lakh tax-free, but removes almost all deductions. The old regime keeps every deduction but taxes at higher rates and gives a much smaller rebate, up to a total income of only Rs. 5 lakh. Whether the old regime is cheaper for a given person depends entirely on how much they can deduct, which is why the choice must be computed both ways, as the old versus new tax regime article works through.

This article sets out the old regime in full: the slab table and the higher age-based exemptions that matter to a pensioner, the Section 87A rebate up to Rs. 5 lakh, the standard deduction and the government-specific entertainment-allowance deduction, the full menu of exemptions and Chapter VI-A deductions that is the regime’s main draw, the surcharge that retains the 37 per cent top rate, an honest account of who still benefits from it, how a government employee opts into it, and its place under the Income-tax Act 2025. For the wider picture, see income tax for government employees and income tax for pensioners .

The slab table

For an individual below the age of 60, the old regime taxes income in four bands. The rates for the financial year 2025-26 (assessment year 2026-27), unchanged for 2026-27, are as follows.

A 4 per cent health and education cess is added to the tax. The structure is far narrower than the new regime’s seven slabs: the jump from 5 per cent to 20 per cent at Rs. 5 lakh, and to 30 per cent at Rs. 10 lakh, is steep, which is why a taxpayer needs sizeable deductions to make the old regime pay.

The higher age-based exemptions

One feature of the old regime that the new regime does not share, and that matters to a government pensioner , is the higher basic exemption for older taxpayers. In the old regime a senior citizen aged 60 to 79 has a basic exemption of Rs. 3 lakh instead of Rs. 2.5 lakh, and a super-senior citizen of 80 or above has an exemption of Rs. 5 lakh, so their income up to Rs. 5 lakh bears no tax at all before any deduction. The new regime, by contrast, gives everyone the same Rs. 4 lakh exemption regardless of age. A senior-citizen pensioner with a modest pension and interest income, claiming Section 80TTB and health insurance, is one of the cases where the old regime can still be the better choice.

The Section 87A rebate up to Rs. 5 lakh

The old regime carries a Section 87A rebate, but a much smaller one than the new regime. A resident individual with a total income up to Rs. 5 lakh gets a rebate of up to Rs. 12,500, which cancels the tax entirely, so income up to Rs. 5 lakh is effectively tax-free. Above Rs. 5 lakh the rebate is lost and the full slab tax applies, subject to marginal relief at the threshold. The contrast with the new regime, where the rebate now reaches a total income of Rs. 12 lakh, is the single biggest reason the new regime has become cheaper for most people. The rebate is for resident individuals only; a super-senior citizen does not need it, since the Rs. 5 lakh exemption already covers that income. The mechanics of the rebate and its marginal relief are in the Section 87A rebate and marginal relief articles.

The standard deduction and the government-only deductions from salary

A salaried employee and a pensioner get a standard deduction of Rs. 50,000 in the old regime, lower than the Rs. 75,000 the new regime gives. Two further deductions from salary are available in the old regime that the new regime removes, and one of them is specific to government service.

Under Section 16(ii), a government employee, and only a government employee, may claim an entertainment-allowance deduction, the least of Rs. 5,000, one-fifth of the basic salary, or the actual entertainment allowance received. Under Section 16(iii), any salaried person may deduct the professional tax they have paid to the state. Neither of these survives in the new regime, so a government employee who receives an entertainment allowance has a small extra reason to look at the old regime.

The deductions and exemptions the old regime allows

The full menu of deductions is the old regime’s whole attraction, and it is long. The principal items a central government employee or pensioner can claim are these.

Under Chapter VI-A: Section 80C up to Rs. 1.5 lakh, which for a government employee is usually filled by the general provident fund subscription, life insurance premiums, children’s tuition fees, and the principal repayment of a home loan; the additional Rs. 50,000 for the National Pension System under Section 80CCD(1B), on top of the employer’s contribution under 80CCD(2); Section 80D for health-insurance premiums; Section 80DD, 80DDB, and 80U for disability and specified illnesses; Section 80E for education-loan interest; Section 80G for donations; and, for a pensioner, Section 80TTB for up to Rs. 50,000 of interest income, or Section 80TTA for a younger taxpayer. Under the salary and house-property heads: the house rent allowance exemption under Section 10(13A), the leave travel concession exemption, and the deduction for interest on a home loan for a self-occupied house up to Rs. 2 lakh under Section 24(b). A taxpayer with no HRA who pays rent can claim Section 80GG instead. All of these are removed in the new regime, which is why a government employee servicing a home loan and filling their Section 80C is the classic candidate for the old regime.

Surcharge and cess

On higher incomes a surcharge is added before cess, and here the old regime is heavier than the new. The surcharge is 10 per cent where total income exceeds Rs. 50 lakh, 15 per cent above Rs. 1 crore, 25 per cent above Rs. 2 crore, and 37 per cent above Rs. 5 crore. Unlike the new regime, which caps the surcharge at 25 per cent, the old regime retains the 37 per cent top rate, so a very high earner pays materially more surcharge under the old regime. Marginal relief applies at each surcharge threshold, and the 4 per cent health and education cess is charged on the tax plus surcharge. The surcharge on income tax article sets out the detail.

Who still benefits from the old regime

It is worth being candid about this, because the answer changed sharply with Budget 2025. When the new regime made a total income up to Rs. 12 lakh tax-free, it became cheaper than the old regime for the great majority of salaried taxpayers, including most government employees. The old regime now benefits a narrower group: those whose deductions and exemptions are large enough that the old-regime tax, even at higher rates, falls below the new-regime tax. In practice this means a taxpayer who fills the Section 80C limit, claims the extra Rs. 50,000 NPS deduction, pays a home-loan interest close to Rs. 2 lakh, and receives a substantial HRA. A senior-citizen pensioner with significant interest income and health-insurance premiums is another case. For everyone else the new regime is usually lower, so the old regime should be chosen only after computing the tax both ways, which the comparison article and the calculators do.

How a government employee opts into it

Because the new regime is the default, the old regime must be actively chosen. A salaried employee or a pensioner with no business or professional income can choose freely every year: they compute the tax both ways and, if the old regime is lower, opt for it in that year’s income-tax return, with no lock-in, so they may switch back to the new regime the following year. At the start of the year the employee also informs the Drawing and Disbursing Officer of the intended regime so that the monthly tax deducted at source matches, but the binding choice is made in the return. A taxpayer with business or professional income is treated more strictly: to opt out of the new regime they must file Form 10-IEA, and once they have returned to the new regime they cannot opt out again.

The old regime under the Income-tax Act 2025

The Income-tax Act 2025 , in force from 1 April 2026, keeps both regimes; the old regime is not abolished. What changes is the numbering. The deduction and exemption provisions are renumbered, for instance Section 80C becomes Section 123 and the salary deductions including the standard deduction move to Section 19, but the substance, the slabs, the age-based exemptions, and the deduction limits, carries forward. For the financial year 2025-26 (assessment year 2026-27), whose returns are filed from mid-2026, the tax is still computed under the 1961 Act; the 2025 Act first applies to the tax year 2026-27. A taxpayer choosing the old regime after April 2026 should look for the renumbered provisions but will find the same reliefs.

A worked example for a government employee

Take a central government employee below 60 with a gross salary of Rs. 12,00,000 in the financial year 2025-26, who claims the following in the old regime: the Rs. 50,000 standard deduction, Rs. 1,50,000 under Section 80C (GPF and life insurance), Rs. 50,000 under 80CCD(1B) for the NPS, Rs. 25,000 under Section 80D, and Rs. 2,00,000 of home-loan interest under Section 24(b).

The old-regime tax here is Rs. 59,800. Whether that beats the new regime depends on the figures: for this same employee the new regime, allowing only the Rs. 75,000 standard deduction and the employer’s NPS contribution, could well produce a lower tax because of the Rs. 12 lakh rebate, so the two must be compared. The old regime becomes the better choice only when the deductions are large enough, or the income high enough, that its lower taxable base outweighs its higher rates and smaller rebate.

Related Articles

• New tax regime
• Old versus new tax regime
• Section 87A rebate
• Standard deduction
• Marginal relief on income tax
• Surcharge on income tax
• Deductions allowed in the new tax regime
• Section 80C
• Section 80D
• Section 80TTB
• Section 80GG
• Home loan interest under Section 24(b)
• HRA exemption under Section 10(13A)
• Leave travel concession
• Entertainment allowance
• Professional tax
• NPS tax benefits
• General Provident Fund
• Senior citizen tax
• Income-tax Act 2025
• Income tax for government employees
• Income tax for pensioners
• TDS on salary
• Central government employees in India

External references

• Income Tax Department: e-filing portal
• Income Tax Department (about and Acts)
• Central Board of Direct Taxes
• Ministry of Finance

References

1. Income-tax Act, 1961, the old-regime slab rates for an individual (nil up to Rs. 2.5 lakh, 5 per cent to Rs. 5 lakh, 20 per cent to Rs. 10 lakh, and 30 per cent above), with the higher basic exemption of Rs. 3 lakh for a senior citizen and Rs. 5 lakh for a super-senior citizen.
2. Income-tax Act, Section 87A, the old-regime rebate of up to Rs. 12,500 for a resident individual with a total income up to Rs. 5 lakh.
3. Income-tax Act, Section 16 (standard deduction of Rs. 50,000, the entertainment-allowance deduction under Section 16(ii) for government employees, and the professional-tax deduction under Section 16(iii)).
4. Income-tax Act, Chapter VI-A (Sections 80C, 80CCD(1B), 80D, 80TTB and the rest) and Sections 10(13A), 10(5), and 24(b), the exemptions and deductions available in the old regime and removed in the new regime.
5. Income-tax Act, the surcharge rates of 10, 15, 25, and 37 per cent retained in the old regime and the 4 per cent health and education cess, together with the requirement of Form 10-IEA to opt out of the new regime for a taxpayer with business or professional income; the regime continues under the Income-tax Act, 2025 (in force from 1 April 2026) with the provisions renumbered.