Old vs New Tax Regime (FY 2026-27): Which Should You Choose?
Every salaried Indian faces this choice each year: the new regime (lower rates, almost no deductions — and the default option) or the old regime (higher rates, but deductions like 80C, HRA, and home-loan interest). For FY 2026–27 (Tax Year 2026–27, under the Income-tax Act, 2025), the Finance Act, 2026 kept everything unchanged from last year — so the decision comes down to simple arithmetic.
New regime slabs — FY 2026-27
| Taxable income | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
- Standard deduction: ₹75,000 for salaried individuals
- Section 87A rebate: up to ₹60,000 — wipes out tax on taxable income up to ₹12 lakh
- Effective zero-tax salary: ₹12,75,000 (₹12L taxable after standard deduction + full rebate)
- Marginal relief: just above ₹12 lakh taxable, tax is capped at the excess over ₹12 lakh — no sudden jump
- Surcharge capped at 25% (vs up to 37% in old regime); 4% health & education cess applies
Old regime slabs — FY 2026-27
| Taxable income (below 60 yrs) | Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
- Standard deduction: ₹50,000 for salaried
- Section 87A rebate: up to ₹12,500 — zero tax up to ₹5 lakh taxable income
- Deductions available: 80C (₹1.5L), 80D (health insurance), HRA exemption, home-loan interest (up to ₹2L for self-occupied), NPS extra ₹50,000, and more
- 4% health & education cess applies
Worked examples
Example 1: ₹10 lakh salary, no major deductions
New regime: ₹10,00,000 − ₹75,000 (standard deduction) = ₹9,25,000 taxable. Slab tax: 5% on ₹4–8L = ₹20,000; 10% on ₹8–9.25L = ₹12,500 → ₹32,500. But taxable income is below ₹12L, so the 87A rebate wipes it to zero. Tax: ₹0.
Old regime: ₹10,00,000 − ₹50,000 = ₹9,50,000 taxable. Tax: 5% on ₹2.5–5L = ₹12,500; 20% on ₹5–9.5L = ₹90,000 → ₹1,02,500 + 4% cess = ₹1,06,600.
👉 New regime wins by ₹1,06,600.
Example 2: ₹18 lakh salary, ₹4.5 lakh of deductions (80C ₹1.5L + HRA ₹2L + 80D ₹25k + NPS ₹50k + home-loan interest)
New regime: ₹18,00,000 − ₹75,000 = ₹17,25,000 taxable. Slab tax: ₹20,000 + ₹40,000 + 15% on ₹12–16L (₹60,000) + 20% on ₹16–17.25L (₹25,000) = ₹1,45,000 + 4% cess = ₹1,50,800.
Old regime: ₹18,00,000 − ₹50,000 − ₹4,50,000 = ₹13,00,000 taxable. Tax: ₹12,500 + 20% on ₹5–10L (₹1,00,000) + 30% on ₹10–13L (₹90,000) = ₹2,02,500 + 4% cess = ₹2,10,600.
👉 New regime still wins — but the gap narrows as deductions grow. The old regime typically wins only when total deductions cross roughly ₹4–5 lakh.
The rule of thumb
- Few deductions (just standard deduction, maybe small 80C): new regime almost always wins.
- Large deductions (HRA + 80C + home-loan interest + 80D + NPS totalling ₹4–5 lakh+): compute both — old regime can win.
- Salaried? You choose the regime every year while filing your ITR — no advance form needed.
- Business/profession income? Opting out of the default new regime needs Form 10-IEA, and switching back has restrictions — get professional advice.
Frequently asked questions
The new regime (Section 202 of the Income-tax Act, 2025, earlier Section 115BAC) is the default. You must actively opt for the old regime while filing if it suits you better.
Up to ₹12.75 lakh of salary: the ₹75,000 standard deduction brings taxable income to ₹12 lakh, and the Section 87A rebate (up to ₹60,000) wipes out the tax. Marginal relief smooths incomes just above this line.
No. The Finance Act, 2026 kept FY 2026–27 slabs, rebate, and standard deduction identical to FY 2025–26.
Yes. Salaried individuals (no business income) can choose whichever regime is better each year at the time of filing. Those with business or profession income face Form 10-IEA requirements and switching restrictions.
Typically when total old-regime deductions (HRA + 80C + home-loan interest + 80D + NPS) exceed roughly ₹4–5 lakh. Below that, the new regime's lower rates usually win.