THE SARAL GUIDE
Old vs New Tax Regime (FY 2026-27): Slabs, Deductions, Worked Examples and Which One Saves You More
A complete comparison of the old and new income tax regimes for FY 2026-27 (AY 2027-28): slabs, rebate, every deduction, break-even table, worked examples, how to choose and switch, and common mistakes.
Every salaried person and taxpayer in India now has to answer one question each year: old regime or new regime? This guide explains both in full, with the slabs, the deductions you keep or lose, worked examples and a simple method to decide, so you do not need another website to make the choice.
The short answer
- The new regime is the default. If you do nothing, you are taxed under it.
- Under the new regime, income up to ₹12 lakh (taxable) pays no tax, and a salaried person with up to about ₹12.75 lakh of salary pays nothing, thanks to the ₹75,000 standard deduction.
- The old regime only wins if your total deductions are large. For a ₹15 lakh salary that means roughly ₹5.4 lakh of deductions beyond the standard deduction (home loan interest, HRA, 80C, NPS, health insurance and so on).
- You can switch every year if you have only salary, pension or interest income. People with business income have stricter rules (see below).
The two regimes side by side
| New regime | Old regime | |
|---|---|---|
| Status | Default | You must opt in |
| Tax rates | Lower, 7 slabs | Higher, 4 slabs |
| Tax-free income (rebate) | Up to ₹12 lakh taxable | Up to ₹5 lakh taxable |
| Standard deduction (salary, pension) | ₹75,000 | ₹50,000 |
| 80C (PPF, EPF, ELSS, LIC, etc.) | Not allowed | Up to ₹1.5 lakh |
| HRA and LTA exemption | Not allowed | Allowed |
| Home loan interest (self-occupied) | Not allowed | Up to ₹2 lakh |
| Health insurance (80D) | Not allowed | Up to ₹25,000 to ₹1 lakh |
| Employer NPS contribution | Allowed (up to 14% of basic and DA) | Allowed (10%, or 14% for government employees) |
| Extra NPS ₹50,000 (80CCD 1B) | Not allowed | Allowed |
| Best for | Most people with few deductions | People with big home loan, HRA, and investments |
Tax slabs for FY 2026-27 (assessment year 2027-28)
The slabs are unchanged from FY 2025-26. They apply to income earned from 1 April 2026 to 31 March 2027, which you report in the ITR filed in 2027.
New regime
| Taxable income | Tax rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Old regime (below 60 years)
| Taxable income | Tax rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 to ₹5,00,000 | 5% |
| ₹5,00,001 to ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Senior citizens (old regime only): the nil slab is ₹3 lakh for ages 60 to 79 and ₹5 lakh for age 80 and above. The new regime has the same slabs for everyone, whatever the age.
Always added on top: 4% health and education cess on the tax. High earners also pay surcharge: 10% above ₹50 lakh of income, 15% above ₹1 crore and 25% above ₹2 crore. The old regime has an extra 37% surcharge above ₹5 crore, which the new regime does not.
How the ₹12 lakh zero-tax limit works
Tax on ₹12 lakh under the new slabs is ₹60,000 (₹20,000 on the second slab plus ₹40,000 on the third). Section 87A gives a rebate of up to ₹60,000, so tax becomes nil. For a salaried person: ₹12,75,000 salary minus ₹75,000 standard deduction is ₹12,00,000, taxed at nil.
- Marginal relief: if your taxable income is just above ₹12 lakh, your tax cannot exceed the amount by which your income is above ₹12 lakh. At ₹12,10,000 taxable income, tax is at most ₹10,000, not the full slab amount.
- The rebate is for residents only and generally does not reduce tax on capital gains taxed at special rates.
- Under the old regime, the 87A rebate is ₹12,500 and works only if taxable income is up to ₹5 lakh.
Deductions: what you lose and what you keep
Allowed in the new regime
- Standard deduction of ₹75,000 (salary and pension income)
- Employer’s contribution to NPS, up to 14% of basic salary plus DA
- Deduction of ₹25,000 on family pension
- Gratuity, leave encashment and similar exemptions at retirement, within the usual limits
- Transport allowance for specially-abled persons
Allowed only in the old regime
| Deduction | Limit | What it covers |
|---|---|---|
| Section 80C | ₹1,50,000 | EPF, PPF, ELSS, life insurance premium, 5-year tax-saver FD, NSC, Sukanya Samriddhi, children’s tuition fees, home loan principal |
| Section 80CCD(1B) | ₹50,000 extra | Your own NPS contribution, over and above 80C |
| Section 80D | ₹25,000 self and family (₹50,000 if senior); ₹25,000 for parents (₹50,000 if senior) | Health insurance premium and up to ₹5,000 for preventive health check-up |
| Home loan interest (24b) | ₹2,00,000 for a self-occupied home | Interest portion of your EMI |
| HRA exemption | Least of three amounts (see below) | Rent paid by salaried people who get HRA |
| LTA | Actual travel within India, for 2 journeys in a block of 4 years | Leave travel allowance from employer |
| Section 80E | No upper limit, for up to 8 years | Interest on education loan |
| Section 80TTA / 80TTB | ₹10,000 / ₹50,000 (seniors) | Interest on savings account (and deposits, for seniors) |
| Section 80G | Varies | Donations to approved funds and charities |
| Sections 80DD, 80U | Fixed amounts | Disability of self or dependant |
How HRA exemption is calculated
The exempt amount is the lowest of: (1) the HRA you actually receive, (2) rent paid minus 10% of basic salary plus DA, and (3) 50% of basic plus DA if you live in Delhi, Mumbai, Kolkata or Chennai, otherwise 40%. If you pay rent to a parent, they must show it as income, and you need the rent receipts and the landlord’s PAN if yearly rent is above ₹1 lakh.
Which one saves more? The break-even table
Want your own numbers? Use our free old vs new tax calculator to compare both regimes for your exact salary and deductions.
The table assumes a salaried person under 60 with only salary income. It shows the tax under the new regime (with cess) and how much deduction you need beyond the standard deduction for the old regime to give the same tax. If your total deductions are higher than this figure, the old regime is better.
| Gross salary | Tax in new regime | Deductions needed for old regime to match |
|---|---|---|
| ₹10 lakh | Nil | ₹4.5 lakh |
| ₹12 lakh | Nil | ₹6.5 lakh |
| ₹15 lakh | ₹97,500 | About ₹5.4 lakh |
| ₹20 lakh | ₹1,92,400 | About ₹7.1 lakh |
| ₹25 lakh | ₹3,19,800 | About ₹8 lakh |
Add up your realistic deductions for the year: 80C (up to ₹1.5 lakh), NPS extra (₹50,000), health insurance, home loan interest (up to ₹2 lakh) and HRA exemption. Very few people below ₹15 lakh reach the break-even without a home loan or high rent.
Two worked examples (gross salary ₹15 lakh)
| Example 1: no rent, has home loan | Example 2: same, plus rent with HRA | |
|---|---|---|
| Standard deduction | ₹50,000 | ₹50,000 |
| 80C | ₹1,50,000 | ₹1,50,000 |
| NPS extra (80CCD 1B) | ₹50,000 | ₹50,000 |
| Health insurance (80D) | ₹25,000 | ₹25,000 |
| Home loan interest | ₹2,00,000 | ₹2,00,000 |
| HRA exemption | Nil | ₹1,50,000 |
| Taxable income, old regime | ₹10,25,000 | ₹8,75,000 |
| Tax with cess, old regime | ₹1,24,800 | ₹91,000 |
| Tax with cess, new regime | ₹97,500 | ₹97,500 |
| Better choice | New saves ₹27,300 | Old saves ₹6,500 |
How example 1 works in the old regime: tax on ₹10,25,000 = ₹12,500 (second slab) + ₹1,00,000 (third slab) + ₹7,500 (30% of ₹25,000) = ₹1,20,000, plus 4% cess = ₹1,24,800. In the new regime the taxable income is ₹14,25,000: tax ₹93,750, plus 4% cess = ₹97,500.
How to decide in four steps
- Write down your gross income for the year.
- List the deductions you will truly claim in the old regime: 80C investments you would make anyway, NPS, health insurance, home loan interest and HRA exemption.
- Compare the total with the break-even figure for your salary in the table above.
- If it is close, calculate both taxes properly (the worked example shows how), or ask your employer’s payroll tool, which usually compares both.
Do not invest in products just to get the deduction. An investment that is wrong for you costs more than the tax it saves.
Who usually does better in which regime
| Your situation | Usually better |
|---|---|
| Salary up to ₹12.75 lakh with few deductions | New regime (tax is nil) |
| Young professional, no home loan, no big investments | New regime |
| Home loan with large interest plus HRA plus 80C and NPS | Old regime, if total deductions pass the break-even |
| Pays high rent in a metro and gets HRA | Check old regime |
| Senior citizen with large interest income and health insurance | Check old regime, as 80TTB and 80D are generous |
| Salary above ₹24 lakh | New regime unless deductions exceed about ₹8 lakh |
How to choose and how to switch
If you are a salaried employee or pensioner (no business income)
- Tell your employer at the start of the financial year which regime you want. The employer deducts TDS accordingly. If you say nothing, the new regime is used.
- You can choose a different regime every year.
- Your TDS regime is not final. When you file your ITR you can pick the other regime and claim a refund of any extra tax deducted. Keep your investment proofs ready.
If you have business or professional income
- You must opt out of the new regime by filing Form 10-IEA on the income tax portal on or before the due date for filing your return.
- You can go back to the new regime only once. After that, you generally cannot go back to the old regime as long as you have business income.
- Missing the due date can lock you into the new regime for that year.
Things that are the same in both regimes
- Tax on long-term and short-term capital gains from shares and mutual funds, which has its own special rates.
- 4% cess.
- The need to file an ITR if your income is above the basic exemption limit.
- Income that is fully exempt, such as agricultural income, still stays outside your taxable income.
A note on the Income-tax Act, 2025
A new Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, so many sections have new numbers. We still use the familiar names (80C, 80D, 87A) because that is what most payroll sheets, advisers and older articles use. Rates, limits and the choice between two regimes continue as described in this guide. Your ITR utility and payslip may show the new section numbers.
Common mistakes to avoid
- Comparing only slab rates and ignoring the ₹12 lakh rebate, which makes the new regime free up to a high level.
- Counting deductions you will not actually make, then losing out.
- Forgetting that old-regime deductions like HRA need rent receipts and a landlord PAN if rent is above ₹1 lakh a year.
- Telling your employer one regime and filing the ITR under another without checking the refund.
- Business owners missing the Form 10-IEA deadline.
- Assuming senior citizens get higher slabs in the new regime. They do not.
Frequently asked questions
Is the new regime compulsory?
No. It is the default, but you can opt for the old regime, with the conditions described above.
Can I still get a tax benefit on PPF, ELSS or life insurance in the new regime?
No deduction. PPF interest is still tax-free at maturity and withdrawal, so PPF can still be useful as a savings choice. See our PPF guide.
Is the ₹75,000 standard deduction available if I have no HRA or investments?
Yes. Every salaried employee and pensioner gets it automatically under the new regime. You do not need to show any proof.
Does my employer’s NPS contribution help in the new regime?
Yes. The employer’s contribution up to 14% of basic salary plus DA is deductible in both regimes. Your own extra ₹50,000 NPS deduction is old-regime only. Read our NPS guide.
I chose the wrong regime with my employer. Is it too late?
If you have no business income, you can select the better regime when you file your ITR and claim a refund for excess TDS. Our ITR filing guide explains the steps.
Will the rates change next year?
They can change in each Union Budget. Re-check the break-even every year before choosing.
Sources
- Income Tax Department: tax rates for individuals (old and new regime slabs, surcharge, cess)
- Income Tax Department: FAQs on the new vs old tax regime
- Income Tax Department, e-filing portal
- Business Today: income tax slabs for FY 2026-27
Last checked: 28 October 2026. Tax rules change with each Budget, and individual cases can differ. This guide is general information, not tax advice. For a complicated case, speak to a chartered accountant.