Old vs New Tax Regime 2026-27: Which Saves More Tax?
By Shashank Sheela, Founder, FinMoon AI · Published · Updated
Applies to: Tax year 2026-27 (FY 2026-27, 1 April 2026 to 31 March 2027), resident individuals
On this page
- What is the difference between the old and new tax regime?
- What changed for tax year 2026-27?
- What are the income tax slabs under the new and old tax regime?
- How does the ₹12 lakh rebate work under the new tax regime?
- Which deductions are allowed under each tax regime?
- How much in deductions makes the old tax regime better?
- Worked examples: how tax is calculated under each regime
- How does the tax regime choice differ for each type of taxpayer?
- How do you choose the old or new tax regime in your ITR?
- Which tools compare the old and new tax regime?
- Common mistakes and edge cases
- Sources and methodology
- Frequently asked questions
Short answer: For tax year 2026-27, the new tax regime saves more tax for most salaried people in India. Salary up to ₹12,75,000 is tax-free under the new regime. Above that, the old regime wins only if your deductions (HRA, Section 80C, Section 80D, home loan interest and similar) exceed about ₹5.4 lakh to ₹8 lakh, depending on your salary. At ₹25 lakh salary and above, the break-even is a flat ₹8 lakh.
| Key fact (tax year 2026-27) | Value |
|---|---|
| Default regime | New tax regime, Section 202 of the Income-tax Act, 2025 (Income Tax Department) |
| Tax-free salary, new regime | Up to ₹12,75,000 (₹12,00,000 taxable income + ₹75,000 standard deduction) |
| Rebate, new regime | Up to ₹60,000 if taxable income ≤ ₹12,00,000 (Income Tax Department) |
| Rebate, old regime | Up to ₹12,500 if taxable income ≤ ₹5,00,000 |
| Standard deduction (salary) | ₹75,000 new regime, ₹50,000 old regime |
| Health and Education Cess | 4% on income tax plus surcharge, both regimes |
| Budget 2026-27 change to slabs | None (Budget Speech 2026-27) |
What is the difference between the old and new tax regime?
A tax regime is the set of income tax slab rates, rebates and deductions under which your income is taxed. India has two for individuals, and you pay tax under one of them each tax year.
The new tax regime is India’s default income tax system for individuals, with lower slab rates and very few deductions. The old tax regime is the earlier system, with higher slab rates but most deductions and exemptions, such as HRA, Section 80C, Section 80D and home loan interest. The new tax regime was introduced by the Finance Act, 2020 from FY 2020-21 as an optional regime under Section 115BAC, and became the default from FY 2023-24. The new regime suits taxpayers with few deductions; the old regime suits taxpayers whose deductions exceed the break-even amount for their salary.
What changed for tax year 2026-27?
The tax slabs did not change for tax year 2026-27, but the law under which they apply did. The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026 (Income Tax Department FAQ).
The changes that matter to an individual taxpayer:
- “Tax year” replaces “previous year” and “assessment year”. Income earned from 1 April 2026 to 31 March 2027 is taxed in tax year 2026-27. Income earned in FY 2025-26 is still filed under the 1961 Act as assessment year 2026-27.
- New section numbers. The new tax regime, earlier Section 115BAC, is now Section 202. The old section names (80C, 80D, 87A) are still widely used in conversation and are used in this article for clarity.
- No change to slabs, rebate or standard deduction. The Union Budget 2026-27, presented on 1 February 2026, made no announcement on personal income tax slabs (Budget Speech 2026-27).
- ITR due date unchanged for salaried people. Individuals filing ITR-1 and ITR-2 continue to file by 31 July. Budget 2026-27 also proposed allowing a revised return up to 31 March following the tax year, with a fee of ₹1,000 or ₹5,000 if revised after 31 December.
What are the income tax slabs under the new and old tax regime?
The new tax regime has seven slabs from 0% to 30%, the same for every age group. The old tax regime has four slabs, and its basic exemption limit rises with age. Both tables are from the Income Tax Department.
New tax regime (all ages)
| 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% |
Old tax regime
| Taxable income | Below 60 years | 60 to 80 years (senior citizen) | 80 years and above (super senior citizen) |
|---|---|---|---|
| Up to ₹2,50,000 | Nil | Nil | Nil |
| ₹2,50,001 – ₹3,00,000 | 5% | Nil | Nil |
| ₹3,00,001 – ₹5,00,000 | 5% | 5% | Nil |
| ₹5,00,001 – ₹10,00,000 | 20% | 20% | 20% |
| Above ₹10,00,000 | 30% | 30% | 30% |
Surcharge applies only when total income exceeds ₹50 lakh: 10% above ₹50 lakh, 15% above ₹1 crore, and 25% above ₹2 crore. The old tax regime has a 37% surcharge above ₹5 crore, while the new tax regime caps surcharge at 25%. Health and Education Cess of 4% is added on top in both regimes.
How does the ₹12 lakh rebate work under the new tax regime?
The rebate (Section 87A under the 1961 Act) cancels income tax of up to ₹60,000 for a resident individual whose taxable income does not exceed ₹12,00,000 under the new tax regime. The slab tax on exactly ₹12,00,000 is ₹60,000 (₹20,000 at 5% plus ₹40,000 at 10%), so the rebate brings it to zero.
For a salaried person, the ₹75,000 standard deduction comes first. That makes a gross salary of ₹12,75,000 fully tax-free.
Marginal relief protects incomes just above ₹12,00,000. The tax payable cannot exceed the amount by which taxable income exceeds ₹12,00,000. Example: on taxable income of ₹12,25,000, slab tax is ₹63,750, but marginal relief limits it to ₹25,000, plus 4% cess = ₹26,000. Marginal relief stops at a taxable income of about ₹12,70,588 (salary of about ₹13,45,588).
The rebate does not apply to income taxed at special rates, such as capital gains under Section 111A or 112A.
Which deductions are allowed under each tax regime?
The old tax regime allows most deductions and exemptions; the new tax regime allows only a few. The limits below are from the Income Tax Department for salaried individuals.
| Deduction or exemption | Old tax regime | New tax regime |
|---|---|---|
| Standard deduction on salary | ₹50,000 | ₹75,000 |
| Employer’s NPS contribution, Section 80CCD(2) | Up to 10% of salary (14% for government employees) | Up to 14% of salary |
| Section 80C (EPF, PPF, ELSS, LIC, tuition fees, home loan principal) | Up to ₹1,50,000 | Not allowed |
| Own NPS contribution, Section 80CCD(1B) | Up to ₹50,000 | Not allowed |
| Health insurance, Section 80D | ₹25,000 (₹50,000 if senior citizen) + ₹25,000 for parents (₹50,000 if senior citizen) | Not allowed |
| Home loan interest, self-occupied house, Section 24(b) | Up to ₹2,00,000 | Not allowed |
| Home loan interest, let-out house | Allowed | Allowed (loss cannot be set off against salary) |
| HRA exemption, Section 10(13A) | Allowed | Not allowed |
| Savings bank interest, Section 80TTA / 80TTB (senior citizens) | ₹10,000 / ₹50,000 | Not allowed |
In short, the deductions allowed under the new tax regime for a salaried person are the ₹75,000 standard deduction, the employer’s NPS contribution under Section 80CCD(2) and, for family pensioners, a deduction of up to ₹25,000 on family pension. Home loan benefits under the new tax regime are limited to interest on a let-out house.
The standard deduction of ₹75,000 for the new tax regime was raised from ₹50,000 in the July 2024 Budget (All India Radio News). The same Budget raised the family pension deduction under the new regime from ₹15,000 to ₹25,000. The old regime’s ₹50,000 standard deduction was not changed.
How much in deductions makes the old tax regime better?
The old tax regime saves more tax only when your total deductions, beyond the standard deduction, exceed the break-even amount for your salary. Break-even deductions are the deduction amount at which tax under both regimes becomes equal. FinMoon calculated it for a resident salaried individual with only salary income, using the slabs, rebates and cess above.
| Gross salary | New regime tax | Break-even deductions, below 60 | Break-even deductions, 60 to 80 |
|---|---|---|---|
| ₹10,00,000 | ₹0 | ₹4,50,000 | ₹4,50,000 |
| ₹12,75,000 | ₹0 | ₹7,25,000 | ₹7,25,000 |
| ₹13,00,000 | ₹26,000 | ₹6,87,498 | ₹6,74,998 |
| ₹15,00,000 | ₹97,500 | ₹5,43,748 | ₹5,31,248 |
| ₹18,00,000 | ₹1,50,800 | ₹6,41,666 | ₹6,33,332 |
| ₹20,00,000 | ₹1,92,400 | ₹7,08,332 | ₹6,99,999 |
| ₹25,00,000 | ₹3,19,800 | ₹7,99,999 | ₹7,91,666 |
| ₹30,00,000 | ₹4,75,800 | ₹7,99,999 | ₹7,91,666 |
| ₹50,00,000 | ₹10,99,800 | ₹7,99,999 | ₹7,91,666 |
How to read the table: if your deductions are below the break-even, choose the new tax regime. If they are above, the old tax regime saves more tax.
Two patterns stand out:
- Up to ₹12,75,000 salary, the old regime almost never wins. The new regime tax is zero, so the old regime must also reach zero, which needs taxable income of ₹5,00,000 or less. At ₹10 lakh salary that means ₹4.5 lakh of deductions.
- Above ₹24 lakh taxable income, the break-even is a flat ₹8 lakh. Both regimes tax each extra rupee at 30%, so the gap between them stays fixed.
The table covers salary income below ₹50 lakh, without surcharge. Figures include 4% cess and are rounded to the nearest rupee.
Worked examples: how tax is calculated under each regime
Tax under either regime is calculated in three steps: subtract the standard deduction and other allowed deductions from gross salary to get taxable income, apply the slab rates (and the rebate, if taxable income is low enough), then add 4% Health and Education Cess.
₹20 lakh salary with ₹6.65 lakh of deductions
A salaried employee below 60 earns ₹20,00,000. Under the old tax regime, the employee claims Section 80C ₹1,50,000, Section 80CCD(1B) ₹50,000, Section 80D ₹25,000, home loan interest ₹2,00,000 and HRA exemption ₹2,40,000. Total: ₹6,65,000.
New tax regime
- Taxable income = ₹20,00,000 − ₹75,000 standard deduction = ₹19,25,000
- Slab tax = ₹0 + ₹20,000 + ₹40,000 + ₹60,000 + ₹65,000 (20% of ₹3,25,000) = ₹1,85,000
- Add 4% cess = ₹1,92,400
Old tax regime
- Taxable income = ₹20,00,000 − ₹50,000 − ₹6,65,000 = ₹12,85,000
- Slab tax = ₹0 + ₹12,500 + ₹1,00,000 + ₹85,500 (30% of ₹2,85,000) = ₹1,98,000
- Add 4% cess = ₹2,05,920
Result: the new tax regime saves ₹13,520, even with ₹6.65 lakh of deductions. The break-even at ₹20 lakh is ₹7,08,332, so this employee needs about ₹43,000 more in deductions before the old regime wins.
₹30 lakh salary with ₹8.5 lakh of deductions
A salaried employee below 60 earns ₹30,00,000, pays rent in a metro and has a home loan in another city. Deductions: Section 80C ₹1,50,000, Section 80CCD(1B) ₹50,000, Section 80D ₹25,000 for self and ₹50,000 for senior-citizen parents, home loan interest ₹2,00,000 and HRA exemption ₹3,75,000. Total: ₹8,50,000.
New tax regime
- Taxable income = ₹30,00,000 − ₹75,000 = ₹29,25,000
- Slab tax = ₹20,000 + ₹40,000 + ₹60,000 + ₹80,000 + ₹1,00,000 + ₹1,57,500 (30% of ₹5,25,000) = ₹4,57,500
- Add 4% cess = ₹4,75,800
Old tax regime
- Taxable income = ₹30,00,000 − ₹50,000 − ₹8,50,000 = ₹21,00,000
- Slab tax = ₹12,500 + ₹1,00,000 + ₹3,30,000 (30% of ₹11,00,000) = ₹4,42,500
- Add 4% cess = ₹4,60,200
Result: the old tax regime saves ₹15,600, because the deductions are ₹50,000 above the ₹8 lakh break-even.
How does the tax regime choice differ for each type of taxpayer?
The right tax regime depends on income source, age and how many deductions a taxpayer can actually claim.
Salaried employees without a home loan
The new tax regime is usually better. Without home loan interest, deductions rarely cross ₹5.4 lakh. Section 80C (₹1.5 lakh), Section 80CCD(1B) (₹50,000) and Section 80D (₹25,000 to ₹1 lakh) add up to at most ₹3 lakh. HRA exemption alone would then need to cover the remaining ₹2.4 lakh or more.
Salaried employees with a home loan and HRA
These taxpayers are the main group for whom the old tax regime can win. Add up HRA exemption, Section 80C, Section 80CCD(1B), Section 80D and up to ₹2 lakh of home loan interest, then compare the total with the break-even for your salary.
Senior citizens (60 to 80 years)
The new tax regime suits most senior citizens. Pension is taxed as salary and gets the ₹75,000 standard deduction, so pension up to ₹12,75,000 is tax-free under the new regime. Interest income does not get the standard deduction, so the tax-free limit for it is ₹12,00,000 of taxable income. The old regime’s higher ₹3 lakh exemption lowers the break-even by at most about ₹12,500 (see the table above).
Taxpayers with business or professional income, including freelancers
The choice is less flexible. Freelancers and consultants usually have professional income, so this rule applies to them. A taxpayer with business income must file Form 10-IEA by the ITR due date to opt out of the new tax regime. After opting out, the taxpayer can return to the new regime only once in a lifetime (Income Tax Department).
How do you choose the old or new tax regime in your ITR?
You choose the tax regime in your income tax return (ITR) each year. The new tax regime applies automatically unless you opt out of it (Income Tax Department).
- Salaried, no business income: select the old tax regime (opt out of the new regime) in the ITR form itself, whether you file on the e-filing portal or through a tax filing website. The ITR must be filed by the due date, which is 31 July for ITR-1 and ITR-2 filers. A return filed after the due date stays in the new tax regime.
- Tell your employer early: your employer deducts TDS based on the regime you declare at the start of the year. This declaration is not final; the ITR decides.
- Business or professional income: file Form 10-IEA by the ITR due date to opt out of the new regime. Switching back to the new regime later is allowed only once in a lifetime.
Which tools compare the old and new tax regime?
A tax regime calculator shows your tax under both regimes side by side, so you can pick the lower one.
- Income and Tax Calculator (Income Tax Department): the official, free calculator on the e-filing portal. Enter your age, income and deductions, then use “View Comparison” to see tax under the old and new regime. The advanced version also takes business or professional income, which suits freelancers (Income Tax Department).
- FinMoon AI: an AI assistant that compares the old and new tax regime from your own salary structure and deductions in a conversation, and explains which one saves more tax.
- Tax filing websites and apps: you can also choose the regime while filing through one; check the tax under both regimes before you submit.
Whichever tool you use, check that it uses the tax year 2026-27 slabs, the ₹75,000 standard deduction and the ₹60,000 rebate.
Common mistakes and edge cases
- Counting the standard deduction as a deduction for break-even. The break-even amounts in this article are over and above the standard deduction. Do not add ₹50,000 to your deduction total.
- Forgetting the employer’s NPS contribution. Section 80CCD(2) is allowed in both regimes. At ₹20 lakh salary, an employer contribution of ₹1,00,000 cuts new regime tax from ₹1,92,400 to ₹1,71,600, which raises the break-even further.
- Claiming the ₹60,000 rebate on capital gains. The new regime rebate does not apply to tax on income at special rates, such as equity capital gains.
- Just above ₹12 lakh taxable income. Marginal relief applies up to about ₹12,70,588 of taxable income. In this range, tax before cess never exceeds the income above ₹12,00,000.
- Choosing the regime only at the employer. Your employer deducts TDS based on the regime you declare. A salaried person with no business income can still choose the other regime in the ITR, if it is filed by the due date.
- Mixing up years. Tax year 2026-27 is income from 1 April 2026 to 31 March 2027. The return for FY 2025-26 income is still filed as assessment year 2026-27 under the 1961 Act.
Sources and methodology
- Tax slabs, rebate, surcharge and cess for individuals, Income Tax Department, retrieved 24 October 2026
- Deductions under old and new tax regime, switching rules and Form 10-IEA, Income Tax Department, retrieved 24 October 2026
- Income-tax Act, 2025 FAQs: tax year, Section 202, default regime, Income Tax Department, retrieved 24 October 2026
- Income and Tax Calculator, Income Tax Department, retrieved 24 October 2026
- Tax rates and computation: Section 115BAC history, Income Tax Department
- Budget Speech 2026-27, Ministry of Finance, 1 February 2026
- Standard deduction raised to ₹75,000 under new tax regime, All India Radio News, 23 July 2024
Methodology: FinMoon AI computed all tax amounts and break-even figures with a script that applies the slabs, rebates, marginal relief and 4% cess listed above. Assumptions: resident individual, only salary or pension income, total income below ₹50 lakh (no surcharge), and no income taxed at special rates. Break-even is the smallest deduction total, beyond the standard deduction, at which old regime tax is equal to or lower than new regime tax.
Disclaimer: This article explains the general rules for tax year 2026-27 and is not tax advice. Your actual tax depends on your full income and eligibility for each deduction. Check your numbers in the Income Tax Department’s tax calculator or with a Chartered Accountant before choosing a regime.
Frequently asked questions
Did Budget 2026-27 change the income tax slabs?
No. The Union Budget 2026-27, presented on 1 February 2026, did not change the personal income tax slabs, the rebate or the standard deduction under either the new or the old tax regime. The slabs announced in Budget 2025-26 continue for tax year 2026-27.
Is the new tax regime the default for tax year 2026-27?
Yes. The new tax regime is the default tax regime under Section 202 of the Income-tax Act, 2025. A taxpayer who wants the old tax regime has to opt out of the new regime.
Up to what salary is income tax zero under the new tax regime?
A resident salaried individual pays zero income tax under the new tax regime on salary up to ₹12,75,000 in tax year 2026-27. The ₹75,000 standard deduction brings taxable income to ₹12,00,000, and the rebate of up to ₹60,000 cancels the tax on that amount.
How much in deductions do I need for the old tax regime to save more tax?
A salaried individual below 60 needs deductions of about ₹5.44 lakh at ₹15 lakh salary, ₹7.08 lakh at ₹20 lakh salary and ₹8 lakh at ₹25 lakh salary or more, over and above the standard deduction, for the old tax regime to match the new tax regime. Below these amounts, the new tax regime saves more tax.
Which tax regime is better for 15, 20, 25 or 30 lakh salary?
For a salaried person below 60, the new tax regime is better unless deductions beyond the standard deduction exceed about ₹5.44 lakh at ₹15 lakh salary, ₹7.08 lakh at ₹20 lakh salary, and ₹8 lakh at ₹25 lakh or ₹30 lakh salary. Above those amounts, the old tax regime saves more tax.
When was the new tax regime introduced?
The new tax regime was introduced by the Finance Act, 2020 under Section 115BAC as an optional regime from FY 2020-21. The Finance Act, 2023 made it the default regime from FY 2023-24, and it is Section 202 of the Income-tax Act, 2025 from 1 April 2026.
Will the old tax regime be discontinued in 2026?
No. For tax year 2026-27 the old tax regime is still available. The new tax regime is the default under the Income-tax Act, 2025, but individuals can opt out of it and choose the old regime.
Can I claim HRA and Section 80C under the new tax regime?
No. HRA exemption, Section 80C, Section 80D and the interest deduction on a self-occupied home loan are available only under the old tax regime. The new tax regime allows the ₹75,000 standard deduction, the employer's NPS contribution under Section 80CCD(2) up to 14% of salary, and interest on a let-out property.
Can a salaried person switch between the old and new tax regime every year?
Yes. A salaried individual with no business or professional income can choose the old or new tax regime every year in the ITR, as long as the return is filed by the due date. A person with business or professional income opts out through Form 10-IEA and can return to the new regime only once in a lifetime.
Is the new tax regime better for senior citizens?
For most senior citizens, yes. Pension of up to ₹12,75,000 is tax-free under the new tax regime, because pension gets the ₹75,000 standard deduction; interest income does not, so the tax-free limit for interest income is ₹12,00,000. The old tax regime gives senior citizens aged 60 to 80 a higher basic exemption of ₹3,00,000, but this lowers the break-even deductions by at most about ₹12,500.
What is marginal relief under the new tax regime?
Marginal relief ensures that tax payable on taxable income just above ₹12,00,000 does not exceed the income above ₹12,00,000. Under the new tax regime it applies up to a taxable income of about ₹12,70,588, which is a salary of about ₹13,45,588 after the standard deduction.