Old vs New Tax Regime in India: Complete Guide for FY 2026-27

India now has two parallel personal-income-tax systems. The new tax regime under Section 115BAC has been the default since AY 2024-25, and Union Budget 2025 (February 2025, effective from FY 2025-26) rewrote its slabs, which continue to apply for FY 2026-27. The old tax regime continues as an opt-in with the deduction and exemption structure most salaried households have used for years. Choosing between the two costs many people real money every year.

This guide sets both regimes side by side for FY 2026-27 (AY 2027-28), works through four representative salary levels in rupees, and lays out a straightforward decision framework. It is educational; verify every rate against incometax.gov.in before you file, and consult a qualified tax professional for anything material.

What changed for FY 2026-27

Union Budget 2025 made three consequential changes to the new tax regime, effective from AY 2026-27 onwards:

• The slab structure was widened — the nil bracket rose from ₹3,00,000 to ₹4,00,000 and the top of the schedule now reaches ₹24,00,000 before the 30% rate applies (compared with ₹15,00,000 previously).
• The Section 87A rebate under the new regime rose from ₹25,000 to ₹60,000, applicable when total income does not exceed ₹12,00,000.
• Combined with the ₹75,000 standard deduction for salaried taxpayers, a salary of up to ₹12,75,000 now attracts zero tax under the new regime.

The old regime slabs, the ₹50,000 old-regime standard deduction and the ₹12,500 old-regime 87A rebate cap were left untouched. Surcharge thresholds and the 4% health and education cess also stayed the same. Separately, the Income-tax Act, 2025 replaces the 1961 Act with effect from 1 April 2026, though the 1961 Act continues to govern earlier years.

New tax regime slabs for FY 2026-27

These are the marginal-rate slabs applied under Section 115BAC for individuals under 60 for AY 2026-27:

Total income	Tax rate	Cumulative tax at slab top
Up to ₹4,00,000	Nil	₹0
₹4,00,001 – ₹8,00,000	5%	₹20,000
₹8,00,001 – ₹12,00,000	10%	₹60,000
₹12,00,001 – ₹16,00,000	15%	₹1,20,000
₹16,00,001 – ₹20,00,000	20%	₹2,00,000
₹20,00,001 – ₹24,00,000	25%	₹3,00,000
Above ₹24,00,000	30%	—

Salaried taxpayers get a standard deduction of ₹75,000. The Section 87A rebate is ₹60,000, applicable when total income is up to ₹12,00,000; it reduces the tax before surcharge and cess. Health and education cess of 4% is levied on the tax plus surcharge in both regimes. Deductions and exemptions are otherwise very limited under the new regime — the main ones that survive are the employer's contribution to NPS under Section 80CCD(2), transport allowance for specially-abled employees, and a handful of other narrow items. Section 80C, HRA exemption, home-loan interest on a self-occupied property and most Chapter VI-A deductions are unavailable.

Old tax regime slabs for FY 2026-27

The old regime slabs for individuals under 60 remain as they have since FY 2020-21:

Total income	Tax rate	Cumulative tax at slab top
Up to ₹2,50,000	Nil	₹0
₹2,50,001 – ₹5,00,000	5% above ₹2,50,000	₹12,500
₹5,00,001 – ₹10,00,000	₹12,500 + 20% above ₹5,00,000	₹1,12,500
Above ₹10,00,000	₹1,12,500 + 30% above ₹10,00,000	—

Salaried taxpayers get a standard deduction of ₹50,000. The Section 87A rebate is capped at ₹12,500, applicable only when taxable income does not exceed ₹5,00,000. The trade-off is that the old regime lets you claim a wide set of deductions: Section 80C up to ₹1,50,000 (EPF, PPF, ELSS, life insurance, principal on a home loan, five-year tax-saver FDs), Section 80D for health-insurance premiums, HRA exemption under Section 10(13A), Section 24(b) home-loan interest on a self-occupied house up to ₹2,00,000, Section 80CCD(1B) up to ₹50,000 for additional NPS contributions, and LTA under Section 10(5).

Standard deduction and Section 87A rebate — side by side

Two levers dominate low-and-middle-income tax outcomes in India. The standard deduction reduces your taxable salary before the slabs apply. The 87A rebate then reduces the tax computed on that taxable income to zero, up to an eligibility ceiling.

Item	Old regime	New regime
Standard deduction (salaried)	₹50,000	₹75,000
Section 87A rebate — maximum	₹12,500	₹60,000
Section 87A eligibility (total income ≤ )	₹5,00,000	₹12,00,000
Effective zero-tax income (salaried)	₹5,50,000	₹12,75,000

The ₹12,75,000 headline in Budget 2025 press releases is precisely this: a ₹75,000 standard deduction plus ₹12,00,000 of taxable income covered by the enhanced 87A rebate. It applies to income taxed at slab rates; special-rate income such as short-term or long-term capital gains is taxed separately and does not benefit from these thresholds.

Which deductions work in which regime

This is the single table most people need. Anything ticked in only one column has to be added to your comparison arithmetic.

Deduction or exemption	Old regime	New regime
Standard deduction (salaried)	₹50,000	₹75,000
Section 80C investments (EPF, PPF, ELSS, LIC, tax-saver FD, home-loan principal)	Up to ₹1,50,000	Not available
Section 80D health-insurance premium	Up to ₹25,000 (self and family) + ₹50,000 (senior-citizen parents)	Not available
Section 80CCD(1B) additional NPS contribution	Up to ₹50,000	Not available
Section 80CCD(2) employer's NPS contribution	Available (10% of salary)	Available (up to 14% of salary)
HRA exemption under Section 10(13A)	Available	Not available
LTA exemption under Section 10(5)	Available	Not available
Section 24(b) home-loan interest — self-occupied	Up to ₹2,00,000	Not available
Section 24(b) home-loan interest — let-out property	Fully deductible against rental income	Available, but house-property loss cannot be set off against other heads
Section 80E education-loan interest	Available	Not available
Section 80G donations	Available	Not available
Section 80TTA / 80TTB interest on deposits	Available	Not available

The mental shortcut: the old regime keeps almost every Chapter VI-A deduction familiar from earlier years; the new regime keeps only the employer's NPS contribution and a handful of items that mostly apply to specific worker categories.

Worked examples — four salary levels

The examples below use a common assumption: the taxpayer is a salaried individual under 60, with no income from capital gains, business or other special-rate heads. Old-regime figures assume typical deductions a middle-income earner might actually claim; adjust them to your own numbers with the Income Tax Calculator.

Example 1 — Salary ₹8,00,000

New regime: gross ₹8,00,000 minus standard deduction ₹75,000 leaves taxable income ₹7,25,000. Tax on the slab schedule is 5% of (₹7,25,000 − ₹4,00,000) = ₹16,250. The 87A rebate covers it in full because taxable income is under ₹12,00,000. Tax payable: ₹0.

Old regime (assume 80C ₹1,50,000, 80D ₹25,000, no HRA): gross ₹8,00,000 minus standard deduction ₹50,000 minus deductions ₹1,75,000 leaves taxable income ₹5,75,000. Tax = ₹12,500 (on ₹2,50,001–₹5,00,000) + 20% of ₹75,000 = ₹27,500. 87A does not apply (income above ₹5,00,000). Cess 4% adds ₹1,100. Total ≈ ₹28,600.

At this salary the new regime saves roughly ₹28,600.

Example 2 — Salary ₹15,00,000

New regime: gross ₹15,00,000 minus ₹75,000 leaves taxable income ₹14,25,000. Tax = ₹60,000 (first ₹12L) + 15% of ₹2,25,000 (₹12L–₹14.25L) = ₹93,750. 87A no longer applies. Cess 4% = ₹3,750. Total ≈ ₹97,500.

Old regime (assume 80C ₹1,50,000, 80D ₹25,000, HRA exemption ₹1,80,000, home-loan interest ₹2,00,000, 80CCD(1B) ₹50,000 — total ₹6,05,000): gross ₹15,00,000 minus ₹50,000 minus ₹6,05,000 leaves taxable ₹8,45,000. Tax = ₹12,500 + 20% of ₹3,45,000 = ₹81,500. Cess = ₹3,260. Total ≈ ₹84,760.

At this salary, if you can realistically claim ~₹6L of deductions, the old regime saves about ₹12,740. With smaller deductions the new regime wins.

Example 3 — Salary ₹25,00,000

New regime: gross ₹25,00,000 minus ₹75,000 leaves taxable ₹24,25,000. Tax = ₹3,00,000 (up to ₹24L) + 30% of ₹25,000 = ₹3,07,500. Cess = ₹12,300. Total ≈ ₹3,19,800.

Old regime (same ₹6,05,000 deductions as above): taxable ₹18,45,000. Tax = ₹1,12,500 + 30% of ₹8,45,000 = ₹3,66,000. Cess = ₹14,640. Total ≈ ₹3,80,640.

At this salary the new regime saves roughly ₹60,840 even with substantial deductions. To match the new regime, old-regime deductions would need to be about ₹8,00,000 — near the practical ceiling for most salaried households.

Example 4 — Salary ₹50,00,000

New regime: gross ₹50,00,000 minus ₹75,000 leaves taxable ₹49,25,000. Tax = ₹3,00,000 + 30% of ₹25,25,000 = ₹10,57,500. Cess = ₹42,300. Surcharge is nil at income below ₹50,00,000. Total ≈ ₹10,99,800.

Old regime (same ₹6,05,000 deductions): taxable ₹43,45,000. Tax = ₹1,12,500 + 30% of ₹33,45,000 = ₹11,16,000. Cess = ₹44,640. Total ≈ ₹11,60,640.

The new regime saves roughly ₹60,840 here too. Above ₹50,00,000 the surcharge kicks in on both regimes but the top-slab surcharge under the new regime is capped at 25%, while the old regime can reach 37% above ₹5 crore.

Decision framework

The comparison always reduces to a single question: how much do your old-regime deductions and exemptions actually add up to? Broadly:

• New regime is almost always better if total deductions and exemptions you can claim are less than about ₹3,75,000 in a year.
• Old regime starts to win when you can genuinely claim beyond ₹4,00,000 in deductions — commonly a combination of full 80C, 80D, ₹1,00,000+ HRA exemption and ₹1,50,000+ home-loan interest.
• At incomes below ₹12,75,000 (salaried), the new regime typically zeros out the tax entirely; the old regime rarely matches this because its 87A rebate stops at ₹5,00,000 of taxable income.
• At very high incomes (₹5 crore+) the new regime's 25% surcharge cap vs. the old regime's 37% is a large tie-breaker in favour of the new regime.

The most useful thing you can do is estimate two numbers with realistic deduction assumptions using the Income Tax Calculator and pick the smaller one. If the difference is under ₹5,000 either way, filing convenience is worth more than that gap.

Special cases

Senior citizens and super senior citizens

Under the old regime, the basic exemption rises from ₹2,50,000 to ₹3,00,000 for individuals 60 to 80, and to ₹5,00,000 for individuals 80 and above. The new regime does not have age-based basic exemption differences — the ₹4,00,000 nil-slab applies uniformly.

House Rent Allowance (HRA)

HRA exemption is one of the largest single levers the old regime offers. The exempt amount is the least of actual HRA received, 50% of basic salary in metros (40% elsewhere), or actual rent paid minus 10% of basic. Estimate yours with the HRA Calculator. HRA is fully unavailable under the new regime, so a Mumbai or Bengaluru renter paying ₹40,000+ a month often keeps the old regime.

Home-loan interest

For a self-occupied house, the ₹2,00,000 Section 24(b) deduction only exists under the old regime. For a let-out property, both regimes allow interest against rental income, but the new regime blocks setting off a house-property loss against other heads. Estimate your EMI split with the EMI Calculator.

Business or professional income

For business or professional income, switching between regimes is not annual. Once you opt out of the new regime you can generally return to it only once, so plan the change carefully.

How to choose and file your regime

The new regime is the default. If you want the old regime, salaried individuals filing ITR-1 or ITR-2 tick the regime choice inside the return; the option can be exercised every year on or before the return-filing due date under Section 139(1). Business and professional taxpayers file Form 10-IEA to opt out of the new regime and are limited on how often they can switch back.

At the payroll level, employers deduct TDS based on the regime the employee declares at the start of the financial year. If you change your mind before filing, you can still switch at the time of the return; if the payroll assumption produced excess or short deduction, the return reconciles it.

Common mistakes

• Forgetting the standard deduction gap. The new regime's ₹75,000 vs. the old regime's ₹50,000 is a real ₹25,000 head-start for the new regime before slabs even apply.
• Confusing rebate with exemption. The 87A rebate zeroes out tax up to a ceiling; earn even ₹1 above the ceiling and the rebate disappears (marginal relief applies but is often misunderstood).
• Double-counting HRA. HRA is only exempt if you actually pay rent and can document it; the exemption is the least of three figures, not the HRA line on your payslip.
• Assuming last year's math still works. The Budget 2025 changes moved the break-even between the two regimes; older comparisons are stale.
• Ignoring cess. The 4% health and education cess sits on top of tax and surcharge in both regimes. Skipping it understates your outgo by 4%.

Frequently asked questions

Is the new tax regime automatically applied?

Yes. Under Section 115BAC, the new regime has been the default for individuals, HUFs, AOPs and BOIs since AY 2024-25. You must actively opt for the old regime if you want it.

Do I need to file Form 10-IEA?

Salaried taxpayers without business or professional income exercise the choice inside the ITR itself. Taxpayers with business or professional income file Form 10-IEA to opt out of the new regime, and there are restrictions on switching back.

What is the tax-free income under the new regime for FY 2026-27?

For a salaried individual it is ₹12,75,000: ₹75,000 standard deduction plus ₹12,00,000 of taxable income covered by the enhanced ₹60,000 Section 87A rebate. Non-salaried individuals get ₹12,00,000.

Does the old regime give a bigger rebate for lower incomes?

No. The old regime's 87A rebate is only ₹12,500 and only up to ₹5,00,000 of taxable income; the new regime's ₹60,000 rebate covers taxable income up to ₹12,00,000.

Can I switch between regimes every year?

Salaried individuals without business income can choose every year at the time of filing. Those with business or professional income are limited: once you opt out of the new regime, you can generally return to it only once.

Does the new regime apply to capital gains?

Capital gains are taxed at their own special rates under both regimes. The slab structure and 87A rebate apply to income taxed at slab rates only. LTCG and STCG have separate rates you should verify against incometax.gov.in.

What about surcharge?

Surcharge is 10% on income above ₹50,00,000, 15% above ₹1 crore, 25% above ₹2 crore, and 25% above ₹5 crore under the new regime (37% under the old regime above ₹5 crore). Cess of 4% applies on tax plus surcharge under both regimes.

Sources and how to verify

Every figure and rule cited here should be checked against the primary source before you rely on it:

• Income Tax Department — Salaried Individuals for AY 2026-27 — the authoritative slab table for both regimes.
• Press Information Bureau — No income tax on annual income up to ₹12 lakh under new tax regime — the Budget 2025 announcement of the enhanced 87A rebate.
• Finance Bill, 2026 — Explanatory memorandum — the legislative text underlying the changes.
• Income Tax Department — Objective and scope of the New Act — background on the Income-tax Act, 2025 replacing the 1961 Act.
• Income Tax Department — Old vs New Regime FAQs.

Run the numbers for your own case using the Income Tax Calculator and cross-check against your payslip and Form 16. For a decision with material consequences — a job change, a home-loan choice, an NPS enrolment — confirm with a qualified chartered accountant. This article is educational and not tax, legal or investment advice.

Corrections

2026-09-30: Corrected arithmetic in the old-regime figures for the ₹25L and ₹50L worked examples. The ₹5L–₹10L slab tax of ₹1,12,500 was previously added to a 30% product that was itself ₹1,000 short, understating the old-regime tax by ₹1,000, cess by ₹40 and total outgo by ₹1,040 in each example. The regime-comparison break-even at ₹25L salary was correspondingly updated from ~₹7,25,000 to ~₹8,00,000 in claimable deductions. The direction of every conclusion is unchanged: the new regime still wins at both salary levels.