Old vs New Tax Regime FY 2026-27: Which Saves More?
Quick answer: The new regime is the default. Its rebate makes taxable income up to ₹12 lakh tax-free — about ₹12.75 lakh of salary once the ₹75,000 standard deduction comes off. The old regime wins only when your deductions are large: at a salary of ₹25 lakh or more you need about ₹8 lakh of deductions before it costs less. Seniors, pensioners and people with business income have their own rules, covered below. The only sure way is to compute both on your numbers.
Which year are you deciding for?
Two tax years are live at once, and they fall under different Acts:
- FY 2026-27 — the year you are earning in now — falls under the Income-tax Act, 2025, which calls it tax year 2026-27. You choose your regime for it when you file in 2027.
- FY 2025-26 (AY 2026-27) — last year — falls under the Income-tax Act, 1961. Returns for it were due this summer; a late or revised return can still be filed until 31 December 2026.
The slabs, the rebate and every deduction limit below are the same in both years. What changed is the section numbers:
| What it is | Income-tax Act, 1961 (FY 2025-26) | Income-tax Act, 2025 (FY 2026-27) |
|---|---|---|
| New regime | Section 115BAC | Section 202 |
| Rebate | Section 87A | Section 156 |
| Standard deduction | Section 16(ia) | Section 19(1), Table Sl. No. 2 |
| PF, PPF, ELSS, life insurance | Section 80C | Section 123 with Schedule XV |
| Health insurance | Section 80D | Section 126 |
| Home loan interest | Section 24(b) | Section 22(1)(b) |
The new regime: slabs, standard deduction and rebate
| 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% |
Three things sit on top of the slabs:
- Standard deduction: ₹75,000 off salary or pension before the slabs apply.
- Rebate: a resident individual whose taxable income is up to ₹12,00,000 gets a rebate of up to ₹60,000, which wipes the tax out. Non-residents and HUFs don't get it.
- Cess and surcharge: 4% health and education cess on the tax. Above ₹50 lakh of income a surcharge is added too — 10% up to ₹1 crore, 15% up to ₹2 crore and 25% above that.
Marginal relief just above ₹12 lakh. Crossing ₹12 lakh doesn't suddenly cost you the full slab tax: the tax is capped at the income above ₹12 lakh. A salary of ₹13 lakh leaves ₹12.25 lakh taxable, and ₹25,000 over the line, so the tax is ₹25,000 plus cess instead of ₹63,750. For FY 2025-26 the department's return rules put the end of this relief at a total income of ₹12,70,590.
| Salary ₹13 lakh, no deductions | Tax with cess |
|---|---|
| New regime (₹12,25,000 taxable, marginal relief) | ₹26,000 |
| Old regime (₹12,50,000 taxable) | ₹1,95,000 |
The old regime: slabs by age, and the deductions it keeps
The old regime has three slab tables. The older two are for resident senior citizens.
| Rate | Below 60 | 60 to 80 | 80 and over |
|---|---|---|---|
| Nil | Up to ₹2,50,000 | Up to ₹3,00,000 | Up to ₹5,00,000 |
| 5% | ₹2,50,001 – ₹5,00,000 | ₹3,00,001 – ₹5,00,000 | — |
| 20% | ₹5,00,001 – ₹10,00,000 | ₹5,00,001 – ₹10,00,000 | ₹5,00,001 – ₹10,00,000 |
| 30% | Above ₹10,00,000 | Above ₹10,00,000 | Above ₹10,00,000 |
The standard deduction here is ₹50,000, and the rebate is up to ₹12,500 for a total income up to ₹5,00,000. The surcharge bands are the same as the new regime's up to ₹5 crore; above ₹5 crore the old regime charges 37%, while the new regime stops at 25% — it has no ₹5 crore band at all.
What makes the old regime worth considering is its deductions:
| Deduction | Section (1961 → 2025) | Limit |
|---|---|---|
| PF, PPF, ELSS, life insurance, home loan principal, tuition fees | 80C → 123 | ₹1,50,000 together |
| Your own NPS contribution, extra | 80CCD(1B) → 124(3) | ₹50,000 |
| Health insurance | 80D → 126 | ₹25,000 for you and family, ₹25,000 more for parents — ₹50,000 each where a senior citizen is covered |
| Home loan interest, self-occupied house | 24(b) → 22(1)(b) | ₹2,00,000 |
| House rent allowance | 10(13A) → Schedule III | Least of three limits — see the HRA guide |
| Education loan interest | 80E → 129 | All the interest, for up to 8 years |
| Savings account interest (below 60) | 80TTA → 153 | ₹10,000 |
| Deposit interest (senior citizens) | 80TTB → 153 | ₹50,000 |
| Rent paid without HRA | 80GG → 134 | ₹5,000 a month, within other limits |
| Treatment of specified diseases | 80DDB → 128 | ₹40,000, or ₹1,00,000 for a senior citizen |
| Disability (your own, or a dependant's) | 80U → 154, 80DD → 127 | ₹75,000, or ₹1,25,000 for severe disability |
What the new regime still allows — and what it bars
The new regime computes your income without most deductions. It still allows:
- the ₹75,000 standard deduction on salary or pension;
- your employer's NPS contribution, up to 14% of salary for every kind of employer (80CCD(2), section 124(1) from FY 2026-27);
- for FY 2025-26, contributions to the Agniveer Corpus Fund, one-third of a family pension up to ₹25,000, and interest on a loan for a let-out house.
It bars, among others: 80C, 80CCD(1B), 80D, 80DD, 80DDB, 80EE, 80EEA, 80G, 80TTA, 80TTB and 80U; HRA, leave travel concession and professional tax; interest on a self-occupied home loan; and setting a house property loss against your salary. For FY 2026-27, section 202 of the 2025 Act bars them by section number and keeps only four deductions from the chapter that holds them: sections 124(1), 124(2), 125(2) and 146.
How much deduction does the old regime need to win?
For a salaried person below 60, this is the smallest total of old-regime deductions — not counting the standard deduction — at which the old regime costs no more than the new one:
| Salary | Deductions the old regime needs | Tax under the new regime |
|---|---|---|
| ₹10 lakh | ₹4,50,000 | ₹0 |
| ₹12.75 lakh | ₹7,25,000 | ₹0 |
| ₹15 lakh | ₹5,44,000 | ₹97,500 |
| ₹20 lakh | ₹7,09,000 | ₹1,92,400 |
| ₹25 lakh | ₹8,00,000 | ₹3,19,800 |
| ₹30 lakh | ₹8,00,000 | ₹4,75,800 |
| ₹50 lakh | ₹8,00,000 | ₹10,99,800 |
Two patterns stand out:
- Up to about ₹12.75 lakh the new regime charges nothing, so the old regime only ties when its deductions bring taxable income down to ₹5 lakh. That is why the figure peaks at ₹12.75 lakh.
- From about ₹25 lakh the answer stops moving: both regimes are in their 30% slab, so the gap between them is fixed, and the old regime needs ₹8 lakh of deductions at any salary above that.
Few salaried people reach ₹8 lakh: the 80C limit, extra NPS, health insurance and the home-loan interest limit together come to ₹4.25 lakh before HRA.
Salaried: worked examples
₹18 lakh salary with big deductions — ₹1,50,000 under 80C, ₹50,000 of NPS under 80CCD(1B), ₹25,000 of health insurance, ₹2,00,000 of home loan interest and ₹2,40,000 of HRA exemption, ₹6,65,000 in all:
| Salary ₹18 lakh, ₹6,65,000 of deductions | Tax with cess |
|---|---|
| New regime (deductions lost) | ₹1,50,800 |
| Old regime | ₹1,43,520 |
The old regime wins, narrowly — and only because this person claims HRA and a home loan together.
₹60 lakh salary, with ₹4,50,000 of old-regime deductions. The 10% surcharge applies under both regimes:
| Salary ₹60 lakh, ₹4,50,000 of deductions | Tax with surcharge and cess |
|---|---|
| New regime | ₹15,52,980 |
| Old regime | ₹16,73,100 |
Senior citizens and pensioners
- The old regime gives seniors a bigger nil band — ₹3 lakh from 60 to 80 and ₹5 lakh at 80 and over — while the new regime has one table for every age.
- Pension gets the standard deduction in both regimes: ₹75,000 in the new, ₹50,000 in the old.
- Deposit interest and health insurance — ₹50,000 under 80TTB and up to ₹50,000 under 80D — count only in the old regime.
- At 75 and over, a resident whose only income is pension and interest from the same specified bank can give the bank a declaration and need not file a return: the bank works out the tax and deducts it.
Example: a pension of ₹9,00,000 and ₹1,50,000 of fixed-deposit interest, with ₹50,000 under 80TTB and ₹50,000 under 80D in the old regime.
| Aged 68: ₹10.5 lakh of pension and interest | Tax with cess |
|---|---|
| New regime (₹9,75,000 taxable, within the rebate) | ₹0 |
| Old regime | ₹93,600 |
| The same figures at 82 | Tax with cess |
|---|---|
| New regime | ₹0 |
| Old regime | ₹83,200 |
For most pensioners with income under about ₹12.75 lakh, the new regime is the cheaper choice even after the old regime's senior benefits.
Business owners and professionals
The switching rule is stricter. Without business income you can pick either regime afresh every year. With business or professional income:
- FY 2025-26: you move to the old regime by filing Form 10-IEA by the due date for the return. You can come back to the new regime only once in a lifetime, from a later year.
- FY 2026-27: section 202(4) of the 2025 Act keeps the same shape. You opt out by the section 263(1) due date, the choice carries into later years, and it can be withdrawn only once — after that, never again unless your business income stops. The Act leaves the form to the Rules.
Presumptive income. A professional under 44ADA is taxed on 50% of receipts, and a small business under 44AD on 6% of receipts through banks and digital modes plus 8% of the rest. For FY 2026-27 the schemes are open up to ₹50 lakh of professional receipts and ₹2 crore of business turnover — ₹75 lakh and ₹3 crore where cash receipts stay within 5%.
Example: a consultant with ₹40,00,000 of receipts under 44ADA, with ₹1,50,000 under 80C and ₹50,000 of health insurance in the old regime. There's no standard deduction, because this isn't salary.
| 44ADA, ₹40 lakh of receipts | Amount |
|---|---|
| Income taxed (50% of receipts) | ₹20,00,000 |
| New regime, tax with cess | ₹2,08,000 |
| Old regime, tax with cess | ₹3,66,600 |
Because a switch back is allowed only once, compare the regimes over the next few years, not just this one. The income tax calculator has a presumptive section for 44AD and 44ADA.
How and when you choose
- Without business income, FY 2025-26: you choose in the return itself, and only a return filed by the due date can choose the old regime. A late return is taxed under the new regime; revising a return you filed on time keeps your choice.
- Without business income, FY 2026-27: section 202(4) of the 2025 Act ties the choice to the return filed under section 263(1) for the tax year.
- With business income: the form and the once-only switch back described above.
- At work: your employer asks which regime you intend for the year and deducts TDS from your salary on that basis. If you don't say, TDS follows the new regime. Telling your employer is not the choice itself: you still make that separately, as above. The rule is CBDT Circular No. 4 of 2023, issued under the 1961 Act for FY 2023-24 and later years.
Mistakes to avoid
- Filing late and expecting the old regime. For FY 2025-26 a late return is taxed under the new regime, whatever your deductions.
- Reading ₹12 lakh as a salary. The limit is on taxable income; with the standard deduction, a salary up to about ₹12.75 lakh is covered.
- Forgetting marginal relief. Earning a little over ₹12 lakh doesn't cost you the full slab tax.
- Claiming HRA and 80GG together. 80GG is only for rent paid without house rent allowance.
- Counting on the rebate as a non-resident. It is for resident individuals only.
- Investing only for a deduction you won't use. If the new regime is cheaper for you, an 80C investment saves no tax.
Calculators for your numbers
- Income tax calculator — both regimes side by side, either year, with presumptive income.
- Take-home salary calculator — monthly in-hand pay after PF, professional tax and tax.
- HRA calculator — how much of your HRA is exempt under the old regime.
- 80C calculator — how much of the ₹1.5 lakh limit you have used.
- Capital gains calculator — shares, property and gold, which have their own rates in both regimes.
- Filing? See the documents required for ITR filing.
Frequently asked questions
Is income up to ₹12 lakh tax-free under the new regime?
Yes, if you are a resident individual. The rebate wipes out the tax on taxable income up to ₹12 lakh, in both FY 2025-26 and FY 2026-27. With the ₹75,000 standard deduction, a salary of up to about ₹12.75 lakh pays no tax.
What is marginal relief under the rebate?
Just above ₹12 lakh of taxable income, the new regime's tax is capped at the amount by which your income crosses ₹12 lakh, so a small rise in income can't cost more tax than the rise itself.
Which regime is better for senior citizens?
For most pensioners with income under about ₹12.75 lakh, the new regime: it charges no tax there, so the old regime's bigger nil band and senior deductions can at best tie. Above that, or with large deductions, compare both.
Can I switch between the old and new regime every year?
Yes, if you have no business or professional income: you choose each year in a return filed by the due date. With business income the choice is made by the due date, carries into later years, and can be reversed only once.
Do I have to tell my employer which regime I want?
Your employer asks each year which regime you intend and deducts TDS from your salary on that basis. If you don't say, TDS follows the new regime. This is not the choice itself: you still make it separately, in your return, or with Form 10-IEA if you have business income in FY 2025-26. The rule is CBDT Circular No. 4 of 2023, issued under the 1961 Act.
What is Form 10-IEA?
It is the form a person with business or professional income files by the return's due date to move from the new regime to the old one, for FY 2025-26 under the 1961 Act. The same form is used for the once-in-a-lifetime move back.
Can I choose the old regime if I file my return late?
Not for FY 2025-26 without business income: the old regime needs a return filed by the due date, or a revision of one. A late return is taxed under the new regime.
Which regime suits a professional under 44ADA?
Usually the new one. A professional has no standard deduction or HRA to lose in it, so the old regime needs large deductions such as 80C and 80D to catch up. Compare both, and remember that coming back to the new regime is allowed only once.
Which deductions are allowed in the new regime?
Mainly the ₹75,000 standard deduction and your employer's NPS contribution up to 14% of salary. 80C, 80D, HRA, the home loan interest on a self-occupied house and most others apply only in the old regime.
Did the slabs change for FY 2026-27?
No. FY 2026-27 falls under the Income-tax Act, 2025, which renumbers the sections — the new regime is section 202 and the rebate section 156 — but the slabs, the rebate and the deduction limits are the same as in FY 2025-26.
Can I claim HRA in the new regime?
No. The HRA exemption is available only in the old regime, in both years.
A general explainer for FY 2026-27 and FY 2025-26 (AY 2026-27), not tax advice. Rates and rules can change at each Budget — the next is due on 1 February 2027 — so verify before you file, and ask a tax professional about your own situation.