New Regime vs Old Regime for AY 2026–27: Which Saves You More Tax?
A guide by CA Nainit Savla, Chartered Accountant — slabs, the section 87A rebate, deductions and break-even figures calculated for AY 2026–27, so you know which tax regime saves you more.
New regime vs old regime is the choice every salaried taxpayer makes each year: pay tax at lower slab rates with almost no deductions, or at higher rates with deductions such as HRA and section 80C. For AY 2026–27, which covers income earned in FY 2025–26, the new regime saves more tax for most salaried employees, and the old regime wins only when yearly deductions beyond the standard deduction cross a break-even figure that rises from about ₹2.5 lakh at an ₹8 lakh salary to ₹8 lakh at a ₹25 lakh salary. This guide settles the new regime vs old regime question with calculated figures, not rules of thumb, and it covers slabs, the section 87A rebate, deductions and the switching process step by step. CA Nainit Savla, a Chartered Accountant in Mumbai, runs this comparison for clients through a tax health check, and the working here follows the same method. Read on to see which regime fits your salary and your deductions.
What Is the New Tax Regime and What Is the Old Tax Regime?
What is the new tax regime? It is the default system under section 115BAC of the Income-tax Act, 1961, with lower slab rates, a higher standard deduction and a large rebate, but without most exemptions and deductions. What is the old tax regime? It is the earlier system with higher slab rates that lets you claim HRA, section 80C, section 80D, home loan interest and similar items.
A salaried employee without business income picks the regime each year while filing the return, so the choice is never permanent. What is the old tax regime worth to you in a given year? That depends on the deductions you can prove. The new regime vs old regime decision therefore needs a fresh calculation every year, using that year's salary and investments.
What Are the New Tax Regime Slabs for AY 2026-27 in the New Regime vs Old Regime Comparison?
The new tax regime slabs for AY 2026-27 have seven bands from nil to 30 percent, while the old regime has four bands for individuals below 60. The tax regime comparison below sets the new regime vs old regime slabs side by side, using the rates for FY 2025–26.
← Scroll to see the full table →
| New regime slab | Rate | Old regime slab (below 60) | Rate |
|---|---|---|---|
| Up to ₹4 lakh | Nil | Up to ₹2.5 lakh | Nil |
| ₹4 lakh to ₹8 lakh | 5% | ₹2.5 lakh to ₹5 lakh | 5% |
| ₹8 lakh to ₹12 lakh | 10% | ₹5 lakh to ₹10 lakh | 20% |
| ₹12 lakh to ₹16 lakh | 15% | Above ₹10 lakh | 30% |
| ₹16 lakh to ₹20 lakh | 20% | — | — |
| ₹20 lakh to ₹24 lakh | 25% | — | — |
| Above ₹24 lakh | 30% | — | — |
Health and education cess of 4 percent applies on top in both regimes. Above ₹50 lakh, surcharge applies, and the new regime caps it at 25 percent while the old regime goes up to 37 percent, which widens the new regime vs old regime gap for very high earners.
How Do the Section 87A Rebate and the Standard Deduction in New Tax Regime Work?
The rebate in the new regime is up to ₹60,000 under section 87A, which makes tax nil where taxable income is up to ₹12 lakh. The standard deduction in new tax regime is ₹75,000 for salaried employees, against ₹50,000 in the old regime. Together they make salary up to ₹12.75 lakh tax-free under the new regime. In the new regime vs old regime contest, this rebate is the single biggest difference.
The old regime's rebate is only ₹12,500, available where taxable income is up to ₹5 lakh. Neither rebate applies to income taxed at special rates, such as capital gains on listed shares, which is why capital gains tax is computed separately in both regimes. Just above ₹12 lakh, marginal relief ensures the new regime tax never exceeds the income above that figure.
What Are the Old Tax Regime Deductions That Still Matter?
The old tax regime deductions that matter most are HRA, section 80C, section 80D, NPS under section 80CCD(1B) and home loan interest. In the new regime vs old regime trade-off, almost all of them disappear, except the standard deduction and the employer NPS contribution.
← Scroll to see the full table →
| Deduction or exemption | Old regime limit | Allowed in new regime? |
|---|---|---|
| Standard deduction | ₹50,000 | Yes, ₹75,000 |
| HRA exemption | Least of three tests | No |
| Section 80C (PPF, EPF, ELSS, life insurance) | ₹1.5 lakh | No |
| Section 80D (health insurance) | ₹25,000 for family, ₹25,000 more for parents; ₹50,000 each if senior | No |
| NPS under section 80CCD(1B) | ₹50,000 | No |
| Home loan interest, self-occupied (section 24(b)) | ₹2 lakh | No |
| Employer NPS contribution (section 80CCD(2)) | 10% of basic and DA (14% in new regime) | Yes |
This employer-side NPS benefit is the one planning lever that works in both regimes, so it does not belong in the break-even figures below. Treat it as part of salary structuring, not as a reason to prefer the old regime.
New Regime vs Old Regime: Which Tax Regime Is Better for You?
Which tax regime is better depends on your salary and your total deductions beyond the standard deduction, and for most salaried employees the new regime is better. This tax regime comparison works out five new regime vs old regime cases with cess included, for salary income only, using the tax rules for FY 2025–26.
← Scroll to see the full table →
| Gross salary | Old-regime deductions | Tax under new regime | Tax under old regime | Better regime |
|---|---|---|---|---|
| ₹10 lakh | ₹2.5 lakh | ₹0 | ₹54,600 | New, saves ₹54,600 |
| ₹15 lakh | ₹3.5 lakh | ₹97,500 | ₹1,48,200 | New, saves ₹50,700 |
| ₹15 lakh | ₹6 lakh | ₹97,500 | ₹85,800 | Old, saves ₹11,700 |
| ₹20 lakh | ₹4.5 lakh | ₹1,92,400 | ₹2,73,000 | New, saves ₹80,600 |
| ₹20 lakh | ₹8 lakh | ₹1,92,400 | ₹1,63,800 | Old, saves ₹28,600 |
Deductions here mean the total of HRA, section 80C, section 80D, NPS and home loan interest claimed, apart from the standard deduction. The new regime vs old regime pattern is clear: a ₹15 lakh earner with ordinary investments saves about ₹50,000 under the new regime, and only a heavy claimant of HRA and home loan interest gains from the old one.
What Are the Break-Even Deductions in the New Regime vs Old Regime Choice?
The break-even deductions are the total old-regime deductions at which both regimes give the same tax, and the old regime wins only above that figure. The break-even deductions rise sharply with salary because the rebate and the new tax regime slabs leave less to recover.
← Scroll to see the full table →
| Gross salary | Tax under new regime | Break-even deductions needed in old regime |
|---|---|---|
| ₹8 lakh | ₹0 | ₹2.5 lakh |
| ₹10 lakh | ₹0 | ₹4.5 lakh |
| ₹12.75 lakh | ₹0 | ₹7.25 lakh |
| ₹15 lakh | ₹97,500 | ₹5.45 lakh |
| ₹20 lakh | ₹1,92,400 | ₹7.1 lakh |
| ₹25 lakh and above | ₹3,19,800 at ₹25 lakh | ₹8 lakh |
At ₹12.75 lakh the new regime tax is nil, so the old regime would need ₹7.25 lakh of deductions to match it, which is out of reach for most people. A realistic old-regime package of section 80C, 80D, NPS and home loan interest adds up to about ₹4.25 lakh, and HRA is the only item that closes the gap in the middle salary bands. That is why the new regime vs old regime answer changes with salary.
Who Should Choose the Old Tax Regime?
Who should choose the old tax regime? Employees whose HRA, home loan interest and other deductions together beat the break-even figure for their salary, which in practice means people paying high rent in a metro with a housing loan on top. Two other cases are common, and everyone else is better off staying put.
Metro Renters With a Housing Loan
High rent plus home loan interest is the combination that most often beats the break-even figure for the salary.
Senior Citizens
Larger exemption limits and large health insurance premiums can tip the comparison towards the old regime.
Locked-In Section 80C Commitments
Taxpayers who have already locked money into long-term section 80C commitments may still gain from the old regime.
Everyone Else
Most first-time investors and anyone without rent or a loan generally come out ahead by staying with the new regime.
A tax regime comparison on your own figures, done in a tax health check, settles borderline cases before the return is filed.
How to Switch Tax Regime: What Is the Step-by-Step Process?
How to switch tax regime is a short process: a salaried employee tells the employer for TDS and then confirms the choice in the income tax return, and the return choice is the one that counts. The process has six steps.
Run the calculation.
Work out the new regime vs old regime tax using your salary, HRA and investment proofs. The break-even table above gives a quick first check.
Declare the regime to your employer.
Employers deduct TDS under the new regime unless you opt otherwise. Submit your choice and investment declaration so the monthly TDS is close to the final tax.
Collect proofs for the old regime.
If the old regime wins, gather rent receipts, loan interest certificates and investment and insurance proofs for the old tax regime deductions you will claim.
Choose the regime while filing the return.
In the return, the new regime is pre-selected. A salaried employee without business income can select the old regime there, provided the return is filed by the due date.
Check the tax computation.
The portal shows tax under your chosen regime before you submit. Compare it with your own calculation, and use our ITR filing services if the figures differ.
Switch again next year if needed.
A salaried employee can change regimes every year, so the new regime vs old regime question reopens each year. Taxpayers with business income must file Form 10-IEA by the due date to opt out of the new regime, and the return to the new regime is allowed only once.
What Mistakes Do Taxpayers Make in the New Regime vs Old Regime Choice?
The biggest mistake in the new regime vs old regime choice is deciding on the basis of tax saved on investments instead of total tax payable. Paying ₹1.5 lakh into section 80C to save tax makes no sense if the new regime already gives a lower tax bill without it. Others are forgetting that HRA needs rent receipts and landlord details, ignoring the employer NPS contribution, and reading a TDS statement as final tax. A claim that does not match Form 16 and the AIS can also draw an income tax notice.
How Has the Choice Between the New Regime vs Old Regime Evolved Since Before 1991?
The new regime vs old regime choice is the result of a long shift from high rates with many exemptions to lower rates with fewer.
1991
Very High Rates, Many Exemptions
Before 1991, the Income-tax Act, 1961 applied with very high marginal rates, reaching 97.75 percent in 1973–74, and taxpayers relied on exemptions and savings-linked rebates to reduce the burden.
Liberalisation Compresses Rates
The Chelliah Committee reforms of the early 1990s cut and simplified slabs, and the 1997 budget settled on three slabs of 10, 20 and 30 percent.
Section 80C Takes Over
In the mid-2000s the savings rebate gave way to section 80C, which became the centre of old-regime tax planning.
Section 115BAC Introduces the Optional Regime
The current structure began in 2020, when section 115BAC introduced an optional regime with lower rates and no deductions.
The New Regime Becomes the Default
It became the default from AY 2024–25, and later budgets raised its standard deduction to ₹75,000 and its rebate to ₹12 lakh of taxable income.
The Income Tax Department publishes the current rates, and the Income-tax Act, 2025 applies from 1 April 2026, with the new regime continuing as the default; see our note on the new income tax forms for 2026.
What Do Taxpayers Ask Most About the New Regime vs Old Regime?
New regime vs old regime: which tax regime is better for a salaried employee in AY 2026-27?
In the new regime vs old regime contest for AY 2026-27, the new regime is better for most salaried employees. It gives a ₹75,000 standard deduction, a section 87A rebate up to ₹60,000 and wider slabs, so salary up to ₹12.75 lakh is tax-free. The old regime wins only when deductions beyond the standard deduction exceed the break-even figure, roughly ₹4.5 lakh at a ₹10 lakh salary and ₹5.45 lakh at ₹15 lakh. Calculate both before filing.
What is the new tax regime and is it the default?
The new tax regime is the system under section 115BAC with lower slab rates and almost no deductions. It is the default regime, so your employer deducts TDS under it unless you opt for the old regime, and the return is also prepared under it unless you select the old regime. Salaried employees get the standard deduction in new tax regime filings of ₹75,000, along with the employer contribution under section 80CCD(2).
Who should choose the old tax regime?
Choose the old regime if your deductions, mainly HRA, home loan interest, section 80C, section 80D and NPS, exceed the break-even figure for your salary. That is usually a metro renter with a housing loan, or someone with high health insurance premiums. At ₹15 lakh, the old regime wins once deductions beyond the standard deduction cross about ₹5.45 lakh. Below that, the new regime saves more tax.
How to switch tax regime if I chose wrongly?
A salaried employee without business income can switch tax regime in the return, or in a revised return if the original return was filed by the due date. Tell your employer of the change for TDS purposes too. If the original return was filed late, the old regime is not available. Taxpayers with business income must file Form 10-IEA by the due date and can return to the new regime only once.
Does the section 87A rebate apply to capital gains?
No. The section 87A rebate does not apply to tax on income taxed at special rates, such as short-term and long-term capital gains on listed shares. The rebate reduces tax on your normal slab income only. A salaried employee with ₹12 lakh of taxable salary and a share sale pays no tax on salary under the new regime but still pays the special-rate tax on the gain.
Can I choose between the new regime vs old regime every year?
A salaried employee without business income can choose between the new regime vs old regime every year while filing the return, and TDS can be adjusted through a fresh declaration to the employer. Taxpayers with business income can opt out of the new regime only through Form 10-IEA, and returning to the new regime is allowed once. The choice is fixed for the year once the revised-return window closes, so calculate both options before you file.
Is the employer NPS contribution allowed in both regimes?
Yes. The contribution under section 80CCD(2) is allowed in both regimes, up to 10 percent of basic salary and dearness allowance in the old regime and 14 percent in the new regime. It reduces taxable salary in both regimes, which makes it the one salary-structuring item worth discussing with your employer before the year starts. Your own NPS contribution under section 80CCD(1B), up to ₹50,000, is available only in the old regime.
CA Nainit Savla
CA Nainit Savla is a Chartered Accountant practising in Mumbai with experience in direct taxation, FEMA, RBI regulations and corporate law, advising salaried individuals, professionals, NRIs and companies on tax planning and compliance.
Need Professional Help with New Regime vs Old Regime Planning?
CA Nainit Savla, a Chartered Accountant in Andheri East, Mumbai, compares the new regime vs old regime for salaried employees and professionals using your actual salary, HRA and investment figures, then files the return under the regime that saves more. A tax health check before filing season turns the tax regime comparison into a firm decision, so you know which tax regime is better before you file. Share your Form 16 and investment proofs and we will confirm the regime, the tax and the turnaround.