Old vs new tax regime in 2026-27: who should switch
The new regime is the default and tax-free up to ₹12.75 lakh of salary; the old regime still wins for heavy deductors. Slabs, break-even deductions, and what the 2025 Act changed.
4 min read · Published 2026-10-31 · Last reviewed 2026-10-31
India runs two personal income tax systems side by side. The new regime has low rates and almost no deductions; the old regime has higher rates but lets you deduct rent, insurance, investments and home loan interest. Since the Finance Act 2025 made the new regime tax-free up to ₹12 lakh of taxable income, the question for most salaried people is no longer "which is better" but "how much would I need to deduct for the old regime to catch up". This guide gives you that number.
What the Income-tax Act, 2025 changed
The new Act took effect on 1 April 2026 and replaced the 1961 Act. It is a rewrite, not a rate change: sections are renumbered (80C is now Section 123, for instance), "assessment year" and "previous year" are replaced by a single "tax year", and the language is simplified. Budget 2026 kept slabs, standard deduction and rebate exactly as they were for 2025-26. The income you earn between 1 April 2026 and 31 March 2027 is tax year 2026-27.
New regime slabs, tax year 2026-27
| Taxable income | Rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4–8 lakh | 5% |
| ₹8–12 lakh | 10% |
| ₹12–16 lakh | 15% |
| ₹16–20 lakh | 20% |
| ₹20–24 lakh | 25% |
| Above ₹24 lakh | 30% |
Plus a ₹75,000 standard deduction for salaried and pensioners, and a Section 87A rebate that wipes out tax entirely when taxable income is ₹12 lakh or less. Marginal relief applies just above ₹12 lakh so that earning ₹10,000 more never costs more than ₹10,000 in tax. A salary of ₹12.75 lakh with nothing else therefore pays zero. The 4% health and education cess applies on any tax due, and surcharge starts above ₹50 lakh.
Allowed in the new regime: standard deduction, employer's NPS contribution, and interest on a loan for a let-out property. Not allowed: HRA, LTA, 80C, 80D, home loan interest on a self-occupied house, and most other deductions.
Old regime slabs
| Taxable income | Rate (below 60) |
|---|---|
| Up to ₹2.5 lakh | Nil |
| ₹2.5–5 lakh | 5% |
| ₹5–10 lakh | 20% |
| Above ₹10 lakh | 30% |
Standard deduction ₹50,000, rebate up to ₹12,500 when taxable income is ₹5 lakh or less, basic exemption ₹3 lakh for senior citizens and ₹5 lakh for those over 80. Deductions available: 80C up to ₹1.5 lakh, 80D health insurance, HRA exemption, home loan interest up to ₹2 lakh, NPS ₹50,000 extra, education loan interest, donations and more.
The break-even deduction
Because the new regime already gives ₹75,000 standard deduction and zero tax to ₹12 lakh, the old regime needs a large pile of deductions before it wins. Approximate deductions required (excluding the old regime's own ₹50,000 standard deduction) for the old regime to produce the same tax:
| Gross salary | Old regime needs deductions of at least |
|---|---|
| ₹12.75 lakh or less | Cannot win; new regime is already zero |
| ₹15 lakh | about ₹5.4 lakh |
| ₹20 lakh | about ₹7.1 lakh |
| ₹25 lakh and above | about ₹8 lakh |
Above ₹25 lakh the figure stops rising because both regimes are at the 30% marginal rate; the ₹8 lakh gap is the fixed advantage the new regime's lower slabs give. Only people with both a large HRA exemption (high rent in a metro) and a home loan interest deduction, plus full 80C and 80D, typically reach these levels. For most salaried taxpayers the new regime wins or ties.
Worked example
Salary ₹15 lakh, deductions ₹2 lakh under the old regime (80C ₹1.5 lakh, 80D ₹50,000):
- New regime: taxable ₹14.25 lakh, slab tax ₹93,750, cess ₹3,750, total ₹97,500.
- Old regime: taxable ₹12.5 lakh, slab tax ₹1,87,500, cess ₹7,500, total ₹1,95,000.
The new regime saves ₹97,500. The old regime would need about ₹3.4 lakh more in deductions, roughly the HRA exemption on a ₹30,000-a-month rent in a metro, to draw level.
Switching rules
The new regime is the default. Salaried taxpayers can pick either regime every year when filing, regardless of what they told their employer for TDS. Taxpayers with business or professional income can opt out of the new regime once and return to it once; after that they are locked in. Tell your employer early in the year which regime to use so TDS is right and you do not wait for a refund.
Things people get wrong
- Counting PF twice. Employee PF is an 80C deduction under the old regime; it is not deductible in the new regime but it does not make the new regime worse than the tables above show.
- Forgetting the rebate excludes capital gains. Equity gains taxed at special rates do not get the 87A rebate in either regime.
- Assuming the ₹12 lakh is gross. It is taxable income after the standard deduction, so the salary equivalent is ₹12.75 lakh.
Compare both regimes with your own numbers in the income tax calculator, work out your HRA exemption with the HRA calculator, and see the monthly effect in the CTC to in-hand calculator.
Sources
This guide is general information, not financial, tax or legal advice. Rules change; the review date above tells you when it was last checked. See our editorial policy.