Old vs New Tax Regime 2026-27: Which Is Better for You?

Which is better, the old or the new tax regime in 2026-27?

For most salaried people, the new regime is better in tax year 2026-27, because it charges no tax up to INR 12.75 lakh of salary, and the old regime needs roughly INR 4.5 lakh to INR 8 lakh of deductions beyond the standard deduction to catch up. The old regime still wins for people who claim large amounts of rent, home loan interest and tax-saving investments.

Tax year 2026-27 runs from 1 April 2026 to 31 March 2027. It is the first year under the Income-tax Act, 2025, which replaced the Income-tax Act, 1961, and the term “tax year” now replaces “financial year” and “assessment year”.

Budget 2026, presented on 1 February 2026, did not change the slabs or rates of either regime. The slab structure you see below has applied since Budget 2025.

How have the tax regimes changed since 2023?

The new regime has become much more generous since the 2023 version of this guide. The nil-tax limit, the rebate and the top slab have all moved, and the law itself has been replaced.

The table compares the new regime for FY 2024-25 with tax year 2026-27, using figures from the Income Tax Department. The structure for FY 2025-26 matches tax year 2026-27.

What are the new tax regime slabs for 2026-27?

The new regime charges nil tax up to INR 4 lakh and 30% above INR 24 lakh, with five slabs in between. Section 202 of the Income Tax Act, 2025, sets these rates, and it applies to individuals unless they opt out.

A cess of 4% is added to the tax. The rates are the same as the ones that applied for FY 2025-26.

How does the INR 12 lakh rebate work?

The rebate under Section 156 cancels the tax for resident individuals whose taxable income is up to INR 12 lakh, up to a maximum of INR 60,000. Section 156 replaces the old Section 87A.

A salaried person gets a standard deduction of INR 75,000 under Section 19. So INR 12.75 lakh of salary becomes INR 12 lakh of taxable income, and the tax is nil.

Marginal relief applies just above the limit. For example, a taxable income of INR 12.25 lakh has INR 63,750 of tax before the rebate. The rebate cuts it to INR 25,000, which is the amount above INR 12 lakh, and the cess takes it to INR 26,000.

The rebate cannot be more than the tax at the Section 202 slab rates. Income taxed at special rates does not get cheaper because of it.

What surcharge applies in the new regime?

Surcharge is 10% above INR 50 lakh, 15% above INR 1 crore and 25% above INR 2 crore, and it is capped at 25% in the new regime. The old regime can reach 37% above INR 5 crore.

The surcharge rates come from the Income Tax Department’s tax rates page for AY 2026-27. Budget 2026 did not change them.

What are the old tax regime slabs for 2026-27?

The old regime has a nil slab of INR 2.5 lakh for people under 60, INR 3 lakh for senior citizens and INR 5 lakh for super senior citizens. It then charges 5%, 20% and 30%.

The rebate is much smaller than in the new regime. A resident individual with taxable income up to INR 5 lakh gets a rebate of up to INR 12,500 under Section 156(1).

The new regime has no extra slab for senior citizens. Cess of 4% applies in both regimes.

Which deductions and exemptions does each regime allow?

The new regime allows only a few deductions, and the old regime keeps most of the familiar ones. Section 202(2) of the Income-tax Act, 2025 lists what the new regime blocks.

Many deductions were renumbered in the new Act, but their limits are largely unchanged. For example, the earlier Section 80C is now Section 123, and the earlier Section 80D is now Section 126.

Treat the table as a guide, not a full list. Many more deductions exist, such as education loan interest and donations, and they follow the old regime rules.

Which regime saves more tax at each salary level?

The new regime wins at every salary level unless your deductions beyond the standard deduction are larger than the break-even figure in the table. The break-even figure is the amount of extra deductions the old regime needs to match the new regime.

The calculation was done with respect to a person below 60 years with income through salary as the sole source. Old Regime has a standard deduction of INR 50,000 while New Regime has INR 75,000 with tax charged at 4% cess. There is no surcharge applicable in these income ranges. Contributions made by the employer to NPS can be deducted in both regimens.

Above INR 50 lakh of income, surcharge applies and the figures change, so use a calculator for those cases.

The old 2023 rule of thumb, that deductions above INR 3.75 lakh favour the old regime, no longer holds. At most salaries you now need more than that.

What does this look like for two people earning INR 15 lakh?

The same salary can give opposite answers, depending on deductions. These two examples are made up to show the maths.

Asha earns INR 15 lakh and has INR 3 lakh of extra deductions. She pays INR 1,63,800 in the old regime and INR 97,500 in the new regime, so the new regime saves her INR 66,300.

Rohit also earns INR 15 lakh. He claims INR 1.8 lakh of HRA exemption, INR 1.5 lakh under Section 123, INR 50,000 of extra NPS, INR 25,000 of health insurance and INR 2 lakh of home loan interest, a total of INR 6.05 lakh. He pays INR 84,760 in the old regime and INR 97,500 in the new regime, so the old regime saves him INR 12,740.

Who should choose the new regime?

Choose the new regime if your extra deductions are below the break-even figure for your salary. This covers most people who do not pay rent, have no home loan and invest little under Section 123.

These groups usually do better in the new regime:

• Salaried people earning up to INR 12.75 lakh, who pay nil tax.
• Younger employees with few tax-saving investments.
• People who prefer less paperwork, because the new regime needs no investment proofs.
• Consultants and others with income that does not qualify for many deductions.

Who should choose the old regime?

Choose the old regime if your claimable deductions are large enough to pass the break-even figure. Run the numbers each year, because rent, loans and investments change.

These groups often do better in the old regime:

• People who pay high rent and receive HRA, especially in the eight cities with a 50% limit.
• People with a home loan who can claim up to INR 2 lakh of interest on a self-occupied house.
• Senior citizens with large interest income, who can claim up to INR 50,000 of interest under Section 153 (earlier 80TTB).
• People who invest heavily under Section 123, NPS and health insurance.

What changed under the Income-tax Act, 2025, for salaried taxpayers?

The new Act mainly renumbered the old sections and changed a few rules that affect pay. Section numbers on payslips, Form 16 and tax software now follow the 2025 Act.

The Income-tax Rules, 2026 were notified on 20 March 2026. They replace the 1962 Rules, and they changed the HRA city list.

Practitioner guides also report that Form 124 replaces Form 12BB for employee claims. Confirm form numbers with your employer, because forms were renumbered from 1 April 2026.

Which cities now get the 50% HRA limit?

Eight cities now get the 50% limit: Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad. Rule 279 of the Income-tax Rules, 2026 added the last four from 1 April 2026, according to several practitioner sources.

HRA is available only in the old regime. If you live in one of the new cities and pay rent, the old regime became a little more valuable in 2026-27.

How do you choose or switch your tax regime?

If you have no business income, you can pick the old or new regime every year. The Income Tax Act, 2025, says a person without business or profession income exercises the option along with the return of income.

The new regime applies by default. The steps below describe the usual routine for salaried people.

1. Compare both regimes with the break-even table above or the Income Tax Department’s calculator.
2. Tell your employer your choice at the start of the year, so TDS (tax deducted at source) follows it.
3. If you say nothing, the employer deducts tax under the new regime.
4. You can still choose the other regime when you file your return, and the final tax follows that choice.
5. Salaried individuals without business income usually file by 31 July.

People with business or professional income have stricter rules. The Act says the option, once exercised, applies to later years, can be withdrawn only once, and after that the person can never opt again unless the business income stops.

Budget 2026 also extended the deadline for a revised return to 31 March, with a fee for revisions filed after 31 December. That gives more room to fix a wrong regime choice.

How do employers apply the regime choice in payroll?

Deductions for TDS on salary are made by employers according to Section 392 of the Income Tax Act 2025 in accordance with the regime that each employee chooses. According to practitioner advice, the default regime is the new regime if the individual says nothing.

Payroll teams collect each employee’s regime choice and old-regime claims, such as rent and loan proofs. They then apply the right slabs, the 50% HRA rule for the eight cities and the new section numbers.

Errors cost money in both directions. Deducting too little leaves the employee with a tax bill at filing, and deducting too much cuts take-home pay until a refund arrives.

For the wider picture of 2026 payroll rule changes, see TankhaPay’s guide to payroll compliance changes in India and its payroll compliance checklist for 2026.

Is income up to INR 12 lakh really tax-free under the new regime?

Yes, for resident individuals, but only taxable income up to INR 12 lakh gets the full rebate. A salaried person gets there at an INR 12.75 lakh salary because of the INR 75,000 standard deduction.

Above that, marginal relief limits the tax so it does not jump. Special-rate income does not get the rebate.

Which tax regime is better if I have a home loan?

The old scheme may work better in some cases, but it is difficult for a home loan to outdo the new scheme beyond INR 10 lakh of salary income. The old scheme gives a tax deduction on interest of up to INR 2 lakh of a self-occupied property and repayment of the principal within INR 1.5 lakh.

Together, that is INR 3.5 lakh, which is below the break-even figure for most salaries from INR 10 lakh. Add HRA, NPS and health insurance, and the old regime can win.

Is HRA available under the new tax regime?

No. The new regime blocks the House Rent Allowance. If you want to claim HRA, you must use the old regime.

From 1 April 2026, eight cities get the 50% limit under the Income Tax Rules, 2026.

Can I switch between the old and new tax regime every year?

Yes, if you have no business or professional income. You choose each year, either with your employer at the start of the year or when you file your return.

If you have business or professional income, the Act limits how many times you can change.

Did Budget 2026 change income tax slabs?

No. Budget 2026 kept the slabs and rates of both regimes the same for tax year 2026-27.

It extended the revised return deadline to 31 March and cut TCS (tax collected at source) on some foreign remittances, and the new Income-tax Act, 2025, started on 1 April 2026.

Is Section 80C still available in 2026?

Yes, in the old system, but now under a different number. Section 123 of the Income-tax Act, 2025 deals with the same investments mentioned in Section 80C with a cap of INR 1.5 lakh.

Eligible investments now sit in Schedule XV of the Act. The new regime does not allow this deduction.

Which regime is better for senior citizens?

The old regime can suit senior citizens with large interest income, but check both. The old regime gives a nil slab of INR 3 lakh from age 60 and INR 5 lakh from age 80, and up to INR 50,000 of interest deduction under Section 153.

The new regime has no senior citizen slab, but its rebate makes income up to INR 12 lakh tax-free. Compare both with your actual income.

What is the next step for choosing your tax regime?

Compare both regimes with your real figures before April, and update your employer’s records when your situation changes. A new loan, a rent change or a move to one of the eight HRA cities can flip the result.

For payroll teams, the work is making sure every employee’s choice is applied correctly in TDS and on Form 16. To review how your payroll handles regime choices and the 2026 rule changes, Book a Strategy Call with TankhaPay’s payroll compliance team.