New vs old tax regime — which is better.

New vs old tax regime — which is better in FY 2026-27?

For most taxpayers, the new regime wins. It is the default, has lower slabs, a ₹75,000 standard deduction and an 87A rebate that makes salary up to ₹12.75 lakh tax-free. The old regime only wins when your total deductions exceed roughly ₹3.75–4 lakh.

Side-by-side comparison

The two regimes are parallel slab structures. The new regime (Section 115BAC) trades away most deductions for lower rates; the old regime keeps the deductions but taxes at higher rates. Here is how they line up for FY 2026-27:

The slabs, side by side

New regime (default)

With the Section 87A rebate up to ₹60,000 and the ₹75,000 standard deduction for salaried, a salary income of ₹12.75 lakh attracts nil effective tax. Just above ₹12 lakh, marginal relief under Section 87A caps the tax so a small overshoot does not push the whole income into tax — the relief tapers off by roughly ₹12.7 lakh of total income.

Old regime

The Section 87A rebate up to ₹12,500 makes income up to ₹5 lakh effectively tax-free under the old regime. Surcharge applies above ₹50 lakh in both regimes — 10% / 15% / 25% / 37% by band — but the new regime caps it at 25%.

Which deductions survive in each regime

The single biggest driver of the choice is which deductions you actually claim. The new regime forgoes nearly all of Chapter VI-A; the old regime keeps them.

Available only in the old regime

• Section 80C — PPF, ELSS, LIC, home loan principal, tuition fees (₹1.5 lakh)
• Section 80CCD(1B) — NPS, over and above 80C (₹50,000)
• Section 80D — health insurance for self and parents (₹25,000 – ₹1 lakh)
• HRA exemption (Section 10(13A)) and LTA
• Home loan interest on self-occupied property (Section 24(b), up to ₹2 lakh)
• Most other Chapter VI-A deductions (80E, 80G, 80TTA/80TTB, and so on)

Available in both regimes

• Standard deduction — ₹75,000 (new) vs ₹50,000 (old)
• Employer NPS contribution (Section 80CCD(2))
• Home loan interest on let-out property
• Family pension deduction (1/3rd of pension or ₹25,000, whichever lower)
• Agniveer Corpus Fund contribution (Section 80CCH)

Breakeven — when the old regime starts to win

Rule of thumb: if your total old-regime deductions exceed roughly ₹3.75–4 lakh — 80C + 80D + home loan interest + HRA + employer NPS combined — the old regime usually produces lower tax. Below that, the new regime is better.

A common worked case: a salaried taxpayer who maxes 80C (₹1.5L), claims 80D (₹25K), pays ₹2L of self-occupied home loan interest and receives HRA quickly crosses ₹4 lakh of deductions — and tips into old-regime territory. A taxpayer who invests little and rents nothing stays firmly in the new regime.

The exact crossover shifts with your income level and the precise mix of deductions, so treat ₹3.75–4 lakh as a signpost, not a verdict. Run both computations on your actual numbers before you lock the choice in your ITR.

How to switch

Salaried taxpayers can switch each year simply by choosing the regime in the ITR. Business and professional income taxpayers must opt out of the new regime via Form 10-IEA before the ITR due date — and can switch back to the old regime only once in a lifetime.

Frequently asked questions