Old vs New Tax Regime in India: How to Choose the Right One
The old vs new tax regime decision is one of the few tax choices most Indian individuals make every year. Since the 2025 Budget's slab changes, the new regime is the better deal for a large share of salaried taxpayers, but not for everyone. This comparison sets out the official slabs, what each regime allows, two worked examples and the switching rules, so you can run the numbers for yourself.
Which rules apply to which year
2026 is a transition year for Indian income tax, so it helps to be clear about the years involved.
- FY 2025-26 (1 April 2025 to 31 March 2026), filed as AY 2026-27: governed by the Income-tax Act, 1961. The new regime is in section 115BAC and the rebate in section 87A (Income Tax Department, Salaried Individuals for AY 2026-27).
- Tax year 2026-27 (1 April 2026 to 31 March 2027): governed by the Income-tax Act, 2025, which came into force on 1 April 2026 and replaced the 1961 Act (PIB, 1 April 2026). The new Act drops "previous year" and "assessment year" in favour of a single "tax year", defined as the twelve months of the financial year beginning on 1 April (Income-tax Act, 2025, section 3; see also PIB's explainer on the new Act).
According to the Government, the new Act simplifies the language and structure "without altering the underlying tax policy" (PIB). The Budget 2026-27 speech confirmed the new Act's start date and proposed procedural changes, but did not propose changes to personal income-tax slabs (Budget Speech 2026-27). The new-regime slabs for tax year 2026-27 are written into section 202(1) of the 2025 Act and match those for FY 2025-26.
Slab rates compared
New regime
These rates apply to individuals of every age under the new regime, for FY 2025-26 (Income Tax Department; announced in the Union Budget 2025-26) and for tax year 2026-27 (Income-tax Act, 2025, section 202(1)).
| Total income (₹) | Rate | Tax at top of band (₹) |
|---|---|---|
| Up to 4,00,000 | Nil | 0 |
| 4,00,001 – 8,00,000 | 5% | 20,000 |
| 8,00,001 – 12,00,000 | 10% | 60,000 |
| 12,00,001 – 16,00,000 | 15% | 1,20,000 |
| 16,00,001 – 20,00,000 | 20% | 2,00,000 |
| 20,00,001 – 24,00,000 | 25% | 3,00,000 |
| Above 24,00,000 | 30% | — |
Old regime
Old-regime rates depend on age. These are the rates published by the Income Tax Department for AY 2026-27.
| Total income (₹) | Below 60 | 60 to 79 | 80 and above |
|---|---|---|---|
| Up to 2,50,000 | Nil | Nil | Nil |
| 2,50,001 – 3,00,000 | 5% | Nil | Nil |
| 3,00,001 – 5,00,000 | 5% | 5% | Nil |
| 5,00,001 – 10,00,000 | 20% | 20% | 20% |
| Above 10,00,000 | 30% | 30% | 30% |
In both regimes, Health and Education Cess of 4% is added to income tax plus any surcharge, and surcharge applies at higher incomes (Income Tax Department).
Standard deduction and rebate
| New regime | Old regime | |
|---|---|---|
| Standard deduction for salary and pension | ₹75,000 | ₹50,000 |
| Rebate (resident individuals) | Up to ₹60,000 if total income does not exceed ₹12,00,000 | Up to ₹12,500 if total income does not exceed ₹5,00,000 |
| Effective tax-free salary (with standard deduction, no other income) | ₹12,75,000 | Depends on deductions claimed |
Sources: the ₹75,000 new-regime standard deduction and the ₹12.75 lakh figure were announced in the Union Budget 2025-26 (PIB); the old-regime ₹50,000 figure is in the Income Tax Department's regime FAQs; the rebate limits are on the AY 2026-27 page. For tax year 2026-27, section 19(1) of the 2025 Act sets the standard deduction at ₹75,000 (or the salary, if lower) under the new regime and ₹50,000 otherwise, and section 156 carries the same ₹12,500 and ₹60,000 rebates (Income-tax Act, 2025).
Two details matter. First, the ₹12 lakh figure is a rebate, not a higher exemption limit: tax is calculated on the slabs and then cancelled out. The PIB release notes that the ₹12 lakh limit applies to income "other than special rate income such as capital gains". Second, section 156(2)(b) of the 2025 Act provides marginal relief just above ₹12 lakh: if your total income goes slightly over the limit, the tax payable is capped at the amount by which your income exceeds ₹12 lakh. Example 3 below shows how this works.
Which deductions each regime allows
The new regime trades lower rates for far fewer deductions. The Income Tax Department's FAQs state that Chapter VI-A deductions are not allowed under the new regime, except a few such as 80CCD(2) and 80CCH, and that HRA exemption and interest on a self-occupied home loan are not available (FAQs; limits from the AY 2026-27 page).
| Deduction or exemption (1961 Act section) | Old regime | New regime |
|---|---|---|
| Standard deduction on salary | ₹50,000 | ₹75,000 |
| 80C, 80CCC, 80CCD(1): PF, PPF, ELSS, life insurance, tuition fees, home-loan principal | Up to ₹1,50,000 combined | Not allowed |
| 80CCD(1B): own NPS contribution | Up to ₹50,000 | Not allowed |
| 80CCD(2): employer's NPS contribution | Up to 10% of salary (14% for central or state government employers) | Up to 14% of salary |
| 80D: health insurance | Allowed, within limits | Not allowed |
| HRA exemption, section 10(13A) | Allowed | Not allowed |
| 24(b): interest on self-occupied home loan | Up to ₹2,00,000 | Not allowed |
| 24(b): interest on let-out property | Allowed | Allowed, but a house-property loss cannot be set off against other income |
| 80E (education loan interest), 80G (donations), 80TTA/80TTB (deposit interest) | Allowed, within limits | Not allowed |
| 80CCH: Agniveer Corpus Fund | Allowed | Allowed |
Worked examples
The examples below are illustrative. They assume a resident individual below 60, income only from salary, no surcharge, and figures for FY 2025-26 (the same slabs apply in tax year 2026-27). The old-regime deductions are assumptions chosen to show a typical "fully used" case; your own may be higher or lower.
Example 1: ₹12 lakh salary
| Step | New regime (₹) | Old regime (₹) |
|---|---|---|
| Gross salary | 12,00,000 | 12,00,000 |
| Less standard deduction | 75,000 | 50,000 |
| Less 80C (assumed full) | — | 1,50,000 |
| Less 80D health insurance (assumed) | — | 25,000 |
| Less 80CCD(1B) NPS (assumed full) | — | 50,000 |
| Total income | 11,25,000 | 9,25,000 |
| Tax on slabs | 0 + 20,000 (5% of 4L) + 32,500 (10% of 3.25L) = 52,500 | 0 + 12,500 (5% of 2.5L) + 85,000 (20% of 4.25L) = 97,500 |
| Less rebate | 52,500 (income within ₹12 lakh) | 0 (income above ₹5 lakh) |
| Tax after rebate | 0 | 97,500 |
| Add 4% cess | 0 | 3,900 |
| Total tax | 0 | 1,01,400 |
At this income the new regime wins even with ₹2.25 lakh of extra deductions under the old one. HRA could narrow the gap for someone paying high rent, but cannot beat a zero bill.
Example 2: ₹20 lakh salary with a home loan
| Step | New regime (₹) | Old regime (₹) |
|---|---|---|
| Gross salary | 20,00,000 | 20,00,000 |
| Less standard deduction | 75,000 | 50,000 |
| Less 80C (assumed full) | — | 1,50,000 |
| Less 80D (assumed) | — | 25,000 |
| Less 80CCD(1B) NPS (assumed full) | — | 50,000 |
| Less home-loan interest, self-occupied (assumed full) | — | 2,00,000 |
| Total income | 19,25,000 | 15,25,000 |
| Tax on slabs | 20,000 + 40,000 + 60,000 + 65,000 (20% of 3.25L) = 1,85,000 | 12,500 + 1,00,000 + 1,57,500 (30% of 5.25L) = 2,70,000 |
| Rebate | 0 | 0 |
| Add 4% cess | 7,400 | 10,800 |
| Total tax | 1,92,400 | 2,80,800 |
Even with ₹4.75 lakh of deductions, the old regime costs more here. Working backwards from the same slabs, the old regime only breaks even at a ₹20 lakh salary when total deductions, including the ₹50,000 standard deduction, reach about ₹7.58 lakh (taxable income of about ₹12.42 lakh, giving ₹1,85,000 of tax before cess). That is possible with a large HRA exemption plus a home loan, which is why high-rent city earners should run their own numbers.
Example 3: Just above ₹12 lakh (marginal relief)
| Step | New regime (₹) |
|---|---|
| Gross salary | 12,85,000 |
| Less standard deduction | 75,000 |
| Total income | 12,10,000 |
| Tax on slabs | 20,000 + 40,000 + 1,500 (15% of 10,000) = 61,500 |
| Income above ₹12 lakh | 10,000 |
| Rebate (marginal relief): tax minus excess income | 61,500 − 10,000 = 51,500 |
| Tax after rebate | 10,000 |
| Add 4% cess | 400 |
| Total tax | 10,400 |
Without marginal relief, earning ₹10,000 more than the limit would cost ₹61,500 in tax. On these slabs the relief tapers away at a total income of roughly ₹12.7 lakh, where the normal tax and the excess income become equal.
The old regime only pays off when your deductions are large and real, not when they exist on paper.
Default regime and switching rules
The new regime has been the default for individuals since AY 2024-25; if you do nothing, your tax is calculated under it (Income Tax Department FAQs). How you opt out depends on whether you have business or professional income.
| No business or professional income (for example, salaried) | Business or professional income | |
|---|---|---|
| How to choose the old regime | Select it in the return (ITR-1 or ITR-2) | File Form 10-IEA |
| Deadline | Return filed by the due date under section 139(1) (section 263(1) of the 2025 Act) | On or before the same due date |
| How often you can switch | Every year | Once opted out, the choice continues; it can be withdrawn only once |
| After withdrawing | — | Cannot opt for the old regime again unless you stop having business or professional income |
Sources: Income Tax Department FAQs and section 202(4) of the Income-tax Act, 2025.
Salaried employees should note one point from the FAQs: telling your employer which regime you want only decides how much TDS is deducted from your salary. It does not count as exercising the option. The binding choice is made in your return, so you can still pick the other regime when you file, though you may then owe tax or be due a refund.
On deadlines, the Budget 2026-27 speech proposed that individuals filing ITR-1 and ITR-2 continue to file by 31 July, with non-audit business cases given until 31 August, and that the time to revise a return be extended to 31 March with a nominal fee (Budget Speech 2026-27).
Old and new section numbers
From tax year 2026-27, the familiar section numbers change. The table maps the ones used in this article, taken from the text of the Income-tax Act, 2025.
| Provision | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| New tax regime for individuals and HUFs | Section 115BAC | Section 202 |
| Rebate for resident individuals | Section 87A | Section 156 |
| Standard deduction from salary | Section 16(ia) | Section 19(1), Table Sl. No. 2 |
| ₹1.5 lakh deduction for PF, PPF, insurance and similar | Section 80C | Section 123 with Schedule XV |
| Employer contribution to NPS | Section 80CCD(2) | Section 124 |
| Agniveer Corpus Fund | Section 80CCH | Section 125 |
| Due date for filing returns | Section 139(1) | Section 263(1) |
How to choose: a short checklist
- Add up the deductions you will genuinely claim under the old regime: 80C, 80D, NPS, HRA, home-loan interest. Count only money you would spend anyway.
- Calculate tax both ways, using the slab tables above or the Income Tax Department's calculator on the e-filing portal.
- If your total income under the new regime is within ₹12 lakh (₹12.75 lakh of salary with no other income), the new regime gives you a zero bill and is very hard to beat.
- If you earn more and have a large HRA plus a home loan, the old regime may still win. Run the comparison every year, because rent, loan interest and salary change.
- If you have business income, think longer term before opting out, because you can only come back once.
- Do not buy a product just to save tax. An insurance policy or lock-in investment chosen only for 80C may not be worth it if the new regime is cheaper anyway.
The bottom line
For most salaried taxpayers with total income up to ₹12 lakh, the new regime is the clear choice. Above that, the answer depends on how much you can legitimately deduct: at ₹20 lakh, the old regime needs roughly ₹7.6 lakh of deductions just to break even. Salaried people can revisit the choice every year when filing; business owners should treat it as a longer-term decision. Check the figures against the linked official pages, and use a Chartered Accountant if your income includes capital gains, business profits or other complications.
Frequently asked questions
Is the new tax regime compulsory?
No. It is the default, but eligible individuals can opt for the old regime: in the return if they have no business income, or through Form 10-IEA if they do.
Is income up to ₹12 lakh tax-free under the new regime?
For resident individuals, tax on total income up to ₹12 lakh is fully offset by the rebate of up to ₹60,000, so no tax is payable. The PIB release excludes special-rate income such as capital gains from this limit. It is a rebate, not a higher exemption limit.
Can a salaried employee change regime after telling the employer?
Yes. The declaration to your employer only affects TDS. The final choice is made in your return, filed by the due date.
Did the Income-tax Act, 2025 change the slab rates?
No. The Act applies from 1 April 2026 and renumbers the sections, but the Government describes it as not altering the underlying tax policy, and the new-regime slabs in section 202(1) match those for FY 2025-26.
Can I claim HRA and 80C under the new regime?
No. HRA exemption and 80C are available only under the old regime. Employer NPS contributions under 80CCD(2) and the Agniveer Corpus Fund deduction are allowed under both.
Sources
- Salaried Individuals for AY 2026-27, Income Tax Department, 2026.
- FAQs on New Tax vs Old Tax Regime, Income Tax Department, accessed 2026.
- No income tax on annual income upto Rs. 12 lakh under new tax regime; limit to be Rs. 12.75 lakh for salaried tax payers, with standard deduction of Rs. 75,000, Press Information Bureau, 2025.
- Budget 2026-2027: Speech of Nirmala Sitharaman, Minister of Finance, Ministry of Finance, 2026.
- Income-tax Act, 2025 comes into force from today (1st April, 2026), Press Information Bureau, 2026.
- The Income-tax Act, 2025 (No. 30 of 2025), Gazette of India, Ministry of Law and Justice, 2025.
- The Income Tax Act, 2025: Reshaping Tax Framework, Press Information Bureau, 2025.
