Old vs New Tax Regime: Which Is Better for You? (FY 2026-27)
Old vs new tax regime: the new regime has lower slab rates and makes income up to ₹12 lakh tax-free, but it removes most deductions. The old regime has higher rates but lets you claim 80C, 80D, HRA and home-loan interest. Which one is better depends on how much you can claim in deductions. The figures below are for FY 2026-27.
Side-by-side comparison
| New regime (default) | Old regime | |
|---|---|---|
| Tax-free limit (slabs) | ₹4 lakh | ₹2.5 lakh (₹3 lakh for 60+, ₹5 lakh for 80+) |
| Rebate | Up to ₹60,000: no tax up to ₹12 lakh | Up to ₹12,500: no tax up to ₹5 lakh |
| Standard deduction (salary/pension) | ₹75,000 | ₹50,000 |
| Top rate | 30% above ₹24 lakh | 30% above ₹10 lakh |
| 80C (PPF, ELSS, LIC, EPF, tuition) | No | Up to ₹1.5 lakh |
| 80D (health insurance) | No | Yes |
| HRA, LTA | No | Yes |
| Home-loan interest (self-occupied) | No | Up to ₹2 lakh |
| Employer’s NPS contribution | Yes (up to 14% of salary) | Yes (up to 10% of salary) |
| Highest surcharge | 25% | 37% |
New regime slabs
Nil up to ₹4 lakh · 5% ₹4–8 lakh · 10% ₹8–12 lakh · 15% ₹12–16 lakh · 20% ₹16–20 lakh · 25% ₹20–24 lakh · 30% above ₹24 lakh.
Old regime slabs (below 60)
Nil up to ₹2.5 lakh · 5% ₹2.5–5 lakh · 20% ₹5–10 lakh · 30% above ₹10 lakh.
Both regimes add 4% health and education cess. For a step-by-step calculation, see how to calculate income tax.
Example: salary ₹15 lakh
New regime: taxable income ₹14,25,000. Tax = ₹20,000 + ₹40,000 + ₹33,750 (15% of ₹2.25 lakh) = ₹93,750, plus 4% cess = ₹97,500.
Old regime, assuming ₹1.5 lakh under 80C, ₹25,000 under 80D and the ₹50,000 standard deduction: taxable income ₹12,75,000. Tax = ₹12,500 + ₹1,00,000 + ₹82,500 (30% of ₹2.75 lakh) = ₹1,95,000, plus cess = ₹2,02,800.
In this case the new regime saves about ₹1.05 lakh. The old regime only starts to win when deductions are large: typically when you also claim substantial HRA and up to ₹2 lakh of home-loan interest.
How to decide
- List every deduction you’ll actually claim this year (80C, 80D, HRA, home-loan interest, 80CCD(1B) NPS).
- Calculate tax under both regimes, using the calculator on the Income Tax e-filing portal.
- Pick the lower one. If you have little or no HRA and no home loan, the new regime is almost always cheaper.
Can you switch every year?
- Salaried and pensioners (no business income) can choose either regime each year when filing the return, even if they told their employer something different for TDS.
- People with business or professional income can opt out of the new regime by filing Form 10-IEA before the due date, and can switch back to the new regime only once in their lifetime.
Frequently asked questions
Is the new regime compulsory?
No. It is the default, but you can choose the old regime if it gives you lower tax.
Can I claim PPF or LIC premiums in the new regime?
No. Section 80C deductions are not allowed in the new regime. PPF interest and maturity stay tax-free under both.
Did Budget 2026 change either regime?
No. Slabs, standard deduction and rebate are unchanged for FY 2026-27. The new Income-tax Act, 2025 applies from 1 April 2026 but keeps both regimes.
Related guides
Sources: Income Tax e-filing portal, Union Budget 2026-27. General information, not tax advice.