Income Tax New vs Old Regime 2026-27: Which Saves You More Money?
The new tax regime is now the default in India — but is it better for you? This guide compares both regimes with exact tax calculations at every salary level, so you can make an informed choice before filing your ITR.
Ram
Every year, millions of Indian salaried employees face the same question: new tax regime or old tax regime? Since the Union Budget 2023 made the new regime the default, this choice has become even more consequential — and more confusing.
The short answer: the right choice depends on your total deductions. If your deductions exceed a certain threshold, the old regime saves more. Below that threshold, the new regime wins. This guide gives you the exact numbers to decide in 10 minutes.
The Two Tax Regimes at a Glance
Old Tax Regime
- Higher tax rates at each slab
- Allows all deductions and exemptions: 80C, 80D, HRA, LTA, home loan interest, standard deduction, and more
- Complex but potentially lower effective tax if you claim significant deductions
New Tax Regime (Default from FY 2023-24)
- Lower tax rates at each slab
- No deductions except standard deduction of ₹75,000 (for salaried employees)
- Employer NPS contribution under 80CCD(2) is still allowed
- Simpler — fewer calculations, less paperwork
- Higher tax for those who heavily invest in 80C instruments
Tax Slabs Comparison: FY 2026-27
New Tax Regime Slabs (FY 2026-27)
| Income Range | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Old Tax Regime Slabs (FY 2026-27)
| Income Range | Tax Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Key Deductions Available ONLY in the Old Regime
Under the new regime, these deductions are not available:
| Deduction | Maximum Limit |
|---|---|
| Section 80C (ELSS, PPF, EPF, LIC, NSC, etc.) | ₹1,50,000 |
| Section 80D (Health insurance premium) | ₹25,000-₹75,000 |
| Section 24(b) — Home loan interest (self-occupied) | ₹2,00,000 |
| Section 80CCD(1B) — NPS additional contribution | ₹50,000 |
| House Rent Allowance (HRA) | Calculated (40-50% of basic) |
| Leave Travel Allowance (LTA) | Actual expenses |
| Section 80E — Education loan interest | Full interest amount |
| Section 80G — Donations | 50-100% of donation |
| Section 80TTA — Savings account interest | ₹10,000 |
- Standard deduction: ₹75,000
- Employer's NPS contribution: 80CCD(2) — up to 10% of basic salary
- Agniveer Corpus Fund: 80CCH(2)
- Tax on perquisites
Side-by-Side Tax Calculation: Every Income Level
Let's calculate the exact tax under both regimes for different income levels. All calculations assume the standard deduction is claimed (₹75,000) and old regime deductions total ₹2 lakhs (₹1.5L in 80C + ₹50K in NPS or other deductions).
Salary: ₹8 Lakhs per Year
New Regime:- Gross income: ₹8,00,000
- Less standard deduction: ₹75,000
- Taxable income: ₹7,25,000
- Tax on ₹7,25,000: ₹0 (up to ₹4L = nil) + ₹16,250 (5% on ₹3,25,000)
- Less 87A rebate: ₹12,500 (as taxable income < ₹12L under new regime, full rebate applies)
- Total tax: ₹3,750 + cess = ₹3,900
- Gross income: ₹8,00,000
- Less standard deduction: ₹75,000
- Less 80C + NPS deductions: ₹2,00,000
- Taxable income: ₹5,25,000
- Tax: 0 + ₹12,500 (5% on ₹2.5L) + ₹5,000 (20% on ₹25,000)
- Less 87A rebate: ₹12,500 (as taxable income ≤ ₹5L)
- Total tax: ₹5,000 + cess = ₹5,200
Salary: ₹12 Lakhs per Year
New Regime:- Gross income: ₹12,00,000
- Less standard deduction: ₹75,000
- Taxable income: ₹11,25,000
- Tax: 0 + ₹20,000 (5% on ₹4L) + ₹32,500 (10% on ₹3,25,000) = ₹52,500
- Less 87A rebate: ₹60,000 (full rebate since taxable income ≤ ₹12L)
- Total tax: ₹0 (rebate exceeds tax)
- Taxable income: ₹12L – ₹75K – ₹2L = ₹9,25,000
- Tax: 0 + ₹12,500 (5%) + ₹85,000 (20% on ₹4.25L)
- Total tax: ₹97,500 + cess = ₹1,01,400
Salary: ₹15 Lakhs per Year
New Regime:- Taxable income: ₹15L – ₹75K = ₹14,25,000
- Tax: 0 + ₹20,000 + ₹40,000 + ₹33,750 (15% on ₹2.25L above ₹12L) = ₹93,750
- Total tax: ₹93,750 + cess = ₹97,500
- Taxable income: ₹15L – ₹75K – ₹2L = ₹12,25,000
- Tax: 0 + ₹12,500 + ₹1,00,000 (20% on ₹5L) + ₹67,500 (30% on ₹2.25L) = ₹1,80,000
- Total tax: ₹1,80,000 + cess = ₹1,87,200
Salary: ₹20 Lakhs per Year
New Regime:- Taxable income: ₹20L – ₹75K = ₹19,25,000
- Tax: ₹0 + ₹20,000 + ₹40,000 + ₹60,000 + ₹1,45,000 (20% on ₹7.25L) + extra slabs...
- Approx total tax: ₹2,25,000 + cess ≈ ₹2,34,000
- Taxable income: ₹20L – ₹75K – ₹3.5L = ₹15,75,000
- Tax: 0 + ₹12,500 + ₹1,00,000 + ₹1,72,500 (30% on ₹5.75L) = ₹2,85,000
- Total tax: ₹2,85,000 + cess = ₹2,96,400
Salary: ₹30 Lakhs per Year (High-Income Analysis)
At higher incomes, the old regime can become competitive if deductions are significant.
New Regime:- Taxable income: ₹30L – ₹75K = ₹29,25,000
- Approx total tax: ₹5,54,000 + cess ≈ ₹5,76,000
- Taxable income: ₹30L – ₹75K – ₹5L = ₹24,25,000
- Tax: 0 + ₹12,500 + ₹1,00,000 + ₹4,27,500 (30% on ₹14.25L) = ₹5,40,000
- Total tax: ₹5,40,000 + cess = ₹5,61,600
With ₹7L+ in deductions at ₹30L income (major HRA claim, home loan interest, 80C maxed), the old regime starts winning more clearly.
The Break-Even Deduction: When Old Regime Wins
The critical question: at your income level, what total deduction amount makes the old regime beneficial?
| Annual Income | Break-even Deductions |
|---|---|
| ₹8 lakhs | Old regime never wins significantly |
| ₹12 lakhs | Old regime never wins (87A rebate gives new regime zero tax) |
| ₹15 lakhs | ₹4.5+ lakhs in deductions |
| ₹20 lakhs | ₹5.5+ lakhs in deductions |
| ₹25 lakhs | ₹6+ lakhs in deductions |
| ₹30 lakhs | ₹7+ lakhs in deductions |
Who Should Definitely Choose the New Regime
- Income up to ₹12 lakhs: Zero tax under new regime (after rebate). No question.
- First-time taxpayers with no investments: Simpler, no documentation burden
- Those not claiming HRA: Living in own house or employer-provided accommodation
- Young professionals early in career: Small 80C investments don't justify old regime complexity
- Those with no home loan: Missing the ₹2L home loan interest deduction
Who Should Carefully Compare (Old Regime May Win)
- Income above ₹25 lakhs with home loan: Home loan interest deduction of ₹2L + standard deduction + 80C + NPS = ₹5.25L+ in deductions starts making old regime competitive
- Those claiming large HRA: If your HRA exemption is ₹2L+ annually, factor it in
- Investors maxing 80C + 80CCD(1B): ₹1.5L (80C) + ₹50K (NPS) + standard deduction = ₹2.75L — still not enough for most income levels
How to Switch Between Regimes
You can switch between new and old regime every year when filing your ITR (Income Tax Return), as long as you don't have business/professional income.
For salaried employees:
- Inform your employer of your preferred regime at the start of the financial year (April)
- Your employer deducts TDS based on your declared regime
- When filing ITR (typically July-December), you can still choose differently if it benefits you
- Any excess TDS is refunded; any shortfall requires self-assessment tax payment
Common Myths About the Two Regimes
Myth: "Old regime is always better for investors" False. The old regime is only better if your total deductions exceed the break-even threshold for your income level. For most people earning ₹10-20 lakhs, the new regime wins even after maxing 80C. Myth: "New regime penalizes SIP investors" Not exactly. The new regime doesn't penalize SIP — your SIP returns grow the same way regardless of which regime you choose. What the new regime doesn't offer is the 80C deduction for ELSS SIP. You still invest; you just don't get a tax deduction for it. The investment returns are identical. Myth: "I must choose the same regime my employer chose" False. You choose your regime when filing ITR. Your employer's TDS deduction is based on the regime you declared to them — but you can recalculate at filing time. If the other regime saves more tax, file accordingly and receive/pay the difference. Myth: "New regime means I shouldn't invest in PPF or ELSS" False. PPF, ELSS, and NPS remain excellent investments regardless of tax regime — their long-term wealth creation doesn't disappear because the deduction is unavailable. However, without the 80C deduction, you might prioritize direct equity or index funds (zero lock-in) over ELSS (3-year lock-in) for new investments.Tax Planning Strategy for FY 2026-27
Step 1: Calculate your break-even deduction
Using the table above, find what deduction total you'd need to make the old regime beneficial at your income level.Step 2: List your realistic deductions
Add up all deductions you can realistically claim:- Standard deduction: ₹75,000 (available in both)
- 80C investments (EPF + ELSS/PPF/LIC): How much have you invested?
- 80D: Health insurance premium for self and parents
- Home loan interest (Section 24b): Outstanding loan interest
- HRA: Calculate based on your rent, salary, and city
- NPS 80CCD(1B): Additional NPS contribution
Step 3: Compare and decide
If your total deductions exceed the break-even: old regime likely wins. If not: new regime wins.Step 4: Inform your employer
Tell your HR/payroll team your choice for TDS deductions at the start of April.Frequently Asked Questions
Can I claim 80C deductions under the new tax regime? No. Section 80C deductions (ELSS, PPF, NSC, LIC, 5-year FD, children's tuition) are not available under the new tax regime. Only the ₹75,000 standard deduction and employer NPS contribution under 80CCD(2) are available. Is the new regime compulsory? No. It is the default — meaning if you don't specify, the new regime is applied. But you can actively opt for the old regime when filing your ITR if it benefits you. If I choose the new regime, should I stop my PPF and ELSS investments? Not necessarily. PPF continues to offer EEE (Exempt-Exempt-Exempt) status even under the new regime — the maturity amount and interest are still tax-free; you just don't get a deduction on contributions. ELSS without the 80C deduction loses its main advantage over a regular equity fund — at that point, a no-lock-in index fund is often preferable for new investments. What is the new regime tax on ₹10 lakh salary? Taxable income after ₹75K standard deduction = ₹9.25 lakhs. Tax on ₹9.25L: ₹0 (first ₹4L) + ₹20,000 (5% on next ₹4L) + ₹12,500 (10% on ₹1.25L) = ₹32,500. After Section 87A rebate (₹60,000), tax is fully offset: zero tax. Cess: ₹0. My employer is deducting TDS under the old regime but I want the new regime — what do I do? Inform your HR/payroll department of your preference for the new regime in writing. They must accommodate the switch from the next salary payment. For the months already passed, you'll reconcile at ITR filing time — if you overpaid TDS, you'll receive a refund.The choice between new and old regime ultimately comes down to your deductions. Run the numbers, compare the totals, and make the choice that keeps more money with you — not the government.
