New vs Old Tax Regime 2026-27: Which Is Better for Salaried?
Slabs, rebate, standard deduction and deductions under both regimes for tax year 2026-27, the first year of the Income-tax Act, 2025, with worked examples.
By Awais, Founder and editor-in-chiefPublished
Every salaried taxpayer in India chooses between two systems each year: the new regime, with lower rates and almost no deductions, and the old regime, with higher rates but HRA, 80C, 80D and home-loan benefits. For tax year 2026-27 the rates are unchanged from 2025-26, but the law is new. This guide explains both regimes and shows, with real numbers, when each one wins. You can run your own figures in the India income tax calculator.
What changed for 2026-27
From 1 April 2026 the Income-tax Act, 2025 replaced the Income-tax Act, 1961. The biggest visible change is vocabulary: “previous year” and “assessment year” are replaced by a single tax year. Tax year 2026-27 is 1 April 2026 to 31 March 2027, the same period people used to call FY 2026-27.
Section numbers also changed. The familiar names still appear on payslips and investment proofs, so here is how they map:
| Old (1961 Act) | New (2025 Act) | What it covers |
|---|---|---|
| Section 115BAC | Section 202 | New tax regime |
| Section 87A | Section 156 | Rebate for lower incomes |
| Section 16(ia) | Section 19 | Standard deduction for salary |
| Section 80C | Section 123 | PF, PPF, ELSS, life insurance and similar, up to ₹1,50,000 |
| Section 80CCD(1B) | Section 124(3) | Your own NPS contribution, extra ₹50,000 |
| Section 80CCD(2) | Section 124(1)–(2) | Employer NPS contribution |
| Section 80D | Section 126 | Health insurance premiums |
| Section 24(b) | Section 22 | Interest on a home loan |
The rates did not change. The Finance Bill, 2026 keeps the same old-regime slabs and surcharge, and the section 202 table carries the new-regime slabs introduced in 2025.
New regime slabs (default)
| Taxable income | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
- Standard deduction: ₹75,000 for salary.
- Rebate (section 156): if taxable income is ₹12,00,000 or less, the rebate of up to ₹60,000 cancels the tax. Just above ₹12 lakh, marginal relief caps your tax at the amount by which your income exceeds ₹12 lakh.
- Surcharge: 10% above ₹50 lakh, 15% above ₹1 crore, 25% above ₹2 crore, with a 25% cap.
- Not allowed: HRA, 80C, 80D, own NPS (80CCD(1B)), professional tax and home-loan interest on a self-occupied house. Employer NPS contributions up to 14% of salary are allowed.
Old regime slabs
| Taxable income | Below 60 | 60 to 79 | 80 and over |
|---|---|---|---|
| Up to ₹2,50,000 | Nil | Nil | Nil |
| ₹2,50,001 to ₹3,00,000 | 5% | Nil | Nil |
| ₹3,00,001 to ₹5,00,000 | 5% | 5% | Nil |
| ₹5,00,001 to ₹10,00,000 | 20% | 20% | 20% |
| Above ₹10,00,000 | 30% | 30% | 30% |
- Standard deduction: ₹50,000.
- Rebate: up to ₹12,500 when taxable income is ₹5,00,000 or less, with no marginal relief above it.
- Surcharge: 10% above ₹50 lakh, 15% above ₹1 crore, 25% above ₹2 crore and 37% above ₹5 crore.
- Deductions: HRA exemption, 80C up to ₹1.5 lakh, NPS up to ₹50,000 extra, 80D up to ₹25,000 for your family (₹50,000 if a senior citizen is insured) plus the same again for parents, home-loan interest up to ₹2 lakh on a house you live in, and professional tax.
Both regimes add 4% health and education cess on tax plus surcharge.
Sources: Income-tax Act, 2025 (as introduced, Bill No. 104 of 2025), sections 19, 22, 123, 124, 126, 156 and 202; Finance Bill, 2026, First Schedule and clause 3; cross-checked with PwC Worldwide Tax Summaries. Checked on 21 October 2026.
Worked example 1: ₹12.75 lakh salary, no deductions
- New regime: ₹12,75,000 − ₹75,000 = ₹12,00,000 taxable. Slab tax is ₹60,000, fully rebated. Tax: nil.
- Old regime: ₹12,75,000 − ₹50,000 = ₹12,25,000 taxable. Tax: ₹1,12,500 + 30% × ₹2,25,000 = ₹1,80,000, plus 4% cess = ₹1,87,200.
For most people up to this level, the new regime is the clear winner.
Worked example 2: ₹13 lakh salary and marginal relief
- New regime taxable income: ₹12,25,000. Normal slab tax is ₹60,000 + 15% × ₹25,000 = ₹63,750.
- Because income is only ₹25,000 above ₹12 lakh, marginal relief limits the tax to ₹25,000. With cess: ₹26,000.
Without marginal relief, earning ₹25,000 more than the ₹12.75 lakh salary would have cost ₹66,300 in tax. Relief runs out at about ₹12.7 lakh of taxable income, where normal tax becomes the smaller figure.
Worked example 3: ₹15 lakh salary with heavy deductions
Arjun earns ₹15,00,000, with basic salary of ₹6,00,000 and HRA of ₹3,00,000. He pays ₹2,40,000 rent a year in a metro city, invests ₹1,50,000 under 80C and ₹50,000 in NPS, and pays ₹25,000 for health insurance and ₹2,500 professional tax.
- HRA exemption: the least of ₹3,00,000 (HRA received), ₹1,80,000 (rent minus 10% of basic) and ₹3,00,000 (50% of basic) = ₹1,80,000.
- Old regime: ₹15,00,000 − ₹1,80,000 − ₹50,000 − ₹2,500 − ₹2,25,000 = ₹10,42,500 taxable. Tax ₹1,25,250 + cess = ₹1,30,260.
- New regime: ₹15,00,000 − ₹75,000 = ₹14,25,000 taxable. Tax ₹93,750 + cess = ₹97,500.
Even with HRA and full 80C, the new regime saves ₹32,760. Arjun would need about ₹1,36,250 more in deductions, for example home-loan interest, before the old regime matched it.
Who should still consider the old regime
The old regime can win when deductions are large compared with income. Typical cases:
- High rent in a metro city with a large HRA, plus a home loan on another property, or full home-loan interest on the home you live in (but not both HRA and interest on the same home).
- Full use of 80C, NPS and 80D, including insurance for senior-citizen parents.
- Senior citizens with high medical insurance costs, who can claim up to ₹50,000 under 80D for themselves and ₹50,000 for senior parents, on top of other deductions.
At higher incomes, check carefully: the new regime’s wider slabs often beat a big deduction total. The calculator shows the break-even amount for your figures.
Switching between regimes
If you have no business or professional income, you can choose a regime every year when you file your return. Tell your employer your choice at the start of the year so the TDS on your salary matches; otherwise you may face a bill or wait for a refund. People with business or professional income have stricter rules: they must opt out of the new regime by the return due date, and can withdraw that option only once.
FAQ
Is income up to ₹12 lakh tax-free in 2026-27?
Under the new regime, yes, if your taxable income is ₹12 lakh or less. Salaried people also get the ₹75,000 standard deduction, so a salary of up to ₹12.75 lakh is tax-free. The rebate does not cover special-rate income such as capital gains on shares.
Did Budget 2026 change the income tax slabs?
No. The slab rates, rebate and standard deductions for tax year 2026-27 are the same as for 2025-26. The main change is the move to the Income-tax Act, 2025.
Can I claim HRA and 80C in the new regime?
No. HRA, 80C, 80D, your own NPS contribution and home-loan interest on a self-occupied house are only available in the old regime. The new regime allows the ₹75,000 standard deduction and employer NPS contributions.
Which regime is better for a ₹10 lakh salary?
With no deductions, the new regime: taxable income is ₹9,25,000 and the rebate wipes out the tax, while the old regime charges ₹1,06,600 including cess. With large HRA and 80C, check both, but the new regime usually still wins at this level.
Compare both regimes for your own salary with the India income tax calculator. If you are planning a home loan, the EMI calculator shows the monthly payment.