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Old Regime vs New Regime for AY 2026-27: Which Saves You More Tax?
Every year, millions of Indians file their income tax returns without ever checking which regime actually saves them more money. They either stick with whatever they used last year out of habit, or they go with the new regime because it is the default and nobody told them to change it.
This year, that decision carries more weight than it has in a while.
Budget 2025 made one change that quietly shifted the maths for a huge chunk of salaried taxpayers. The Section 87A rebate under the new regime was raised so that income up to Rs. 12 lakh is completely tax-free. Stack the Rs. 75,000 standard deduction on top, and a salaried person earning up to Rs. 12.75 lakh pays zero tax under the new regime. No 80C investments required. No HRA calculations. Zero.
That single change made the new regime the obvious choice for most people in that income bracket. But above Rs. 15 lakh, the answer stops being obvious. It depends entirely on how much you claim in deductions, and whether those deductions outweigh the new regime’s lower slab rates.
This blog walks through the actual numbers so you can figure out which side you fall on before filing.
The Two Regimes at a Glance
Before comparing them, here is what each one actually offers for AY 2026-27.
New Regime Slabs (FY 2025-26, AY 2026-27)
Income | Tax Rate |
Up to Rs. 4 lakh | Nil |
Rs. 4 lakh to Rs. 8 lakh | 5% |
Rs. 8 lakh to Rs. 12 lakh | 10% |
Rs. 12 lakh to Rs. 16 lakh | 15% |
Rs. 16 lakh to Rs. 20 lakh | 20% |
Rs. 20 lakh to Rs. 24 lakh | 25% |
Above Rs. 24 lakh | 30% |
A standard deduction of Rs. 75,000 applies to salaried individuals. Section 87A rebate of up to Rs. 60,000 makes income up to Rs. 12 lakh completely tax-free. Almost no other deductions or exemptions are available.
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Old Regime Slabs (FY 2025-26, AY 2026-27)
Income | Tax Rate |
Up to Rs. 2.5 lakh | Nil |
Rs. 2.5 lakh to Rs. 5 lakh | 5% |
Rs. 5 lakh to Rs. 10 lakh | 20% |
Above Rs. 10 lakh | 30% |
Standard deduction of Rs. 50,000 applies. Section 87A rebate covers income up to Rs. 5 lakh. Full range of deductions available, including 80C up to Rs. 1.5 lakh, 80D for health insurance, HRA exemption, home loan interest under Section 24(b) up to Rs. 2 lakh, NPS contribution under 80CCD(1B) up to Rs. 50,000, and all other Chapter VI-A deductions.
The new regime has lower rates but takes away almost every deduction. The old regime has higher rates, but lets you reduce taxable income significantly if you have the right profile. The question is always the same: do your deductions save you more than the new regime’s lower rates do?
Real Numbers at Different Income Levels
Income: Rs. 10 lakh
Under the new regime, after the Rs. 75,000 standard deduction, taxable income is Rs. 9.25 lakh. Tax comes to around Rs. 42,500. But with the Section 87A rebate applying fully to income below Rs. 12 lakh, tax is effectively zero.
Under the old regime, after the Rs. 50,000 standard deduction and Rs. 1.5 lakh under 80C, taxable income is Rs. 8 lakh. Tax comes to Rs. 75,000 before cess.
New regime wins clearly at Rs. 10 lakh. The 87A rebate gives you zero tax without needing a single deduction.
Income: Rs. 15 lakh
Under the new regime, after Rs. 75,000 standard deduction, taxable income is Rs. 14.25 lakh. Tax works out to approximately Rs. 1,48,750 plus 4% cess, totalling around Rs. 1,54,700.
Under the old regime, with a standard deduction of Rs. 50,000 plus Rs. 1.5 lakh under 80C, taxable income is Rs. 13 lakh. Tax comes to approximately Rs. 1,72,500 plus cess, totalling around Rs. 1,79,400.
At Rs. 15 lakh with basic deductions only, the new regime saves around Rs. 24,700.
But add a home loan with Rs. 2 lakh interest under Section 24(b) and 80D health insurance of Rs. 25,000. Total deductions now cross Rs. 4.25 lakh. Taxable income drops to Rs. 10.75 lakh. Tax in the old regime drops to around Rs. 1,22,200, including cess.
At Rs. 15 lakh with a home loan and health insurance, the old regime wins by around Rs. 32,500.
Income: Rs. 25 lakh
Under the new regime, after Rs. 75,000 standard deduction, taxable income is Rs. 24.25 lakh. Tax comes to approximately Rs. 3,93,750 plus cess.
Under the old regime, with standard deduction, Rs. 1.5 lakh under 80C, Rs. 2 lakh home loan interest, Rs. 50,000 NPS, and Rs. 25,000 health insurance, total deductions reach Rs. 4.75 lakh. Taxable income is Rs. 20.25 lakh. Tax comes to approximately Rs. 3,67,500 plus cess.
At Rs. 25 lakh with a full deduction stack, the old regime saves around Rs. 26,000.
The Break-Even Point: When Does the Old Regime Start Winning?
This is the most useful number to know before you decide.
Research across multiple tax platforms and chartered accountant analyses consistently identifies a break-even range of Rs. 3.75 lakh to Rs. 4.25 lakh in total deductions, depending on income level. Below that break-even, the new regime saves more. Above it, the old regime wins.
Gross Income | Break-Even Deduction Amount |
Rs. 10 lakh | Not relevant, the new regime gives zero tax |
Rs. 12.75 lakh | Not relevant, the new regime gives zero tax |
Rs. 15 lakh | Around Rs. 3.75 lakh |
Rs. 20 lakh | Around Rs. 4 lakh |
Rs. 25 lakh | Around Rs. 4.25 lakh |
If your total claimed deductions across 80C, HRA, home loan interest, 80D, and NPS cross these amounts, run the old regime numbers. You might be surprised.
Who Should Pick the New Regime
The new regime is almost certainly the right choice if you earn up to Rs. 12.75 lakh in gross salary. Zero tax, no investment commitments, no paperwork. That is a genuinely good deal, and the old regime cannot match it at this income level regardless of deductions.
The new regime also makes strong sense if you earn above Rs. 12.75 lakh but have minimal deductions. No home loan, no HRA claim, no active 80C investments beyond what your employer makes mandatory, and basic health insurance. In this case the lower slab rates under the new regime typically beat whatever small deductions the old regime would allow.
One more scenario where the new regime wins that most people miss: income above Rs. 5 crore. The surcharge under the new regime is capped at 25%. Under the old regime, surcharge climbs to 37% at this income level. For very high earners, that surcharge difference alone makes the new regime significantly more tax efficient regardless of deductions.
Who Should Pick the Old Regime
The old regime still wins for a specific profile. Someone who pays significant rent in a metro city and claims a substantial HRA exemption. Someone actively servicing a large home loan with interest payments above Rs. 1.5 lakh annually. Someone who genuinely maxes out 80C at Rs. 1.5 lakh contributes to NPS for the additional Rs. 50,000 under 80CCD(1B), and pays meaningful health insurance premiums for family.
For this person, the combined deductions can reach Rs. 4.5 lakh to Rs. 6 lakh or more, and at that level, the old regime consistently produces a lower tax number despite its higher base rates.
Senior citizens aged 60 to 80 also get a higher basic exemption of Rs. 3 lakh under the old regime instead of the standard Rs. 2.5 lakh. Super senior citizens above 80 get Rs. 5 lakh. For retired individuals with structured income and existing deduction habits, the old regime is often still worth calculating carefully.
A Simple Decision Checklist
Before filing, go through this quickly.
Gross income below Rs. 12.75 lakh? New regime. No calculation needed.
Gross income above Rs. 12.75 lakh with no home loan, no significant HRA, and minimal 80C? The new regime is likely better.
Gross income above Rs. 15 lakh with a home loan, rented metro accommodation, maxed 80C, NPS contribution, and health insurance? Calculate both. If total deductions cross Rs. 3.75 lakh, run the old regime numbers before deciding.
Business income with ITR-3 or ITR-4? Note that switching from new to old regime requires filing Form 10-IEA before the due date, and you can only switch back from old to new once. This is not a decision to make casually if you have business income.
FAQs
- Is the new regime automatically applied when filing income tax returns for AY 2026-27?
Yes. The new tax regime is the default for AY 2026-27 under Section 115BAC. If no explicit choice is made while filing income tax returns, the new regime applies automatically. To opt for the old regime, salaried individuals without business income must select it while filing their ITR. Those with business income must file Form 10-IEA before the return due date to opt for the old regime.
- What is the maximum income that is completely tax-free under the new regime for AY 2026-27?
For salaried individuals, income up to Rs. 12.75 lakh is effectively tax-free under the new regime for AY 2026-27. This works through the Rs. 75,000 standard deduction reducing gross salary to Rs. 12 lakh, and the enhanced Section 87A rebate of up to Rs. 60,000, eliminating tax liability on taxable income up to Rs. 12 lakh. No deductions or investments are required to reach zero tax at this income level.
- At what level of total deductions does the old regime become better than the new regime?
The break-even point varies by income level but generally falls between Rs. 3.75 lakh and Rs. 4.25 lakh in total deductions for income between Rs. 15 lakh and Rs. 25 lakh. If combined deductions from 80C, HRA, home loan interest under Section 24(b), 80D, and NPS under 80CCD(1B) exceed this threshold, the old regime typically produces a lower tax liability than the new regime despite its higher base rates.
- Can I switch between the old and new regimes every year?
Salaried individuals and those with pension or rental income only, filing ITR-1 or ITR-2, can switch between old and new regimes every year when filing income tax returns. Those with business or professional income, filing ITR-3 or ITR-4, can only switch from the new to the old regime once. After switching back from the old to the new, returning to the old regime again is not permitted. This restriction makes the regime decision significantly more consequential for those with business income than for salaried taxpayers.