Old vs new tax regime: which one saves you more in FY2026-27?
The new tax regime is now the default in India — but it's not automatically better for everyone. Here's the exact break-even analysis to find out which regime saves you more.
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Disclaimer: This article is for educational purposes only and does not constitute financial advice. The author is not a SEBI-registered advisor or certified financial planner. Please consult a qualified professional before making any investment or tax decisions.
Since the Union Budget 2023-24, the new tax regime has been the default for salaried employees in India. If you don't submit a declaration to your employer, your TDS is computed under the new regime automatically. But "default" does not mean "better for everyone" — and for many taxpayers with home loans, HRA, and active tax-saving investments, the old regime still produces a lower tax outgo.
The question is specific to your numbers: your salary, your deductions, your investments. This guide walks through the slab structure for both regimes, the key deductions you give up under the new regime, and the break-even analysis that tells you which one to choose for FY2026-27.
The slab rates side by side
New tax regime (FY2026-27)
As revised in Budget 2025-26 (Union Budget presented February 2025), the new regime slabs are:
| Income slab | 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% |
Under the new regime, income up to ₹12 lakh is effectively tax-free for most salaried taxpayers due to the rebate under Section 87A (rebate of up to ₹60,000 for income up to ₹12 lakh). The standard deduction of ₹75,000 is also available, making income up to ₹12.75 lakh effectively nil-tax for salaried individuals.
Old tax regime (FY2026-27)
| Income slab | 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% |
Under the old regime, the Section 87A rebate applies up to ₹5 lakh taxable income (after deductions), making the effective tax nil for many mid-income earners who claim full deductions. Standard deduction is ₹50,000.
The old regime's slabs look worse on paper, but the regime allows a wide set of deductions that reduce taxable income significantly before the slabs even apply.
What you give up in the new regime
The new regime's lower rates come at a cost: most of the deductions and exemptions that reduce taxable income in the old regime are unavailable. Key items you cannot claim:
| Deduction / Exemption | Old regime | New regime |
|---|---|---|
| Standard deduction (salaried) | ₹50,000 | ₹75,000 ✅ |
| Section 80C (PPF, ELSS, LIC, home loan principal) | Up to ₹1,50,000 | ❌ Not available |
| Section 80D (health insurance premium) | Up to ₹25,000–₹50,000 | ❌ Not available |
| HRA exemption | Based on actual rent paid | ❌ Not available |
| Home loan interest (Section 24b) | Up to ₹2,00,000 | ❌ Not available |
| LTA (Leave Travel Allowance) | Exemption for actual travel | ❌ Not available |
| Section 80CCD(1B) — NPS additional contribution | Up to ₹50,000 | ❌ Not available |
| Professional tax deduction | Actual amount paid | ❌ Not available |
The new regime does allow a few deductions: employer NPS contribution under Section 80CCD(2), standard deduction of ₹75,000, and some allowances. But the big-ticket items — 80C, HRA, home loan interest — are off the table.
The break-even: when is the old regime better?
The old regime is better when your deductions are large enough to offset the disadvantage of its higher marginal rates. There's a rough break-even deduction level for each income bracket:
| Annual income | Approx. deductions needed to make old regime better |
|---|---|
| ₹8 lakh | ₹2.5 lakh or more |
| ₹10 lakh | ₹3.0 lakh or more |
| ₹12 lakh | ₹3.5 lakh or more |
| ₹15 lakh | ₹3.75 lakh or more |
| ₹20 lakh | ₹4.0 lakh or more |
These are approximate thresholds. The exact break-even depends on the specific composition of your deductions (a home loan interest deduction reduces 30%-bracket income; an 80C deduction reduces a mix depending on your slab).
To find your exact number, use the Stax Income Tax Calculator — enter your gross salary and deduction details under both regimes to see the actual tax difference.
Real examples at common salary levels
Example 1: ₹10 lakh gross salary, moderate deductions
| Scenario | Old regime | New regime |
|---|---|---|
| Gross salary | ₹10,00,000 | ₹10,00,000 |
| Standard deduction | ₹50,000 | ₹75,000 |
| 80C (full) | ₹1,50,000 | — |
| 80D (health insurance) | ₹25,000 | — |
| Taxable income | ₹7,75,000 | ₹9,25,000 |
| Tax (approx.) | ₹77,500 | ₹52,500 |
| Verdict | New regime saves ~₹25,000 |
At ₹10 lakh with only standard deductions + 80C + 80D, the new regime wins.
Example 2: ₹12 lakh gross salary, home loan + HRA + investments
| Scenario | Old regime | New regime |
|---|---|---|
| Gross salary | ₹12,00,000 | ₹12,00,000 |
| Standard deduction | ₹50,000 | ₹75,000 |
| HRA exemption | ₹96,000 (₹8,000/month) | — |
| Home loan interest (Sec 24b) | ₹1,50,000 | — |
| 80C (full) | ₹1,50,000 | — |
| 80D | ₹25,000 | — |
| Total deductions | ₹4,71,000 | ₹75,000 |
| Taxable income | ₹7,29,000 | ₹11,25,000 |
| Tax (approx.) | ₹55,800 | ₹75,000 |
| Verdict | Old regime saves ~₹19,200 |
With a home loan and HRA, the old regime pulls ahead at ₹12 lakh.
Example 3: ₹20 lakh gross salary, maximum deductions
| Scenario | Old regime | New regime |
|---|---|---|
| Gross salary | ₹20,00,000 | ₹20,00,000 |
| Standard deduction | ₹50,000 | ₹75,000 |
| Home loan interest | ₹2,00,000 | — |
| 80C | ₹1,50,000 | — |
| 80CCD(1B) NPS | ₹50,000 | — |
| 80D | ₹50,000 | — |
| HRA | ₹1,20,000 | — |
| Total deductions | ₹6,20,000 | ₹75,000 |
| Taxable income | ₹13,80,000 | ₹19,25,000 |
| Tax (approx.) | ₹1,62,000 | ₹2,43,750 |
| Verdict | Old regime saves ~₹81,750 |
At ₹20 lakh with maximum deductions, the old regime is significantly better. The home loan interest deduction of ₹2 lakh alone shifts the equation substantially.
Who should almost certainly pick the new regime
- Income below ₹12.75 lakh with few deductions — the 87A rebate and standard deduction make this effectively tax-free under the new regime. No deduction planning can beat zero tax.
- Freelancers and self-employed with irregular income — the new regime's simpler structure reduces compliance burden. Freelancers without HRA or home loans lose little by switching.
- Young earners just starting out — if you haven't taken a home loan yet and don't have dependents requiring health insurance deductions, your old-regime deductions are likely only ₹1.5 lakh (80C). At most income levels below ₹15 lakh, the new regime wins with just 80C as the only major deduction.
- Those who prefer simplicity — the old regime requires active investment in 80C instruments, annual declarations, HRA receipts, and rent agreements. If you're not maximising these anyway, the paperwork cost of the old regime isn't justified.
Who should calculate carefully before switching
- Home loan borrowers — Section 24(b) deduction of up to ₹2 lakh on home loan interest is one of the largest available deductions. At 30% marginal rate, ₹2 lakh in deductions saves ₹60,000 in tax. The new regime cannot match this for high earners with significant home loan interest.
- HRA claimants paying significant rent — salaried employees renting in metros with rent above ₹25,000 per month can claim large HRA exemptions. This is unavailable under the new regime.
- Employees with employer NPS contributions — Section 80CCD(2) (employer NPS) IS available under the new regime, but only up to 14% of basic salary for central government employees or 10% for others. If your employer offers this, it's one of the few deductions that works in the new regime.
- Those with dependents requiring high health insurance cover — Section 80D for self, spouse, children plus parents can reach ₹75,000 in total deduction. This is substantial and lost under the new regime.
How to switch regimes
Salaried employees submit a declaration to their employer at the start of the financial year. Once submitted, the employer deducts TDS accordingly. You can switch regimes each year — you are not locked into one regime permanently.
If you miss the employer declaration window, you can still choose your regime when filing your ITR (Income Tax Return) — typically by July 31 for salaried individuals.
Self-employed individuals (business income) can switch from new to old only once — after switching back to the old regime, they cannot return to the new regime in a subsequent year. Salaried employees without business income have no such restriction.
The one number to calculate before deciding
Take your total claimable deductions under the old regime (standard deduction + 80C + 80D + HRA + home loan interest + any others) and compare the tax under both regimes using actual numbers. The Stax Income Tax Calculator does this in real time — enter your salary and deduction details, compare both columns.
If the old regime saves more than ₹5,000 over the new regime, submit the old regime declaration to your employer. If the new regime is better or roughly equivalent, stay with the default and avoid the paperwork.
My Take
In my view, the new tax regime is the right default for the majority of salaried employees earning under ₹15 lakh — and I say this having run the numbers for dozens of different salary configurations. The ₹75,000 standard deduction plus the Section 87A rebate is hard to beat below ₹12.75 lakh; practically nothing in the old regime can bring your tax to zero the way the new regime does. The one category I tell readers to calculate carefully: metro renters paying more than ₹25,000 per month who also carry a home loan. At that level of combined HRA exemption plus Section 24(b) interest deduction, I've seen the old regime save ₹40,000–₹80,000 annually at ₹15–20 lakh incomes. If that describes you, open the Income Tax Calculator, enter both scenarios with real numbers, and don't assume the default is the right answer for your situation.
Grishma covers Indian markets and personal finance for Stax Tools. She tracks RBI policy, household budgets, and investment math for working Indian families.
Sources & methodology
- Union Budget 2025-26 — Ministry of Finance. New tax regime revised slabs effective FY2026-27, Section 87A rebate of ₹60,000, standard deduction of ₹75,000 for salaried
- Income Tax Act, 1961 — Sections 80C, 80D, 24(b), 80CCD — Income Tax India. Deduction limits and conditions for old regime
- SEBI investor education on tax regimes — general context on tax-efficient investing
- Tax calculations in examples are approximations using standard slab arithmetic without surcharge or cess for clarity; actual liability includes 4% Health and Education Cess. Use the calculator for precise figures.
Last reviewed: 2026-05-14. Tax slabs and deduction limits as per Finance Act applicable to FY2026-27; verify with a chartered accountant for your specific situation.
Grishma
Finance Content Writer
Grishma writes about personal finance, investing, and tax planning for Indian readers — translating complex regulatory changes into clear, actionable guidance.
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