New vs old tax regime: how to choose for FY 2026-27
India runs two income tax systems side by side. One has lower rates and almost no deductions. The other has higher rates and a long list of deductions. You pay whichever you pick, so the choice is arithmetic.
What each regime offers
The new regime is the default. Its slabs start at nil up to ₹4 lakh and climb in 5-point steps to 30% above ₹24 lakh. Salaried people get a ₹75,000 standard deduction, and a rebate removes all tax when taxable income is ₹12 lakh or less. A salary of up to ₹12.75 lakh therefore attracts no tax. Budget 2026 kept this structure unchanged.
The old regime taxes income above ₹2.5 lakh, reaching 30% above ₹10 lakh, with a ₹50,000 standard deduction. In return it allows deductions and exemptions: up to ₹1.5 lakh for investments such as PPF, EPF, ELSS and life insurance, health insurance premiums, home loan interest of up to ₹2 lakh on a self-occupied house, HRA, and others.
The break-even test
The old regime wins only when your deductions are large enough to offset its higher rates. Using our calculator for a salaried person under 60, the old regime becomes cheaper once deductions and exemptions (beyond the standard deduction) exceed roughly:
| Annual salary | Deductions needed for old regime to win |
|---|---|
| ₹10 lakh | Not achievable: new regime tax is nil |
| ₹15 lakh | About ₹5.45 lakh |
| ₹20 lakh | About ₹7.1 lakh |
| ₹30 lakh | About ₹8.05 lakh |
For most salaried people without a large home loan and substantial rent, the new regime is cheaper. At ₹15 lakh with ₹2 lakh of deductions, tax is about ₹97,500 in the new regime and ₹1,95,000 in the old.
Who should still run the old-regime numbers
- People paying high rent in a large city and claiming HRA.
- Home loan borrowers in the early, interest-heavy years.
- Those who already max out the ₹1.5 lakh investment limit and buy health cover for themselves and parents.
Do not let tax choose your investments
Under the new regime there is no tax reason to buy a product. That is a benefit: you can choose PPF, an index fund or term insurance on merit alone. Savings habits should continue even when the deduction disappears.
How to switch
Salaried taxpayers can pick a regime each year. Tell your employer at the start of the year so TDS matches, and make the final choice when filing the return on time. People with business income have more limited switching rights.
Compare both regimes with your numbers
General information for resident individuals under 60. Tax law has many exceptions; consult a qualified tax professional for your case.