For most salaried residents in tax year 2026-27, the new regime is cheaper. On a ₹20 lakh salary the old regime wins only once total deductions pass about ₹7.58 lakh, and even ₹7.15 lakh of common deductions leaves the new regime ₹13,520 cheaper. Up to ₹12.75 lakh of salary, new-regime tax is zero. Every Indian taxpayer has to pick between two ways of calculating income tax. The new regime has lower rates and almost no deductions. The old regime has higher rates but lets you claim deductions such as PPF, ELSS, health insurance, HRA and home-loan interest. This guide covers tax year 2026-27 (1 April 2026 to 31 March 2027), the first year under the Income-tax Act, 2025.
The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. It uses "tax year" instead of "financial year" and "assessment year", and the sections are renumbered. The slab rates, rebate and standard deduction are the same as in FY 2025-26. Only the labels changed.
Which Year Does This Apply To?
- Tax year 2026-27 (income earned April 2026 to March 2027, returns filed in 2027): Income-tax Act, 2025. The new regime is section 202 and the rebate is section 156.
- FY 2025-26 (income earned April 2025 to March 2026, returns filed in 2026): still the Income-tax Act, 1961. The same slabs and the same ₹12 lakh rebate apply, under the old section numbers 115BAC and 87A.
So the numbers below hold for both years. Only the section references differ.
Break-Even: How Much Must You Deduct for the Old Regime to Win?
This is the number that matters. The table shows the total old-regime deductions you need before the old regime becomes cheaper in tax year 2026-27. "Total" includes the ₹50,000 standard deduction and your HRA exemption. It assumes a resident, salaried person under 60 with no special-rate income.
| Gross salary | New-regime tax (incl. cess) | Old regime wins only if total deductions exceed |
|---|---|---|
| ₹10 lakh | ₹0 | Never (best case is a tie at ₹5 lakh of deductions) |
| ₹12.75 lakh | ₹0 | Never |
| ₹15 lakh | ₹97,500 | About ₹5.94 lakh |
| ₹20 lakh | ₹1,92,400 | About ₹7.58 lakh |
| ₹25 lakh | ₹3,19,800 | About ₹8.50 lakh |
| ₹30 lakh | ₹4,75,800 | About ₹8.50 lakh |
| ₹50 lakh | ₹10,99,800 | About ₹8.50 lakh |
From about ₹25 lakh up to ₹50 lakh the break-even stays near ₹8.50 lakh, because every extra rupee is taxed at 30% in both regimes. A common rule of thumb says "₹4 lakh of deductions and the old regime wins". That is wrong at every income level in this table. Most salaried people who don't pay rent in a big city or service a home loan will not reach these numbers. The slabs behind these figures, and the workings for the ₹20 lakh row, are further down.
New Tax Regime Slabs for Tax Year 2026-27
The new regime is the default. If you do nothing, your tax is calculated this way (section 202(1)).
| Total income | Rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4 lakh to ₹8 lakh | 5% |
| ₹8 lakh to ₹12 lakh | 10% |
| ₹12 lakh to ₹16 lakh | 15% |
| ₹16 lakh to ₹20 lakh | 20% |
| ₹20 lakh to ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
The same slabs apply at every age. There is no higher exemption for senior citizens in the new regime.
The ₹12 lakh rebate and the ₹12.75 lakh salary figure
Under section 156(2) (formerly 87A), a resident individual in the new regime pays no tax if total income is ₹12 lakh or less. The rebate is capped at ₹60,000, which is exactly the slab tax on ₹12 lakh.
Salaried people and pensioners also get a ₹75,000 standard deduction in the new regime. So a salary of ₹12.75 lakh becomes taxable income of ₹12 lakh, and the tax is zero. This works only if:
- you are resident in India (NRIs do not get this rebate), and
- your income has no special-rate items. Capital gains on shares and equity funds, for example, are taxed at their own rates and are not covered by the rebate.
Marginal relief. Just above ₹12 lakh, your tax cannot be more than the income above ₹12 lakh. Example: a salary of ₹13 lakh gives taxable income of ₹12.25 lakh. Slab tax would be ₹63,750, but it is capped at ₹25,000, plus 4% cess = ₹26,000. The relief fades out at roughly ₹12.7 lakh of taxable income.
Old Tax Regime Slabs for Tax Year 2026-27
The old regime rates for tax year 2026-27 are set by the Finance Act, 2026.
| Total income | Below 60 | 60 to 79 | 80 and above |
|---|---|---|---|
| Up to ₹2.5 lakh | Nil | Nil | Nil |
| ₹2.5 lakh to ₹3 lakh | 5% | Nil | Nil |
| ₹3 lakh to ₹5 lakh | 5% | 5% | Nil |
| ₹5 lakh to ₹10 lakh | 20% | 20% | 20% |
| Above ₹10 lakh | 30% | 30% | 30% |
The higher senior-citizen exemptions apply to residents only. Old-regime residents also get a rebate of up to ₹12,500 under section 156(1), so tax is nil if total income is ₹5 lakh or less. The standard deduction for salary is ₹50,000.
Cess and surcharge (both regimes)
- Health and education cess: 4% on top of tax. Every figure in the examples below includes it.
- Surcharge: 10% above ₹50 lakh, 15% above ₹1 crore and 25% above ₹2 crore. The new regime stops at 25%. The old regime goes to 37% above ₹5 crore.
Which Deductions Survive in Each Regime
| Deduction (new section, old section in brackets) | Old regime | New regime |
|---|---|---|
| Standard deduction on salary or pension | ₹50,000 | ₹75,000 |
| Family pension deduction (section 93; old 57(iia)) | One-third, up to ₹15,000 | One-third, up to ₹25,000 |
| Section 123 (80C): EPF, PPF, ELSS, life insurance, home-loan principal, tuition fees | Up to ₹1.5 lakh | No |
| Section 126 (80D): health insurance (see how much health cover your family needs) | ₹25,000 for self and family (₹50,000 if senior) plus ₹25,000 for parents (₹50,000 if senior); up to ₹1 lakh | No |
| Section 124(3) (80CCD(1B)): your own extra NPS contribution | Up to ₹50,000 | No |
| Section 124(1) (80CCD(2)): employer's NPS contribution | Up to 10% of salary (14% for government employers) | Up to 14% of salary |
| Home-loan interest on a self-occupied house (section 22; old 24(b)) | Up to ₹2 lakh | No |
| HRA exemption (Schedule III; old 10(13A)) | Yes | No |
| Agniveer Corpus Fund (section 125(2); old 80CCH) | Yes | Yes |
HRA can be a large number. From tax year 2026-27 the 50%-of-salary limit covers eight cities: Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad. Elsewhere it is 40%. Work out your own figure with the HRA calculator, and see whether rent paid to parents qualifies.
Why the Break-Even Is So High
Take the ₹20 lakh row. In the new regime, taxable income is ₹20 lakh − ₹75,000 = ₹19.25 lakh:
- ₹4–8 lakh at 5% = ₹20,000
- ₹8–12 lakh at 10% = ₹40,000
- ₹12–16 lakh at 15% = ₹60,000
- ₹16–19.25 lakh at 20% = ₹65,000
- Total ₹1,85,000, plus 4% cess = ₹1,92,400
To match that in the old regime, your taxable income must fall to ₹12,41,667 (about ₹12.42 lakh). Old-regime tax there is ₹12,500 + ₹1,00,000 + (₹2,41,667 × 30% = ₹72,500) = ₹1,85,000, plus cess = ₹1,92,400. Getting from ₹20 lakh down to ₹12.42 lakh takes about ₹7.58 lakh of deductions.
Worked Examples
Illustrative examples for a resident salaried person under 60, tax year 2026-27. They are not data about real taxpayers.
Example 1: ₹20 lakh salary with a typical full set of deductions
Deductions: standard deduction ₹50,000 + section 123 ₹1.5 lakh + health insurance ₹25,000 + NPS ₹50,000 + home-loan interest ₹2 lakh + HRA exemption ₹2.4 lakh = ₹7.15 lakh.
- Old regime: taxable income ₹12.85 lakh. Tax = ₹12,500 + ₹1,00,000 + (₹2.85 lakh × 30% = ₹85,500) = ₹1,98,000. Plus cess = ₹2,05,920.
- New regime: ₹1,92,400 (worked out above).
- Result: the new regime is cheaper by ₹13,520, even with a home loan, HRA and every common deduction.
Example 2: ₹20 lakh salary with ₹10 lakh of deductions
Old regime: taxable income ₹10 lakh. Tax = ₹12,500 + ₹1,00,000 = ₹1,12,500, plus cess = ₹1,17,000. The old regime saves ₹75,400. This needs something like a large metro HRA plus the full home-loan interest and every other deduction.
Example 3: ₹25 lakh salary with ₹11 lakh of deductions
Old regime: taxable income ₹14 lakh. Tax = ₹1,12,500 + (₹4 lakh × 30% = ₹1,20,000) = ₹2,32,500, plus cess = ₹2,41,800. New regime: ₹3,19,800. The old regime saves ₹78,000.
To run your own numbers, use the Income Tax Calculator: Old vs New Regime. It applies the slabs, rebate, surcharge and cess for you.
Who Tends to Come Out Ahead in Each Regime
The new regime usually wins if
- you are a resident with salary up to ₹12.75 lakh. Your tax is zero, so deductions cannot help.
- you don't pay rent, or you live in a city where HRA is limited to 40%.
- you have no home loan on a house you live in.
- your deductions are mostly EPF and a health policy.
The old regime can win if
- your total deductions are above the break-even for your salary in the table above.
- you pay high rent in one of the eight 50% cities and pay home-loan interest on a house in another city, so you claim both.
- you already use section 123 fully through EPF and PPF, so those deductions cost you nothing extra.
NRIs
NRIs can claim most old-regime deductions, including section 123 investments, health insurance and home-loan interest. What they do not get is the ₹12 lakh rebate, so their new-regime tax starts at ₹4 lakh of income. For an NRI with Indian rent or interest income, compare both regimes rather than assuming the new one is cheaper. See our NRI ITR filing guide.
How and When You Choose
The rules depend on whether you have business or professional income. They are in section 202(4).
Salaried and others without business income
- You choose every year, when you file your return. No separate form is needed.
- At the start of the year you tell your employer which regime to use for TDS. That only sets monthly TDS. You can pick the other regime when you file, and pay or get back the difference.
- Next year you can choose again.
People with business or professional income (including F&O traders and freelancers)
- You are in the new regime unless you opt out by filing the prescribed form on or before the return due date.
- Once you opt out, the old regime continues for later years too.
- You can withdraw that opt-out (go back to the new regime) only once. After that you can never opt out again, unless you stop having business income.
- An opt-out made under the 1961 Act carries over into the new Act.
So a freelancer has fewer chances to switch than a salaried employee. For traders, see how F&O and intraday income are taxed.
A Simple Way to Decide
- Add up every old-regime deduction you will actually have this year: ₹50,000 standard deduction, HRA exemption, section 123, health insurance, NPS and home-loan interest.
- Compare the total with the break-even for your salary in the table above.
- If you are well below it, the new regime is cheaper, and buying products just to claim deductions will not change that.
- If you are close to it or above it, run both regimes in the old vs new regime calculator using your real numbers.
- Recheck in February, before the last tax-saving investments. Our year-end tax planning checklist covers what to do before 31 March 2027.
If you stay in the old regime, it is worth choosing well between section 123 options. The ELSS vs PPF vs NPS calculator compares the main options.
This article explains the rules for tax year 2026-27. It is general information, not personal tax advice. Your result depends on your full income, residency and deductions; check with a tax professional for complex cases.