New vs Old Tax Regime: Which Should You Choose in FY 2026-27?

Overview of the Two Regimes

India has two parallel income tax regimes — the old regime and the new regime introduced in FY 2020-21. The new regime was revamped in FY 2023-24 and made the default option. In Budget 2025, the government raised the basic exemption limit under the new regime to ₹4 lakh and restructured the slabs, making it more attractive for middle-income earners.

The fundamental difference: the old regime allows a host of deductions (80C, 80D, HRA, LTA, home loan interest etc.) while the new regime offers lower base rates but almost no deductions. The best choice depends entirely on how much you can claim in deductions.

New Tax Regime Slabs for FY 2026-27

The revised new regime slabs are as follows. Income up to ₹4 lakh is nil. From ₹4 lakh to ₹8 lakh it is 5%. From ₹8 lakh to ₹12 lakh it is 10%. From ₹12 lakh to ₹16 lakh it is 15%. From ₹16 lakh to ₹20 lakh it is 20%. From ₹20 lakh to ₹24 lakh it is 25%. Above ₹24 lakh it is 30%.

Additionally, a rebate under Section 87A means that taxpayers with income up to ₹12 lakh have zero tax liability under the new regime (before surcharge and cess).

• Standard deduction of ₹75,000 is available under the new regime
• Employer NPS contribution (Section 80CCD(2)) is still deductible
• No HRA, 80C, 80D, or home loan deductions allowed

Old Regime: Still Worth It for High Deduction Claimants

The old regime has a basic exemption limit of ₹2.5 lakh for individuals below 60. Slabs go from 5% (up to ₹5 lakh), 20% (₹5–10 lakh), and 30% above ₹10 lakh. The rebate under 87A applies up to ₹5 lakh, giving zero tax for that income band.

If you pay substantial home loan EMIs, have significant 80C investments (PPF, ELSS, LIC), and your employer pays HRA, the old regime can still result in lower tax. A salaried employee in a metro city with a home loan and maximum 80C deductions may find the old regime saves ₹20,000–₹50,000 in annual tax.

• Home loan interest deduction up to ₹2 lakh (Section 24b)
• Section 80C deductions up to ₹1.5 lakh
• Health insurance premium under 80D up to ₹25,000 (₹50,000 for senior parents)
• HRA exemption based on actual rent paid
• LTA exemption for travel expenses

Quick Decision Framework

Start by calculating your total eligible deductions under the old regime. If your total deductions (80C + HRA + home loan interest + 80D etc.) exceed approximately ₹3.75 lakh, the old regime is likely better. Below that threshold, the new regime will usually save more tax.

Use our Income Tax Calculator to compare both regimes side-by-side in under a minute. Enter your income and deductions, and the tool shows tax payable under both regimes so you can make an informed choice.