New vs Old Tax Regime in FY 2026-27: Which One Saves You More?

Every individual taxpayer in India has a choice between two sets of tax rules. The new regime has lower slab rates but almost no deductions. The old regime has higher rates but lets you claim HRA, 80C, home loan interest and more. Budget 2026 did not change the slabs, so the rules below apply for tax year 2026-27 (1 April 2026 to 31 March 2027), the first year under the Income-tax Act, 2025.

The slabs side by side

New regime (the default)

Old regime (individuals below 60)

Under the old regime, the nil slab is ₹3 lakh for senior citizens (60–79) and ₹5 lakh for super senior citizens (80+). Health and education cess of 4% applies on top of the tax under both regimes, and surcharge applies on higher incomes.

The “₹12 lakh tax-free” rule

Under the new regime, a resident individual with taxable income up to ₹12 lakh gets a rebate of up to ₹60,000, so the tax payable is nil. The rebate was in section 87A and is now in section 156 of the 2025 Act. Add the ₹75,000 standard deduction and a salaried person earning up to ₹12.75 lakh pays no tax. Just above ₹12 lakh, marginal relief makes sure the tax is never more than the income above ₹12 lakh.

Important limits of the rebate:

• NRIs cannot claim it.
• It does not cover tax on special-rate income such as STCG on shares (20%) or LTCG above ₹1.25 lakh (12.5%). You can have taxable income below ₹12 lakh and still pay tax on capital gains.

The old regime’s rebate is much smaller: up to ₹12,500 if taxable income is ₹5 lakh or less.

What you give up under the new regime

Worked examples (salaried, below 60, FY 2026-27)

Example 1: Salary ₹15 lakh, typical deductions

• New regime: ₹15,00,000 − ₹75,000 = ₹14,25,000. Tax = ₹20,000 + ₹40,000 + ₹33,750 = ₹93,750, plus cess = ₹97,500.
• Old regime: deductions of standard deduction ₹50,000 + 80C ₹1.5 lakh + 80D ₹25,000 + HRA ₹2 lakh + NPS ₹50,000 = ₹4.75 lakh. Taxable = ₹10,25,000. Tax = ₹1,20,000, plus cess = ₹1,24,800.
• Result: the new regime saves about ₹27,300.

Example 2: Same salary, plus a home loan on a self-occupied flat (₹2 lakh interest)

• New regime: unchanged at ₹97,500. Self-occupied home loan interest is not allowed.
• Old regime: taxable falls to ₹8,25,000. Tax = ₹77,500, plus cess = ₹80,600.
• Result: the old regime saves about ₹16,900.

Rule of thumb: the old regime usually wins only if your total deductions and exemptions are large, typically more than ₹4–5 lakh at mid-level salaries, and especially with HRA plus home loan interest. Run both calculations every year.

Can you switch?

• No business or professional income (salary, pension, rent, interest, capital gains): you can choose every year when filing your ITR. To use the old regime, you must file by the due date. A late (belated) return is taxed under the new regime.
• Business or professional income: you must file a form (Form 10-IEA under the 1961 Act) before the due date to opt out of the new regime. You can switch back to the new regime only once.
• Tell your employer at the start of the year which regime you want for TDS. You can still choose differently in your ITR if you have no business income.

Frequently asked questions

Is income up to ₹12 lakh really tax-free?
For resident individuals under the new regime, yes: tax on normal income up to ₹12 lakh is fully covered by the rebate. Special-rate income such as capital gains is not covered.

Which regime is better for a salary of ₹10 lakh?
Usually the new regime. After the ₹75,000 standard deduction, taxable income is ₹9.25 lakh, which is fully covered by the rebate, so the tax is nil.

I am a senior citizen. Which regime should I choose?
Compare both. The old regime gives a higher nil slab (₹3 lakh / ₹5 lakh), 80TTB on interest (₹50,000) and higher 80D limits. The new regime’s lower rates and rebate often still win at moderate incomes.

Did Budget 2026 change the slabs?
No. The slabs and rebate from FY 2025-26 continue for FY 2026-27.

---

Not sure which regime suits you? Garvita Jain & Co. compares both regimes on your actual numbers, plans your declarations to your employer and files your ITR. Contact us here, or at contact@garvitajainandco.com or +91 98678 16597.

This article is general information based on the law as of October 2026 and is not professional advice.

---

Sources

Official

• Income Tax e-filing portal (tax slabs and calculators, under Help and Quick Links)
• Income Tax Department, Form 10-IEA user manual (opting out of the new regime)

Professional / CA publications

• ClearTax, Income tax slabs FY 2025-26 and FY 2026-27
• Canara HSBC Life, Budget 2026: no change to slabs
• TaxGuru, Section 87A / Section 156 rebate: why tax may still be payable below ₹12 lakh
• ClearTax, Income Tax Act 2025 section numbers, old vs new (80C → 123, 87A → 156)