Key takeaways
- The new regime has lower slab rates and a bigger standard deduction, but almost no other deductions
- The old regime allows deductions like 80C, HRA, and home loan interest — but has higher slab rates
- The new regime has been the default since FY 2023-24 — you must actively opt for the old regime if you want it
- Under the new regime, taxable income up to ₹12 lakh is effectively tax-free due to the Section 87A rebate — for salaried individuals, this extends to ₹12.75 lakh gross salary after the standard deduction
- Surcharge on high incomes is capped at 25% under the new regime, but can reach up to 37% under the old regime for the highest earners — worth factoring in separately at higher income levels
- As a rough rule of thumb, the old regime only tends to win once your total eligible deductions reach roughly 35–40% of your gross income — a bar that's gotten meaningfully higher since the rebate expansion
- Always run both calculations with your actual numbers — rough rules of thumb can mislead at the margins
Quick answer
For most people, the new regime now wins by default — largely because a Section 87A rebate change means taxable income up to ₹12 lakh (₹12.75 lakh gross salary) is effectively tax-free under it. The old regime only pulls ahead if your total eligible deductions (80C, HRA, home loan interest, 80D, and others) are large relative to your income — typically 35–40%+ of gross income at higher salary levels.
The short version
India currently has two ways to calculate your income tax. You choose one each year (with some restrictions for business income, covered below).
Old regime: Higher slab rates, but you can reduce your taxable income through deductions and exemptions — investments under 80C, rent paid (HRA), home loan interest, health insurance premiums (80D), and more.
New regime: Lower slab rates and a larger standard deduction, but you lose access to almost all of those deductions.
Neither is universally better. It depends entirely on how large your eligible deductions are relative to your income.
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The tax slabs, side by side (FY 2025-26 / FY 2026-27)
| Income slab | Old regime rate | New regime rate |
|---|---|---|
| Up to ₹2.5 lakh | Nil | Nil |
| ₹2.5L – ₹4L | 5% | Nil |
| ₹4L – ₹5L | 5% | 5% |
| ₹5L – ₹8L | 20% | 5% |
| ₹8L – ₹10L | 20% | 10% |
| ₹10L – ₹12L | 30% | 10% |
| ₹12L – ₹16L | 30% | 15% |
| ₹16L – ₹20L | 30% | 20% |
| ₹20L – ₹24L | 30% | 25% |
| Above ₹24L | 30% | 30% |
The new regime's rates look much better across almost every slab. But the real comparison depends on what you can't deduct.
Source and freshness note: these slabs reflect the structure introduced in Union Budget 2025 (effective FY 2025-26) and retained without change in Union Budget 2026 (FY 2026-27) — confirmed directly, since the FM announced no slab changes in the 2026 Budget. Tax slabs are set annually by the Union Budget and can change — verify current figures at incometax.gov.in before filing, rather than relying on any article, including this one, indefinitely.
What you give up in the new regime
In the old regime, your taxable income is reduced by every deduction you claim. The new regime removes most of these.
Under the new regime, you cannot claim:
- Section 80C deductions (PPF, ELSS, insurance premium, home loan principal, etc.) — up to ₹1.5 lakh under the old regime
- HRA exemption (House Rent Allowance)
- Leave Travel Allowance (LTA)
- Section 80D (health insurance premium)
- Home loan interest under Section 24(b) — for a self-occupied property
- Education loan interest (Section 80E)
- Your own contribution to NPS under Section 80CCD(1B)
- Most other Chapter VI-A exemptions and allowances
You can still claim under the new regime:
- Standard deduction of ₹75,000 (salaried individuals and pensioners)
- Employer's contribution to NPS (Section 80CCD(2)) — up to 10% of basic salary, unaffected by regime choice
- Home loan interest on a let-out (rented-out) property, not a self-occupied one
The Section 87A rebate — the single biggest factor right now
This is the provision that has shifted the old-vs-new calculus the most in recent years, so it deserves its own section rather than a passing mention.
Under the new regime, if your total taxable income is up to ₹12 lakh, you get a rebate of up to ₹60,000 under Section 87A — which, in practice, brings your tax liability down to zero at that income level. For salaried individuals and pensioners, adding the ₹75,000 standard deduction means a gross salary of up to ₹12.75 lakh can result in zero tax payable.
Under the old regime, the equivalent rebate is smaller and kicks in at a much lower income: up to ₹12,500, for taxable income up to ₹5 lakh.
| Regime | Rebate ceiling | Effectively tax-free up to |
|---|---|---|
| New regime | ₹60,000 | ₹12 lakh taxable income (₹12.75L gross salary) |
| Old regime | ₹12,500 | ₹5 lakh taxable income |
Important exceptions: the Section 87A rebate does not apply to income taxed at special rates — this includes long-term and short-term capital gains from equity shares or equity mutual funds, and lottery winnings. So someone with salary comfortably inside the ₹12 lakh "zero tax" range can still owe tax if they also have capital gains income, since the rebate doesn't offset that portion.
Marginal relief: if your taxable income is just slightly above ₹12 lakh under the new regime, "marginal relief" caps your tax so it doesn't jump sharply — your tax is limited to the amount by which your income exceeds ₹12 lakh, rather than the full slab-calculated tax. This prevents a small increase in income from causing a disproportionately large tax increase right at the threshold.
Surcharge on high incomes — a real gap between the two regimes
Slab rates and the 87A rebate get most of the attention, but surcharge is a genuinely important, often-overlooked difference between the two regimes once your income climbs past ₹50 lakh — surcharge is an additional charge on your computed tax, not on your income directly, and it scales up in steps as your income rises.
| Income level | Old regime max surcharge | New regime max surcharge |
|---|---|---|
| Above ₹50 lakh | 10% | 10% |
| Above ₹1 crore | 15% | 15% |
| Above ₹2 crore | 25% | 25% (capped here under the new regime) |
| Above ₹5 crore | Up to 37% | Capped at 25% — no further increase |
This is where the new regime pulls further ahead at very high incomes. The old regime's surcharge can climb as high as 37% on the computed tax for the very highest earners, while the new regime caps surcharge at 25% regardless of how high income goes beyond ₹2 crore. For high-net-worth taxpayers weighing the two regimes, this surcharge cap is a real, additional point in the new regime's favour that's easy to miss if you're only comparing slab rates and deductions.
Worked examples with current figures
These examples include the 4% health and education cess, which applies to tax payable under either regime, and use the FY 2025-26 / FY 2026-27 slabs and rebate limits above.
Old regime: Standard deduction ₹50,000, 80C ₹1,50,000, HRA exemption ₹1,20,000, 80D ₹25,000 → taxable income ₹8,55,000 → tax ≈ ₹86,840 (including cess)
New regime: Standard deduction ₹75,000 → taxable income ₹11,25,000 → tax before rebate ≈ ₹52,500, fully wiped out by the Section 87A rebate (since it's under the ₹60,000 cap and taxable income is under ₹12 lakh) → tax payable: ₹0
New regime saves the full ₹86,840 at this income level with these deductions.
Old regime: Standard deduction ₹50,000, 80C ₹1,50,000, HRA ₹1,50,000, 80D ₹25,000, home loan interest ₹2,00,000 → taxable income ₹12,25,000 → tax ≈ ₹1,87,200 (including cess)
New regime: Standard deduction ₹75,000 → taxable income ₹17,25,000 → tax ≈ ₹1,50,800 (including cess), no rebate applies since taxable income exceeds ₹12 lakh
New regime still wins, saving roughly ₹36,400.
Old regime: Standard deduction ₹50,000, 80C ₹1,50,000, HRA ₹4,00,000, 80D ₹25,000, home loan interest ₹2,00,000, NPS 80CCD(1B) ₹50,000 → total deductions ₹12,75,000 → taxable income ₹15,25,000 → tax ≈ ₹2,80,800 (including cess)
New regime: Standard deduction ₹75,000 → taxable income ₹27,25,000 → tax ≈ ₹4,13,400 (including cess)
Old regime wins here, saving roughly ₹1,32,600 — but notice how large the deductions needed to be (about 45% of gross income) to get there. Neither of these income levels crosses the ₹50 lakh surcharge threshold, so surcharge doesn't factor into this particular comparison.
✅ The pattern across all three examples: the new regime wins by a wide margin unless your total eligible old-regime deductions are genuinely large relative to your income — not just "you have some 80C and HRA," but a substantial combination of HRA, home loan interest, and other deductions together. At incomes above ₹50 lakh, the surcharge gap adds a further, separate reason the new regime tends to win even more decisively.
A rough guide to where the old regime starts to win
These are approximate, illustrative figures based on the calculations above — treat them as a starting intuition, not a precise threshold, since your actual numbers depend on your specific deduction mix and income composition.
| Gross income (approx.) | Deductions typically needed for old regime to break even |
|---|---|
| ₹12 lakh | Old regime essentially never wins — deductions would need to be unrealistically large |
| ₹15 lakh | Roughly ₹6 lakh (about 40% of income) |
| ₹20 lakh | Roughly ₹7.5–8 lakh (about 38–40% of income) |
| ₹25 lakh+ | Roughly ₹8.5 lakh or more (about 34%+ of income) |
This table is illustrative, not a rule. It assumes a fairly standard deduction mix for a salaried individual under 60, and doesn't factor in surcharge at very high incomes. Senior citizens have a higher basic exemption under the old regime specifically, capital gains are taxed separately from salary income under either regime, and your actual break-even point depends on your precise numbers. Use the income tax calculator with your real figures rather than relying on this table alone.
A note for senior citizens
The old regime gives senior citizens (60–80 years) and super senior citizens (80+) a higher basic exemption limit than younger taxpayers. The new regime, by contrast, applies the same ₹4 lakh nil-rate slab to everyone regardless of age — confirmed unchanged in Budget 2026. This is worth factoring in separately if you're calculating for a retired parent or senior family member, since it can shift their specific break-even point compared to a younger salaried taxpayer.
How to choose or switch regimes
The new regime has been the default since FY 2023-24. If you do nothing, you're automatically on the new regime.
For salaried employees with no business income: you can choose your preferred regime when filing your ITR each year, regardless of which regime your employer used for TDS during the year. If there's a mismatch, any excess TDS is refunded after filing. This means salaried employees have full year-to-year flexibility.
For those with business or professional income: switching out of the new (default) regime requires filing Form 10-IEA by the applicable due date. Once you've opted for the old regime this way, switching back to the new regime is allowed only once in a lifetime for this category of taxpayer — so this decision carries more weight if you have business income.
Don't just accept the default without checking. Because the new regime is the default, many people end up on it without ever comparing. Given how much the numbers have shifted with the expanded Section 87A rebate, it's worth spending a few minutes running both calculations with your actual income and deductions before assuming either regime is automatically right for you.
Two filing-process changes from Budget 2026 worth knowing
Budget 2026 didn't touch slabs or the rebate, but it did adjust a couple of practical filing details:
- Revised return window extended: the deadline for filing a revised income tax return has been extended to 31 March, provided a nominal fee is paid — giving taxpayers more room to correct an already-filed return without missing the window entirely.
- Staggered ITR due dates: due dates for filing returns are now staggered across taxpayer categories (individuals and non-audit businesses), rather than everyone facing the same single deadline — check the specific due date that applies to your category for the year you're filing.
Neither of these changes affects which regime saves you more money — they're purely about the filing calendar and correction process. But they're worth knowing if you're planning when to file or whether you have time to fix an error in an already-submitted return.
A note on the new Income Tax Act
The Income Tax Act, 2025 has formally rolled out and taken effect from 1 April 2026, replacing the Income Tax Act, 1961, reorganizing the law into a simplified structure and renaming some familiar terms — for instance, "Financial Year" and "Assessment Year" are being replaced by the single term "Tax Year." The substantive rules covered in this article (slabs, rebate thresholds, deduction eligibility, surcharge) are not changed by this rewrite — it's a structural and terminology update, not a change to how much tax you pay. You may still see both old and new section numbers referenced across different sources during the transition.
Frequently asked questions
Can I change my regime after filing?
For salaried individuals with no business income: yes, you can choose a different regime when you file your ITR, even if your employer deducted TDS under the other regime — any excess TDS gets refunded. For those with business income, switching is more restricted: opting for the old regime requires Form 10-IEA, and switching back to the new regime is allowed only once in a lifetime for that category.
Is NPS contribution deductible in the new regime?
Your own contribution under Section 80CCD(1B) is not deductible in the new regime. But your employer's NPS contribution (Section 80CCD(2)) — up to 10% of your basic salary — remains deductible under both regimes. This can be a meaningful saving, especially for those with larger basic salaries.
If the new regime has lower rates, why would anyone choose the old regime?
Because deductions reduce your taxable income, not just apply a lower rate. If you're in the 30% slab and claim a large combination of deductions — HRA, home loan interest, 80C, and others — the rupee value of those deductions can outweigh the benefit of the new regime's lower rates. Whether that's true for you depends on how large your total eligible deductions are relative to your income; as a rough guide, this typically only becomes true once deductions reach roughly 35–40% of gross income.
Is it true that income up to ₹12 lakh is completely tax-free now?
Under the new regime, taxable income up to ₹12 lakh results in zero tax payable due to the Section 87A rebate, and salaried individuals get this effectively up to ₹12.75 lakh gross salary after the standard deduction. However, this rebate does not apply to income taxed at special rates, such as capital gains from equity or lottery winnings — so someone with salary within this range can still owe tax if they have such income separately.
Does the old vs new regime choice affect senior citizens differently?
Yes. The old regime gives senior citizens (60–80) and super senior citizens (80+) a higher basic exemption limit than younger taxpayers get. The new regime applies the same ₹4 lakh nil-rate slab regardless of age. This can shift where the break-even point falls for a retired or senior taxpayer compared to a younger salaried employee with similar income.
How does surcharge differ between the two regimes at high incomes?
Below ₹2 crore, both regimes apply the same surcharge steps (10% above ₹50 lakh, 15% above ₹1 crore). Above that, the gap widens: the old regime's surcharge can climb as high as 37% for the very highest earners, while the new regime caps surcharge at 25% regardless of how much higher income goes. This is a real, additional advantage for the new regime at very high income levels, separate from the slab-rate and deduction comparison.
What changed for tax regimes in Union Budget 2026?
No changes to tax slabs, the standard deduction, or the Section 87A rebate — all were confirmed unchanged for FY 2026-27. The Budget did extend the revised-return filing window to 31 March (with a nominal fee) and introduced staggered ITR due dates by taxpayer category, but neither of these affects which regime saves you more money.
Where can I check the current, official tax slabs?
The Income Tax Department's official portal, incometax.gov.in, publishes current slab rates, rebate rules, surcharge details, and regime-switching procedures. Since slabs and rebate limits are revised through the Union Budget, it's worth checking there directly each filing season rather than relying on any single article indefinitely, including this one.
