New vs Old Tax Regime: Which Is Better for You in FY 2026-27?
Since the new tax regime under Section 115BAC became the default, the most common question taxpayers ask is simple: which regime leaves more money in my pocket? The honest answer is that it depends on your deductions. This guide gives you the framework to decide.
The two regimes at a glance
The new regime offers lower slab rates but disallows most deductions and exemptions. The old regime retains higher slab rates but allows the full set of deductions — Section 80C, 80D, HRA, home loan interest and more.
The new regime is now the default. You must consciously opt for the old regime if it benefits you.
Slab rates FY 2026-27
| Income (Rs) | New Regime | Old Regime |
|---|---|---|
| Up to 3,00,000 | Nil | Nil (up to 2,50,000) |
| 3,00,001 - 7,00,000 | 5% | 5% |
| 7,00,001 - 10,00,000 | 10% | 20% |
| 10,00,001 - 12,00,000 | 15% | 30% |
| 12,00,001 - 15,00,000 | 20% | 30% |
| Above 15,00,000 | 30% | 30% |
The Section 87A rebate
The rebate is what makes lower incomes effectively tax-free. Under the new regime, the rebate makes income up to Rs 7,00,000 effectively tax-free; under the old regime the equivalent threshold is Rs 5,00,000. With the standard deduction for salaried individuals (Rs 75,000 in the new regime), the effective zero-tax salary is even higher.
Deductions: what survives
Under the new regime, most deductions are not available, including Section 80C, 80D, HRA exemption, and self-occupied home loan interest. However, a few survive — notably the employer's contribution to NPS under Section 80CCD(2), the higher standard deduction, and the standard deduction on let-out house property.
Under the old regime, the full deduction set applies. For taxpayers with a home loan, substantial 80C investments, health insurance and HRA, the old regime can still win comfortably.
A simple decision framework
Lean towards the new regime if: your total deductions are modest (under roughly Rs 2 lakh), you are early in your career, you rent without claiming large HRA, or you simply prefer compliance simplicity.
Lean towards the old regime if: you have a running home loan with significant interest, your 80C plus 80D plus HRA together exceed roughly Rs 3.5-4 lakh, or you make large insurance or donation payments.
The break-even point varies with income level. The only reliable way to decide is to compute tax both ways for your specific numbers — a calculation any tax professional (or our free Income Tax Calculator) can do in minutes.
How to opt in or out
Salaried individuals with no business income can choose either regime each year, directly in the income tax return. Inform your employer at the start of the year so TDS is deducted correctly.
Individuals with business or professional income must file Form 10-IEA before the return due date to opt out of the new regime. Critically, once a business taxpayer opts out and later returns to the new regime, the option to switch back to the old regime is generally available only once. Choose deliberately.
Frequently Asked Questions
Which tax regime is the default?
The new tax regime under Section 115BAC is the default. You must actively choose the old regime if it is more beneficial for you.
Can salaried individuals switch regimes every year?
Yes. Salaried individuals without business income can choose between the new and old regime each financial year directly in their income tax return.
What is Form 10-IEA?
Form 10-IEA is the form that taxpayers with business or professional income must file before the return due date to opt out of the new regime into the old regime.