New vs Old Tax Regime: Which Is Better for You in Tax Year 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.
Income Tax Act 2025 note: for Tax Year 2026-27 (income earned from 1 April 2026) the Income Tax Act, 2025 applies, and the familiar sections are renumbered: Section 115BAC becomes Section 202, 87A becomes 156, 80C becomes 123, 80D becomes 126 and 80CCD (including 80CCD(2)) becomes 124; for Tax Year 2026-27 there is no separate Form 10-IEA, as the Section 202 option is exercised in the return of income (Rule 136 of the Income Tax Rules, 2026). Returns for FY 2025-26 (AY 2026-27) still use the 1961-Act numbers. See the Income Tax Act 2025 transition guide for the full mapping.
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 for FY 2025-26 and Tax Year 2026-27
The new-regime slabs below were introduced by the Finance Act, 2025 and first apply to FY 2025-26 (AY 2026-27). Budget 2026 (Finance Act, 2026) left both regimes unchanged, so the same slabs apply to Tax Year 2026-27 under the Income Tax Act, 2025. The old-regime slabs shown are for individuals below 60 (the basic exemption is Rs 3,00,000 for senior citizens and Rs 5,00,000 for those aged 80 or more).
New regime
| Income (Rs) | Rate |
|---|---|
| Up to 4,00,000 | Nil |
| 4,00,001 - 8,00,000 | 5% |
| 8,00,001 - 12,00,000 | 10% |
| 12,00,001 - 16,00,000 | 15% |
| 16,00,001 - 20,00,000 | 20% |
| 20,00,001 - 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Old regime
| Income (Rs) | Rate |
|---|---|
| Up to 2,50,000 | Nil |
| 2,50,001 - 5,00,000 | 5% |
| 5,00,001 - 10,00,000 | 20% |
| Above 10,00,000 | 30% |
Health and education cess of 4% applies on the tax in both regimes, and surcharge applies at higher income levels.
The Section 87A rebate
The rebate is what makes lower incomes effectively tax-free. Under the new regime, the rebate (up to Rs 60,000) makes total income up to Rs 12,00,000 effectively tax-free for resident individuals; under the old regime the equivalent threshold is Rs 5,00,000 (rebate up to Rs 12,500). Just above Rs 12,00,000, marginal relief limits the tax to the amount by which income exceeds Rs 12,00,000. With the standard deduction for salaried individuals (Rs 75,000 in the new regime; Rs 50,000 in the old regime), the effective zero-tax salary is Rs 12,75,000. Income taxed at special rates, such as certain capital gains, is generally outside the rebate. These limits apply to FY 2025-26 and continue unchanged for Tax Year 2026-27, where the rebate sits in Section 156 of the Income Tax Act, 2025.
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) (Section 124 of the 2025 Act), 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, your income is within the range covered by the new-regime rebate, 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, 80D and HRA claims together are substantial, or you make large insurance or donation payments.
The break-even point varies with income level and has moved since the Budget 2025 slab changes. The only reliable way to decide is to compute tax both ways for your specific numbers — for example with our regime comparison tool or income tax calculator.
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 for FY 2025-26 (for Tax Year 2026-27 onwards, the option is exercised in the return of income itself) 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.
Further reading: the firm's income tax return filing service covers regime selection as part of return preparation.
Frequently Asked Questions
Which tax regime is the default?
The new tax regime under Section 115BAC (Section 202 of the Income Tax Act 2025 from Tax Year 2026-27) 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. For Tax Year 2026-27 onwards there is no separate form: the option under Section 202 of the Income Tax Act 2025 is exercised in the return of income (Rule 136 of the Income Tax Rules 2026).
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