Old vs new tax regime comes down to one question: are your exemptions and deductions big enough to beat the new regime's lower rates? This guide explains the difference between the old and new tax regime for FY 2026-27 (tax year 2026-27, AY 2027-28), shows the break-even deductions at each salary and works through five examples, so you can see which regime is better for you. The rules are the same for FY 2025-26.
Quick verdict: up to a salary of ₹12.75 lakh the new regime is always better, because tax is nil. Above that, the old regime needs roughly ₹5.4 lakh of deductions at ₹15 lakh, ₹7.1 lakh at ₹20 lakh and ₹8 lakh from ₹25 lakh upwards. Check your own figure with our old vs new tax regime calculator.
Difference Between Old and New Tax Regime
| Point | New tax regime | Old tax regime |
|---|---|---|
| Status | Default (Section 202, earlier 115BAC) | Must be chosen |
| Slab rates | Nil up to ₹4 lakh, then 5% to 30% over seven slabs | Nil up to ₹2.5 lakh, then 5%, 20%, 30% |
| 30% rate starts at | ₹24 lakh | ₹10 lakh |
| Standard deduction | ₹75,000 | ₹50,000 |
| Rebate (Section 156 / 87A) | Up to ₹60,000; nil tax up to ₹12 lakh | Up to ₹12,500; nil tax up to ₹5 lakh |
| HRA, LTA, 80C, 80D, home loan interest | Not allowed | Allowed |
| Employer NPS (80CCD(2)) | Up to 14% of Basic + DA | Up to 10% (14% for government) |
| Senior citizen exemption | Same for all ages | ₹3 lakh (60–79), ₹5 lakh (80+) |
| Top surcharge | 25% | 37% (above ₹5 crore) |
| Paperwork | Minimal | Rent receipts and investment proofs |
Full slab tables for every age are in income tax slabs FY 2026-27.
Old vs New Tax Regime Slab Rates
| Taxable income | New regime | Old regime (below 60) |
|---|---|---|
| Up to ₹2,50,000 | Nil | Nil |
| ₹2,50,001 to ₹4,00,000 | Nil | 5% |
| ₹4,00,001 to ₹5,00,000 | 5% | 5% |
| ₹5,00,001 to ₹8,00,000 | 5% | 20% |
| ₹8,00,001 to ₹10,00,000 | 10% | 20% |
| ₹10,00,001 to ₹12,00,000 | 10% | 30% |
| ₹12,00,001 to ₹16,00,000 | 15% | 30% |
| ₹16,00,001 to ₹20,00,000 | 20% | 30% |
| ₹20,00,001 to ₹24,00,000 | 25% | 30% |
| Above ₹24,00,000 | 30% | 30% |
On the same taxable income the new regime is always cheaper. The old regime can only win by making your taxable income much smaller through deductions.
Break-Even Deductions: When the Old Regime Wins
The old regime is cheaper only when your exemptions and deductions (HRA, LTA, professional tax, 80C, 80D, NPS, home loan interest and others, but not the standard deduction) are above this amount. Salary income only, below 60.
| Gross salary | New regime tax | Old regime wins only above |
|---|---|---|
| ₹8,00,000 | Nil | Never (new regime tax is nil) |
| ₹10,00,000 | Nil | Never |
| ₹12,75,000 | Nil | Never |
| ₹15,00,000 | ₹97,500 | ₹5,43,700 |
| ₹18,00,000 | ₹1,50,800 | ₹6,41,700 |
| ₹20,00,000 | ₹1,92,400 | ₹7,08,300 |
| ₹25,00,000 | ₹3,19,800 | ₹8,00,000 |
| ₹30,00,000 and above | ₹4,75,800 | ₹8,00,000 |
Up to ₹12.75 lakh the old regime can at best equal the new regime's nil tax, so there is no reason to choose it. Above ₹25 lakh the break-even settles at ₹8 lakh, which usually needs high HRA plus a home loan. Our income tax calculator shows your exact break-even.
Old vs New Tax Regime with Example
Example 1: ₹10 lakh salary with 80C and 80D
80C ₹1,50,000 and health insurance ₹25,000. Old regime: ₹10,00,000 − ₹50,000 − ₹1,75,000 = ₹7,75,000 taxable; tax ₹67,500 + cess = ₹70,200. New regime: ₹9,25,000 taxable, rebate makes it nil. New regime saves ₹70,200; the investments still help your savings, just not your tax.
Example 2: ₹12 lakh salary with HRA
Basic ₹5,00,000, HRA and rent ₹2,40,000 each in Mumbai, 80C ₹1,50,000, 80D ₹25,000, professional tax ₹2,500. HRA exemption is ₹1,90,000. Old regime: taxable ₹7,82,500, tax ₹71,760. New regime: taxable ₹11,25,000, tax nil. Even with ₹3,67,500 of exemptions and deductions, the new regime wins.
Example 3: ₹15 lakh salary with HRA and a home loan
Basic ₹6,00,000, HRA and rent ₹2,40,000 each in Bengaluru, home loan interest ₹2,00,000, 80C ₹1,50,000, 80D ₹25,000, professional tax ₹2,500.
| Step | New regime | Old regime |
|---|---|---|
| HRA exemption | Not allowed | ₹1,80,000 |
| Standard deduction + professional tax | ₹75,000 | ₹52,500 |
| Home loan interest | Not allowed | ₹2,00,000 |
| 80C + 80D | Not allowed | ₹1,75,000 |
| Taxable income | ₹14,25,000 | ₹8,92,500 |
| Total tax | ₹97,500 | ₹94,640 |
Deductions of ₹6,07,500 are just above the ₹5.44 lakh break-even, so the old regime saves only ₹2,860. Adding ₹50,000 in your own NPS (80CCD(1B)) would cut old regime tax to ₹84,240, a saving of ₹13,260.
Example 4: ₹30 lakh salary where the old regime clearly wins
Basic ₹12,00,000, HRA ₹4,80,000, rent ₹6,00,000 in Delhi, home loan interest ₹2,00,000, 80C ₹1,50,000, own NPS ₹50,000, 80D ₹25,000 plus ₹50,000 for senior citizen parents, professional tax ₹2,500. Exemptions and deductions total ₹10,07,500.
- Old regime: taxable ₹19,92,500, tax ₹4,10,250 + cess = ₹4,26,660
- New regime: taxable ₹29,25,000, tax ₹4,57,500 + cess = ₹4,75,800
The old regime saves ₹49,140 because deductions are well above the ₹8 lakh break-even.
Example 5: Senior citizen with pension and FD interest
Age 68, pension ₹9,00,000 and FD interest ₹1,50,000. Old regime: after ₹50,000 standard deduction and ₹50,000 under 80TTB, taxable ₹9,50,000; tax ₹1,04,000. New regime: taxable ₹9,75,000, tax nil. Despite the higher senior exemption in the old regime, the new regime is far better here.
For the full step-by-step method behind these numbers, read how to calculate income tax on salary with examples.
Employer NPS: The Deduction That Works in Both Regimes
Your employer's NPS contribution is deductible in both regimes: up to 14% of Basic + DA in the new regime, and 10% (14% for government employers) in the old. Restructuring part of your CTC into employer NPS saves tax either way. Example: on a ₹21.12 lakh package with Basic ₹8 lakh, taking ₹1.12 lakh (14% of Basic) as employer NPS instead of salary cuts new regime tax from ₹2,17,620 to ₹1,92,400, a saving of ₹25,220. Ask your HR team whether your company offers it. See how it changes take-home pay with our salary breakup calculator.
How to Choose or Switch Your Tax Regime
- Salaried, no business income: you can choose either regime every year. Tell your employer at the start of the year so TDS is right, but the final choice is made in your income tax return, filed by the due date. No separate form is needed.
- Business or professional income: to use the old regime you must file Form 10-IEA by the return due date. After opting out, you can come back to the new regime only once, and then cannot leave it again while you have business income.
- Law: from FY 2026-27 the option is under Section 202 of the Income-tax Act, 2025 (earlier Section 115BAC). Returns for FY 2025-26 still follow the 1961 Act.
You can file and see your choice on the income tax e-filing portal, and read the law on the Income Tax Department website.
Common Myths About Old and New Tax Regime
- "The old regime is better if you invest in 80C." Not on its own. 80C of ₹1.5 lakh is far below the break-even at any salary above ₹12.75 lakh, as Example 1 shows.
- "Senior citizens should stay in the old regime." Usually not. Example 5 pays nil in the new regime and ₹1,04,000 in the old.
- "The new regime has no deductions." It has the ₹75,000 standard deduction and employer NPS up to 14% of Basic + DA.
- "The rebate is only up to ₹5 lakh in both regimes." That is the old regime. In the new regime it is up to ₹12 lakh of taxable income.
- "Once chosen, you are stuck." Salaried people can switch every year.
Which Tax Regime Is Better for You?
| Your situation | Likely better |
|---|---|
| Salary up to ₹12.75 lakh | New regime (nil tax) |
| Salary above ₹12.75 lakh, only 80C and 80D | New regime |
| High rent in a metro plus home loan interest plus full 80C, NPS and 80D | Often old regime, check the break-even |
| Senior citizen with pension and interest | Usually new regime |
| Employer offers NPS | Helps in both; most in the new regime |
Prefer a spreadsheet? Download the free old vs new tax regime calculator Excel, or check your HRA first with the HRA exemption calculator.
Frequently Asked Questions
What is the difference between old and new tax regime?
The new regime has lower rates, a ₹75,000 standard deduction and nil tax up to ₹12 lakh, but almost no deductions. The old regime has higher rates and a ₹50,000 standard deduction, but allows HRA, 80C, 80D, home loan interest and more.
Which is better, old or new tax regime, for FY 2026-27?
For most salaried people the new regime. The old regime is better only when your exemptions and deductions exceed the break-even: about ₹5.44 lakh at ₹15 lakh salary, ₹7.08 lakh at ₹20 lakh and ₹8 lakh from ₹25 lakh.
Is the new tax regime better for a ₹12 lakh salary?
Yes. With the ₹75,000 standard deduction, taxable income is ₹11,25,000 and the rebate makes the tax nil. No set of old regime deductions can do better than nil.
Can I switch between old and new tax regime every year?
Yes, if you have no business or professional income. You choose in your return each year. With business income, you can opt out with Form 10-IEA and return to the new regime only once.
Is the new tax regime the default?
Yes. If you do not choose, your employer deducts TDS and your return is processed under the new regime. You must actively opt for the old regime.
Can I claim HRA and 80C in the new tax regime?
No. HRA, LTA, 80C, 80D, own NPS and home loan interest on a self-occupied house are allowed only in the old regime.
Which regime is better for senior citizens?
Usually the new regime. A senior with ₹9 lakh pension and ₹1.5 lakh FD interest pays nil in the new regime and ₹1,04,000 in the old, despite the old regime's ₹3 lakh exemption and 80TTB.
What happens if I choose the wrong regime with my employer?
If you are salaried, you can still pick the better regime when filing your return. Any extra TDS comes back as a refund; any shortfall must be paid as self-assessment tax before filing.
Is employer NPS allowed in the new tax regime?
Yes. Employer NPS up to 14% of Basic + DA is deductible in the new regime, more than the 10% allowed for private employers in the old regime.
Did Budget 2026 change the old or new tax regime?
No. FY 2026-27 uses the same slabs, rebate and standard deductions as FY 2025-26. Only the law changed to the Income-tax Act, 2025, with new section numbers.