Old vs New Income Tax Regime: Which Should You Actually Choose?
The new regime is the default now, and its rates look lower on paper — but "lower rate" and "lower tax" aren't always the same thing once deductions enter the picture. Here's how the two actually compare for FY 2026-27.
New regime slabs (FY 2026-27)
- 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%
Salaried individuals get a ₹75,000 standard deduction, and a Section 87A rebate of up to ₹60,000 applies when taxable income is ₹12,00,000 or below — which, combined with the standard deduction, makes a gross salary up to roughly ₹12.75 lakh effectively tax-free.
Old regime slabs (unchanged for several years)
- Up to ₹2,50,000 — Nil (₹3,00,000 for senior citizens 60-80; ₹5,00,000 for super seniors 80+)
- Next slab up to ₹5,00,000 — 5%
- ₹5,00,001 – ₹10,00,000 — 20%
- Above ₹10,00,000 — 30%
Standard deduction here is ₹50,000, and the Section 87A rebate (up to ₹25,000) applies only when taxable income is ₹5,00,000 or below — a much lower threshold than the new regime's.
So why would anyone pick the old regime?
Because the old regime allows a long list of deductions the new regime mostly doesn't: Section 80C investments (PF, ELSS, life insurance, up to ₹1.5 lakh), Section 80D health insurance premiums, HRA if you pay rent, home loan interest, and several others. If your deductions genuinely add up to a large number, the old regime's lower exemption but bigger deduction pool can beat the new regime's higher exemption but almost no deductions.
The rough rule of thumb
If your total deductions (80C + 80D + HRA + home loan interest, etc.) come to somewhere around ₹4-4.5 lakh or more, the old regime often works out cheaper. Below that, the new regime's simpler structure and higher standard deduction usually wins. But "usually" isn't "always" — the exact crossover point depends on your specific income level, so it's worth running the actual numbers for your situation rather than relying on a rule of thumb alone.
A quick example
Someone earning ₹12,00,000 with no significant deductions pays roughly nothing under the new regime (thanks to the ₹75,000 standard deduction plus the 87A rebate covering the remaining taxable ₹12,00,000 income). Under the old regime with no deductions claimed, the same income would attract a meaningful tax bill — which is exactly why, without deductions to claim, the new regime tends to win for most salaried people.