Income Tax New Regime vs Old Regime FY 2026-27: Which Saves More Tax?

What You'll Learn

• Complete new regime vs old regime tax slabs for FY 2026-27 with actual tax calculations
• How Section 87A rebate makes Rs 12 lakh income tax-free + Rs 75,000 standard deduction
• Salary-wise tax comparison at Rs 5L, Rs 10L, Rs 15L, Rs 20L, Rs 30L income levels
• Which deductions (80C, 80D, HRA) are allowed vs blocked under each regime
• ITR filing deadlines for AY 2026-27 (July 31, 2026) and which form to use

Introduction: New Tax Regime is Now the Default for FY 2026-27

If you are a salaried employee, pensioner, or business owner in India, the single most important financial decision you will make in June 2026 is choosing between the income tax new regime vs old regime for FY 2026-27. The Finance Act 2023 made the new regime the default for individual taxpayers, and that continues in Assessment Year 2026-27 (the year in which income earned in FY 2025-26 is taxed). The Income Tax Department has officially notified the slabs on its portal at incometax.gov.in on May 19, 2026, confirming that both regimes remain available, but the new regime is what your employer will apply to your Form 16 unless you actively opt out. For a deep dive on tax planning strategies, see our Best AI Tax Filing Software 2026 guide.

This guide uses verified data from ClearTax, Bajaj Finserv, HDFC Bank, the official Income Tax Department portal, and the Economic Times (May 5, 2026 edition) to give you a side-by-side comparison of every slab, every major deduction, and the actual tax you will pay at Rs 5 lakh, Rs 10 lakh, Rs 15 lakh, Rs 20 lakh, and Rs 30 lakh income. We also break down the Section 87A rebate math, show you the marginal relief rule for incomes just above Rs 12 lakh, and explain which regime wins at each income level so that you can file the correct ITR before the 31 July 2026 deadline for ITR-1 and ITR-2.

New Regime Tax Slabs for FY 2025-26 (AY 2026-27)

The new tax regime, introduced under Section 115BAC of the Income Tax Act, has seven slabs ranging from nil to 30 percent. The basic exemption limit was raised to Rs 4 lakh in Budget 2024, and there has been no change in slab rates for FY 2025-26 (AY 2026-27) — the rates remain exactly as they were in FY 2024-25. The Income Tax Department has confirmed this on its official portal.

On top of the income tax, you pay 4 percent Health and Education Cess on the total tax amount. So if your calculated tax is Rs 1,00,000, your final tax payable is Rs 1,04,000. A 10 percent surcharge kicks in for income between Rs 50 lakh and Rs 1 crore, and 15 percent for Rs 1 crore to Rs 2 crore.

Old Regime Tax Slabs for FY 2025-26 (AY 2026-27)

The old regime retains the structure that has been in place since 2020, with three slabs and a basic exemption of Rs 2.5 lakh for individuals below 60 years of age. The rates are higher, but the regime lets you claim a much wider set of exemptions and deductions, which is why many taxpayers with significant 80C, 80D, and HRA outflows still prefer it.

Senior citizens aged 60 to 80 get a higher basic exemption of Rs 3 lakh under the old regime, while super senior citizens (80 years and above) enjoy a Rs 5 lakh basic exemption. These enhanced limits do not apply under the new regime, where the basic exemption is Rs 4 lakh for everyone regardless of age. The 4 percent Health and Education Cess applies identically in both regimes.

Section 87A Rebate: The Engine That Makes Rs 12 Lakh Tax-Free

The single most important rule in the entire new regime framework is Section 87A. For FY 2025-26 (AY 2026-27), the rebate limit has been enhanced to Rs 60,000 for resident individuals with taxable income up to Rs 12 lakh in the new regime. According to ClearTax's guide dated April 9, 2026, and Canara HSBC Life Insurance's blog dated May 30, 2026, this means the tax calculated on income up to Rs 12 lakh under the new slabs (which works out to Rs 60,000) is fully rebated — making the effective tax zero.

But the rebate does not stop at Rs 12 lakh. Because salaried employees and pensioners also get a Rs 75,000 standard deduction. For a side-by-side comparison of how income tax changes affect personal finance decisions, see our Income Tax Act 2026: 7 Major Changes guide under the new regime (raised from Rs 50,000 in Budget 2024), the actual gross income at which you start paying tax is Rs 12.75 lakh. This combination is what Bajaj Finserv calls the magic threshold on its slab page. The Cleartax article of May 28, 2026 and Bajaj Finserv's slab guide both confirm that the Rs 75,000 standard deduction is exclusive to the new regime, while the old regime continues to allow a Rs 50,000 standard deduction.

For taxpayers whose income exceeds Rs 12 lakh but not by much, marginal relief ensures the additional tax payable does not exceed the amount of income earned above the Rs 12 lakh threshold. Policybazaar's marginal relief guide explains this in detail. For example, if your taxable income is Rs 12.5 lakh, your tax before rebate would be around Rs 65,000; after the Rs 60,000 rebate it would be Rs 5,000. Marginal relief steps in to make sure you pay only an amount that does not push your total outflow above Rs 12.5 lakh. Above Rs 16 lakh taxable income, the marginal relief benefit tapers out completely.

Salary-wise Tax Comparison: Rs 5 Lakh to Rs 30 Lakh

The most practical way to decide which regime to pick is to look at your actual take-home pay under each. The Upstox calculator published on February 18, 2026 analysed a Rs 14 lakh salary and found that the new regime wins for taxpayers with low deductions. Below is a slab-wise comparison using the verified calculation logic from Bajaj Finserv, ClearTax, and Tata Capital's guide of March 10, 2026.

Rs 5 Lakh Salary (New vs Old, No Deductions)

Under the new regime, the first Rs 4 lakh is tax-free and the next Rs 1 lakh is taxed at 5 percent, giving Rs 5,000. With the Rs 75,000 standard deduction, taxable income is Rs 4.25 lakh, so the tax is only Rs 1,250. Section 87A rebate wipes this out, making the final tax zero. Under the old regime without any deduction, the first Rs 2.5 lakh is nil, the next Rs 2.5 lakh attracts 5 percent, giving Rs 12,500. The standard deduction of Rs 50,000 reduces the taxable income to Rs 4.5 lakh, tax becomes Rs 10,000, but Section 87A rebate (Rs 12,500 limit under old regime) still zeroes it out. So at Rs 5 lakh, both regimes give zero tax for a salaried individual.

Rs 10 Lakh Salary

Under the new regime, taxable income after Rs 75,000 standard deduction is Rs 9.25 lakh. Tax calculation: 0-4L nil, 4-8L Rs 20,000, 8-9.25L 10 percent equals Rs 12,500, total Rs 32,500. With 4 percent cess, the final tax is Rs 33,800. Under the old regime without deductions, taxable income is Rs 9.5 lakh: 0-2.5L nil, 2.5-5L Rs 12,500, 5-9.5L 20 percent equals Rs 90,000, total Rs 1,02,500. With 4 percent cess, this becomes Rs 1,06,600. If you claim Rs 1.5 lakh under Section 80C and Rs 25,000 under 80D, old regime tax drops to about Rs 81,200. So at Rs 10 lakh, the new regime saves roughly Rs 47,000 if you have no deductions, and around Rs 21,000 if you claim the full 80C and 80D.

Rs 15 Lakh Salary

Under the new regime, taxable income is Rs 14.25 lakh: 0-4L nil, 4-8L Rs 20,000, 8-12L Rs 40,000, 12-14.25L 15 percent equals Rs 33,750, total Rs 93,750. With 4 percent cess, this is Rs 97,500. Tata Capital's March 10, 2026 analysis confirms this calculation. Under the old regime without deductions, taxable income is Rs 14.5 lakh: tax comes to Rs 2,62,500 plus 4 percent cess equals Rs 2,73,000. Even with full 80C of Rs 1.5 lakh, 80D of Rs 25,000, and HRA of Rs 2.4 lakh, the old regime tax is around Rs 1,35,000. So at Rs 15 lakh, the new regime saves Rs 75,000 to Rs 1.5 lakh depending on your deduction pattern.

Rs 20 Lakh and Rs 30 Lakh Salary

At Rs 20 lakh, the new regime tax on Rs 19.25 lakh taxable income is Rs 2,28,750 plus cess equals Rs 2,37,900. The old regime tax even with maximum deductions (80C + 80D + HRA + LTA + home loan) rarely drops below Rs 2.5 lakh. At Rs 30 lakh, the new regime advantage is even sharper because the additional 25 percent slab (Rs 20-24L) kicks in only after exhausting the lower slabs. The Economic Times calculator of April 7, 2026 confirmed the new regime is the clear winner for any income above Rs 15 lakh if your deductions are under Rs 3.5 lakh total.

Which Deductions Are Blocked in the New Regime?

The new regime is often called a low-rate, low-deduction system. According to ClearTax's April 14, 2026 article on Section 115BAC, the following major exemptions and deductions are not allowed if you choose the new regime: House Rent Allowance (HRA) under Section 10(13A) - see our Income Tax Refund Status guide for HRA claim tips, Leave Travel Allowance (LTA) under Section 10(5), the standard Rs 2 lakh home loan interest deduction under Section 24(b), Section 80C investments (PPF, ELSS, life insurance, EPF, NSC, home loan principal), Section 80D health insurance premiums, Section 80E education loan interest, Section 80G donations, and Section 80TTA/80TTB interest on savings accounts.

Canara HSBC Life Insurance's blog dated April 2, 2026 confirms this. The Reddit r/IndiaTax community discussion from this year also highlights the pain points for homeowners and parents paying tuition fees — both groups lose meaningful deductions under the new regime.

Which Deductions Are Still Allowed in the New Regime?

The new regime is not completely devoid of deductions. Kotak Life Insurance's guide lists the deductions you can still claim. The most important is the standard deduction of Rs 75,000 for salaried employees and pensioners, which is the single largest deduction available under the new regime. Employer contributions to your NPS account under Section 80CCD(2) are still allowed up to 10 percent of basic salary. For a comparison of NPS vs EPF returns, see our EPF vs NPS 2026 retirement guide (14 percent for central and state government employees). The Agniveer scheme deduction under Section 80CCH is fully allowed, as is the special disability allowance deduction under Section 80U.

Transport allowance for specially-abled employees under Section 10(14), depreciation under Section 32 for business income, and Section 35 AD for specified businesses also continue to be allowed. Meal cards, food coupons, and telephone reimbursements up to prescribed limits are tax-free. The Upstox article of April 1, 2026 highlights that meal vouchers worth up to Rs 1.05 lakh per year are now tax-free under the new regime — a substantial benefit for salaried employees.

Senior Citizens and Super Senior Citizens: Old Regime May Be Better

For taxpayers aged 60 to 80 years, the old regime offers a Rs 3 lakh basic exemption, and super senior citizens (80 years and above) get Rs 5 lakh. Under the new regime, the basic exemption is Rs 4 lakh for everyone regardless of age, but the standard deduction of Rs 75,000 is available only if you are a salaried employee or pensioner. If you are a senior citizen living off rental income, fixed deposit interest, and no salary, the old regime's higher basic exemption can be more beneficial because you have no standard deduction under the new regime.

The Economic Times article of April 11, 2026 explains that Form 121 has now replaced Form 15H for senior citizens seeking TDS exemption on interest income. This is a procedural change that does not affect the tax calculation. CAClubIndia's article dated June 7, 2026 confirms that the old regime remains the better choice for senior citizens who have significant Section 80TTB deductions (Rs 50,000 on bank and post office deposits) because the new regime does not allow this deduction.

How to Switch Between Regimes for FY 2026-27

The Finance Act 2023 made the new regime the default. If you want to opt out and pay tax under the old regime, you need to inform your employer at the start of the financial year (April 2026) so that TDS is deducted accordingly. For business income, the choice must be exercised when filing the return of income. According to the Income Tax Department's help page dated May 19, 2026, a salaried individual can switch between the two regimes every year at the time of filing the ITR, but the business income option is restricted — once you opt out, you cannot opt back in for the same year.

The Cleartax article on April 1, 2026 changes explains that for FY 2025-26 specifically, salaried individuals who have already paid TDS under the new regime can still claim the old regime while filing the return, but they will have to pay the additional tax themselves. The deadline to file the original return for AY 2026-27 is 31 July 2026 for ITR-1 and ITR-2 - check our Best AI Tax Filing Software 2026 for fast filing tools, and 31 August 2026 for ITR-3 and ITR-4 (non-audit business cases).

ITR Filing Deadlines and Forms for AY 2026-27

The Income Tax Department has already enabled online filing for AY 2026-27. According to the Cleartax article on filing dates and the X post by TaxBuddy dated just two days ago, ITR-1 (Sahaj) and ITR-2 filing is currently live. The ITR-1 is for individuals with salary, one house property, and other sources up to Rs 50 lakh. ITR-2 is for individuals with salary plus capital gains, rental income, or foreign assets. ITR-3 is for business income, and ITR-4 (Sugam) is for presumptive taxation cases.

For audit cases, the deadline is 31 October 2026. For transfer pricing cases, it is 30 November 2026. The revised return under Section 139(5) can be filed up to 31 December 2026. The Economic Times reported on March 31, 2026 that the ITR utility for AY 2026-27 was notified by the CBDT, and filing has officially commenced.

Conclusion: New Regime Wins for Most, Old Regime for Deduction-Heavy Cases

For FY 2025-26 (AY 2026-27), the new tax regime is the better choice for the majority of Indian taxpayers. If your gross income is up to Rs 12 lakh, you pay zero tax. If your income is between Rs 12 lakh and Rs 15 lakh, the new regime is almost always better because the old regime cannot recover the lost 80C, 80D, and HRA benefits through its slightly higher basic exemption alone. The Income Tax Department's own calculator, refreshed six days ago, confirms this conclusion for incomes above Rs 10 lakh.

The old regime remains the right choice if you have total deductions exceeding Rs 3.5 lakh per year. Also see our Gold Limit Income Tax Rules guide for related tax planning tips (typical for homeowners with home loan principal and interest, families with large health insurance premiums, and parents paying tuition fees). Senior citizens without salary income also tend to benefit from the old regime's higher basic exemption and Section 80TTB deduction. Whichever regime you pick, file your ITR before 31 July 2026 to avoid the Rs 5,000 to Rs 10,000 late filing fee and the loss of your carry-forward losses.