Old vs New Tax Regime: Which Should You Pick for FY 2026-27?
A practical comparison of slab rates, deductions, and when the old regime still saves tax for salaried individuals and businesses in FY 2026-27.
Overview
India's Income Tax Act offers two parallel tax regimes for individuals and HUFs: the old (existing) regime and the new (default) regime introduced by the Finance Act 2020 and made the default under the Finance Act 2023. Choosing the right one can mean a significant tax difference.
New Regime Slabs for FY 2026-27 (AY 2027-28)
Under the new regime (default for individuals from FY 2023-24), the slabs are:
| Taxable Income | Tax Rate |
|---|---|
| Up to ₹3,00,000 | Nil |
| ₹3,00,001 – ₹7,00,000 | 5% |
| ₹7,00,001 – ₹10,00,000 | 10% |
| ₹10,00,001 – ₹12,00,000 | 15% |
| ₹12,00,001 – ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
Section 87A rebate: Nil tax for individuals with taxable income up to ₹7,00,000 under the new regime (rebate ₹25,000).
Standard deduction of ₹75,000 for salaried employees under the new regime (raised from ₹50,000 in Budget 2024).
Old Regime Slabs for FY 2026-27
| Taxable Income | Tax 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% |
Section 87A rebate: Nil tax for taxable income up to ₹5,00,000 (rebate ₹12,500).
Key Deductions Available Only Under the Old Regime
The old regime allows over 70 exemptions and deductions not available under the new regime:
- Section 80C — Up to ₹1,50,000 (PF, PPF, ELSS, LIC, housing loan principal, tuition fees)
- Section 80D — Medical insurance premium (₹25,000 self/family; ₹50,000 for senior citizens)
- Section 24(b) — Interest on housing loan (₹2,00,000 for self-occupied property)
- HRA exemption — If residing in rented accommodation (§10(13A))
- LTA (Leave Travel Allowance) — Twice in a 4-year block
- Section 80TTA/80TTB — Interest on savings (₹10,000 / ₹50,000 for senior citizens)
When Does the Old Regime Win?
The old regime typically saves more tax when:
- Deductions under 80C are fully utilised (₹1.5L in PF/ELSS/PPF)
- HRA is significant — rented accommodation in a metro city
- Home loan interest exceeds ₹2L — deductible only under old regime
- Medical insurance premiums are paid for self + parents (₹75,000+ combined)
As a rule of thumb, the break-even deduction level for the old regime to win is approximately ₹3.75 lakh at ₹15L income (varies by slab). Below this, the new regime's lower rates generally prevail.
Who Should Choose the New Regime?
- Salaried individuals without significant investments or home loans
- Businesses filing under presumptive taxation (§44AD/§44ADA)
- NRIs — the old/new regime choice applies differently (consult a CA)
Switching Between Regimes
Salaried individuals can switch regimes every year. Business income filers who opt out of the new regime can re-enter only once in their lifetime.
The regime choice must be communicated to the employer via Form 12BB at the start of the financial year for correct TDS deduction.
Important: This article reflects Finance Act 2025 provisions for FY 2026-27. Tax law changes annually — always verify current rates with a qualified CA before filing.
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