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

Every salaried taxpayer in India has to pick between two ways of working out income tax. The new regime has lower rates but almost no deductions. The old regime has higher rates but lets you subtract investments, insurance, rent and home loan interest.

For tax year 2026-27 (income earned from April 2026 to March 2027), Budget 2026 kept the rates, rebate and standard deductions from the previous year. This guide compares the two regimes, gives worked examples, and shows how many deductions you need before the old regime comes out ahead.

The new regime (the default)

• Standard deduction: ₹75,000 for salary and pension.
• Rebate: if taxable income is ₹12 lakh or less, the tax is cancelled. Just above ₹12 lakh, marginal relief makes sure the tax is never more than the income above ₹12 lakh.
• Result: a salary of up to ₹12,75,000 pays no income tax at all.
• Deductions allowed: essentially only the employer's NPS contribution (up to 14% of basic) and the standard deduction.

The old regime

• Standard deduction: ₹50,000. The rebate makes income up to ₹5 lakh tax-free.
• Deductions (still known by their old section names):
  • 80C up to ₹1,50,000: EPF, PPF, ELSS, life insurance, tuition fees and home loan principal.
  • 80D for health insurance.
  • 80CCD(1B) up to ₹50,000 for your own NPS contributions.
  • HRA exemption if you pay rent.
  • Home loan interest up to ₹2,00,000 on a self-occupied house.
  • Professional tax, LTA and a few others.

Both regimes add 4% health and education cess on the tax.

Worked comparison

Here are the totals for different salaries, with tax including cess. The "typical deductions" column assumes ₹1,50,000 in 80C, ₹25,000 in 80D and ₹50,000 in NPS: ₹2,25,000 in all, on top of the standard deduction. The last column adds ₹2,00,000 of home loan interest.

Even with every popular deduction and a home loan, the new regime wins at all these salaries. The lower rates and the ₹12 lakh rebate are worth more than the deductions most people can claim.

How many deductions do you need for the old regime to win?

This is the break-even point: the deductions, beyond the standard deduction, at which both regimes cost the same. If your deductions are higher than this, choose the old regime.

₹8 lakh of deductions is hard to reach. It usually takes the full ₹1.5 lakh in 80C, ₹2 lakh of home loan interest, ₹50,000 in NPS, health insurance for yourself and your parents, and a large HRA exemption from high rent.

When the old regime still makes sense

• You pay high rent in a metro and get a large HRA. For example, ₹40,000 a month in Mumbai on a ₹1 lakh basic can exempt over ₹3.5 lakh a year.
• You have a home loan with close to ₹2 lakh of interest a year, and you already fill 80C.
• Your employer's structure gives you tax-free reimbursements that only the old regime allows.

Switching between regimes

• Default: the new regime applies unless you choose the old one.
• Salaried: you can pick either regime every year when you file your return, even if you told your employer something different for TDS.
• Business or professional income: you can switch back to the old regime only once, so think it through before leaving the new regime.

Tell your employer your choice at the start of the year so the right amount of TDS is deducted each month. If you get it wrong, you settle the difference when you file.

Try your own numbers

The income tax calculator compares both regimes side by side with your exact deductions and shows your own break-even point. To see what reaches your bank account each month after PF, professional tax and TDS, use the in-hand salary calculator.

This guide is for general information. Rules for special income (capital gains, lottery winnings), surcharge above ₹50 lakh and non-residents differ; check with a tax professional for your situation.