Indian tax calculation new vs old regime 2026

Finance May 12, 2026 11 min read

New Tax Regime vs Old Tax Regime 2026-27 – Which One Saves You More?

Every salaried Indian has to make one big choice each year: file ITR under the new tax regime or the old tax regime. The new regime is now the default from FY 2023-24, and after the Budget 2025 and 2026 changes, it has become attractive for the majority of salaried people. This 2026 guide gives you actual numbers, slab tables, and salary examples so you can pick the regime that puts more money in your pocket.

What Changed in Budget 2025 & 2026

The government has been steadily sweetening the new tax regime to push everyone towards a simpler, deduction-free structure. Key updates effective for FY 2026-27:

Standard deduction raised to ₹75,000 under the new regime (₹50,000 in old)
Rebate under Section 87A extended — zero tax up to ₹7 lakh taxable income (new regime)
NPS employer contribution deduction raised to 14% of basic salary
Surcharge on income above ₹2 crore capped at 25% (down from 37%) under new regime
Family pension standard deduction raised to ₹25,000

New Tax Regime Slabs – FY 2026-27 (AY 2027-28)

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%

After applying the rebate u/s 87A, the effective tax is zero if taxable income is up to ₹7 lakh. With the ₹75,000 standard deduction, salaried individuals earning up to ₹7.75 lakh CTC pay zero income tax.

Old Tax Regime Slabs (Unchanged)

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%

Old regime allows 70+ deductions. Rebate u/s 87A is available only up to ₹5 lakh taxable income.

Deductions Allowed – Side by Side

Deduction	Old Regime	New Regime
Standard deduction (salary)	₹50,000	₹75,000
Section 80C (PPF, ELSS, LIC, EPF)	Up to ₹1.5 lakh	Not allowed
Section 80D (Health insurance)	₹25k–₹1 lakh	Not allowed
Section 80CCD(1B) – NPS extra	₹50,000	Not allowed
Section 80CCD(2) – Employer NPS	Yes (10% basic)	Yes (14% basic)
HRA exemption	Yes	Not allowed
Home loan interest – self-occupied	Up to ₹2 lakh	Not allowed
Home loan interest – let-out	Full	Allowed (set-off limited)
LTA exemption	Yes	Not allowed

Real Salary Examples – Which Regime Wins?

Let's compare tax on three common salary brackets. We assume the taxpayer in old regime claims standard ₹50k + 80C ₹1.5L + 80D ₹25k + HRA ₹1L (where applicable) + 80CCD(1B) ₹50k.

Annual CTC	Old Regime Tax	New Regime Tax	Winner
₹7,00,000	~₹0 (after deductions)	₹0 (rebate)	Tie
₹10,00,000	~₹39,000	~₹44,200	Old (marginal)
₹12,00,000	~₹78,000	~₹70,200	New
₹15,00,000	~₹1,32,600	~₹1,30,000	New
₹20,00,000	~₹2,76,000	~₹2,73,000	New
₹25,00,000	~₹4,26,400	~₹4,23,000	New (close)

The old regime wins only when your total deductions exceed ₹3.5–4 lakh (typically: HRA ₹1.5L + 80C ₹1.5L + 80D ₹25k + Home loan interest ₹2L + NPS ₹50k). Without home loan and HRA, the new regime almost always wins.

How to Switch Between Regimes

Salaried (no business income): You can choose any regime every year. Just select the option while filing ITR.
Business / professional income: If you opted for the old regime by filing Form 10-IEA, you get only one chance to switch back to old regime in your lifetime.
Default: If you don't choose anything, the new regime is applied automatically.

Verdict – Which Regime Should You Pick?

Choose the NEW REGIME if:

Your taxable income is under ₹7.75 lakh — zero tax
You don't have a home loan or HRA claim
You don't actively invest in 80C / 80D / NPS instruments
You want simpler compliance with fewer documents

Choose the OLD REGIME if:

You have a home loan with ₹2 lakh+ interest
You live in a metro and claim HRA of ₹1.5 lakh+
Your total eligible deductions are ₹3.75 lakh or more
You have a working spouse and you optimize 80C, 80D and NPS together

Frequently Asked Questions

Is the new tax regime really better for everyone in 2026?▼

For 70-80% of salaried taxpayers, yes. The ₹75,000 standard deduction, zero tax up to ₹7 lakh taxable income, and broader slabs make the new regime cheaper if your total deductions are under ₹3.5 lakh. But for senior employees with home loans, EMIs, big HRA and active tax-saving investments, the old regime can still save ₹30,000–₹80,000 a year. Always compare both using the official calculator on incometax.gov.in before filing your ITR.

Can I claim 80C deductions in the new regime?▼

No — Section 80C deductions (PPF, ELSS, LIC, ULIP, tax-saving FD, principal home loan repayment, children's tuition) are not allowed under the new tax regime. Almost all Chapter VI-A deductions (80C, 80D, 80E, 80G, 80TTA) are unavailable. The only major deduction still allowed is Section 80CCD(2) — employer contribution to NPS, capped at 14% of basic salary. This is why the new regime is called the "exemption-free" regime.

Can I get HRA tax benefit under the new regime?▼

No, HRA exemption under Section 10(13A) is not available in the new tax regime. This is a big loss for people living in rented homes in metros like Mumbai, Bengaluru, Delhi, and Chennai, where HRA can be ₹1.5–₹3 lakh per year. If you pay high rent and your salary structure has substantial HRA component, the old regime usually saves more. Calculate exempt HRA = minimum of (Actual HRA, 50% of basic for metro / 40% for non-metro, Rent paid minus 10% of basic).

Do senior citizens get a separate slab under the new regime?▼

No, the new tax regime has the same slabs for all ages – there is no benefit of higher basic exemption (₹3 lakh / ₹5 lakh) for senior or super-senior citizens. This is one place the old regime is better for pensioners: ₹3 lakh exemption for 60-79 years and ₹5 lakh for 80+. Combined with Section 80TTB (₹50,000 interest deduction) and 80D (₹50,000 health insurance), the old regime usually beats the new one for retirees living on pension and FD interest.

How do I tell my employer which regime to apply for TDS?▼

At the start of every financial year (April), your HR/payroll team asks you to submit a tax declaration. Choose your regime there. Your employer will calculate monthly TDS based on that choice. If you don't declare, the company uses the new regime by default. You can change your final regime when filing ITR — for example, if you didn't invest enough in 80C, you can switch to new regime at filing time even after telling your employer "old". For business income, the choice is locked-in via Form 10-IEA.