Key takeaways
- The new tax regime is now the default for FY 2026-27 — you must explicitly choose the old regime if you want it.
- The new regime has a higher standard deduction (₹75,000), wider slabs, and zero tax up to ₹7 lakh after rebate, but no Section 80C/80D/HRA deductions.
- The old regime still wins if you genuinely use ₹3 lakh+ of deductions (80C + 80D + HRA + home loan interest).
- Break-even sits around ₹15.5–17 lakh of total deductions for most salaried taxpayers — below that, the new regime is cleaner.
- Salaried employees can switch every year. Business and professional income earners can switch only once in a lifetime.
What changed in Budget 2026
Budget 2026, presented on 1 February 2026, kept the new tax regime as the default and made it more attractive. The standard deduction for the new regime stayed at ₹75,000 while the old regime stayed at ₹50,000. The new-regime slabs are unchanged: zero tax up to ₹3 lakh, then 5%, 10%, 15%, 20%, and 30% as income rises.
The Section 87A rebate under the new regime was extended to taxable income up to ₹7 lakh — meaning a salaried taxpayer earning up to ₹7.75 lakh effectively pays no income tax (₹7 lakh + ₹75,000 standard deduction).
The two regimes side by side
| Aspect | Old regime | New regime (default) |
|---|---|---|
| Standard deduction | ₹50,000 | ₹75,000 |
| Section 80C (PPF, ELSS, life insurance) | Up to ₹1.5 lakh | Not allowed |
| Section 80D (health insurance) | Up to ₹1 lakh (with senior citizen parents) | Not allowed |
| HRA exemption | Yes, full computation | Not allowed |
| Home loan interest (Section 24b) | Up to ₹2 lakh on self-occupied | Allowed only on let-out property |
| NPS contribution (80CCD(1B)) | Up to ₹50,000 extra | Employer's 80CCD(2) allowed; self contribution not |
| Section 87A rebate | Up to ₹12,500 (income ≤ ₹5 lakh) | Up to ₹25,000 (income ≤ ₹7 lakh) |
| Highest slab kicks in at | ₹10 lakh (30%) | ₹15 lakh (30%) |
Real salary examples for FY 2026-27
Case 1 — ₹10 lakh CTC, no investments
If you earn ₹10 lakh and claim only the standard deduction, the new regime is dramatically better. New regime: tax on ₹9.25 lakh = ₹42,500. Old regime: tax on ₹9.5 lakh after standard deduction only = ₹1,02,500. You save ₹60,000 with the new regime.
Case 2 — ₹15 lakh CTC, ₹2 lakh in 80C + ₹25,000 in 80D + ₹2.4 lakh HRA exemption
This is a typical young professional in a metro on rent. Total deductions = ₹4.65 lakh + ₹50,000 standard. New regime tax on ₹14.25 lakh = ₹1,30,000. Old regime tax on ₹9.85 lakh after deductions = ₹98,500. Old regime saves ₹31,500.
Case 3 — ₹25 lakh CTC with ₹3.5 lakh deductions
Senior professional with full 80C + 80D + HRA + ₹2 lakh home loan interest. New regime tax on ₹24.25 lakh ≈ ₹4.50 lakh. Old regime tax on ₹21.5 lakh after ₹3.5 lakh deductions ≈ ₹4.65 lakh. New regime is roughly ₹15,000 cheaper here — the wider slabs and higher standard deduction outweigh the lost ₹3.5 lakh of write-offs.
The break-even rule of thumb
For most salaried taxpayers in 2026, the rule of thumb is: old regime wins only if your total deductions exceed roughly 20–25% of your gross salary. Below that, the new regime's wider slabs and higher standard deduction dominate.
Calculate your liability both ways before filing. The official income tax portal has a free income tax calculator that runs both regimes side by side.
What you can still claim under the new regime
- Standard deduction of ₹75,000
- Employer's contribution to NPS under Section 80CCD(2) — up to 14% of basic salary for government, 10% for private
- Section 24(b) home loan interest on a let-out property (no cap, but only set off against rental income)
- Family pension deduction
- Section 87A rebate up to ₹25,000 if taxable income ≤ ₹7 lakh
Things you lose if you switch from old to new
- Section 80C — PPF, EPF, ELSS, life insurance, home loan principal, tuition fees
- Section 80D — health insurance for self, family, parents
- HRA exemption — often the single biggest deduction for salaried in metros
- LTA, food coupons, professional development allowance
- Home loan interest deduction on self-occupied property
- Section 80E education loan interest, 80G donations, 80TTA savings interest
How to actually choose for FY 2026-27
Step 1: List every deduction you genuinely claim
Pull your previous Form 16 and Form 26AS. Do not include hypothetical investments you might make.
Step 2: Run both regimes on a calculator
Use the InvestingPro tax calculator or the official income tax portal calculator. Enter actual numbers.
Step 3: Decide before April for salary deduction (TDS)
Tell your employer your regime choice early in the financial year. They use this to compute monthly TDS. You can still switch when filing your return — the regime you actually use is locked at filing time, not at TDS time.
Step 4: Consider the lifestyle question
The new regime simplifies tax planning — no scramble for 80C investments in February. The old regime forces you to save into long-locked instruments. For some that is a feature; for others, a bug.
Special situations
If you own a home with a loan
The home loan interest deduction (₹2 lakh) is one of the biggest reasons to stay on the old regime. If your interest payment is ₹2 lakh+ and you have a metro HRA, the old regime usually wins by ₹40,000–60,000 a year.
If you are a senior citizen
The basic exemption under the new regime applies regardless of age now. Senior citizens (60+) under the old regime got ₹3 lakh exemption; super seniors got ₹5 lakh. Run both — for many seniors with FD interest as primary income, old regime + Section 80TTB still wins.
If you have business income
You can switch to the new regime once. After you switch back, you cannot return to the new regime ever (with limited exceptions). Take this seriously — get a CA's opinion before filing for the first time.
Common mistakes to avoid
- Choosing based on slab rates alone. The new regime has lower nominal rates but no deductions. The comparison is total tax, not slab rate.
- Forgetting employer's NPS. Section 80CCD(2) is allowed under both regimes — make sure your employer offers and you opt in.
- Not declaring early. If you do not tell your employer, they default to the new regime and your TDS reflects that. You can still switch at filing, but cash flow during the year differs.
- Ignoring marginal cases. If you are within ₹50,000 either way, pick the simpler regime (new) — the time saved across the year is worth it.
Personal tax planning is one decision a year. Spend an hour on it. The downside of getting it wrong is real money — typically ₹15,000–80,000 depending on income.
For exact computation on your numbers, use our income tax calculator or consult a SEBI-registered tax advisor before locking in your choice for the year.
Frequently Asked Questions
Is the new tax regime mandatory for FY 2026-27?
No. The new regime is the default, but salaried taxpayers can opt for the old regime every year by declaring it to their employer at the start of FY and ticking the option in their ITR.
Can I switch between old and new regime every year?
Yes if you have only salary, capital gains, or other non-business income. If you have business or professional income, you get to switch out of the new regime only once in your lifetime — choose carefully.
What is the break-even point between the two regimes?
For most salaried taxpayers, you need roughly ₹3 lakh of actual deductions (above the standard deduction) for the old regime to be worthwhile. Below ₹2 lakh, the new regime almost always wins.
Does the new regime allow HRA exemption?
No. HRA, LTA, food coupons, and most allowance-based exemptions are not available under the new regime. Only the standard deduction, employer's NPS, and a few specific items survive.
I claim ₹2 lakh home loan interest. Should I stick with the old regime?
Probably yes if you also have HRA or use Section 80C. Run a calculator with your exact numbers — the home loan interest is a strong tilt toward the old regime, but the new regime can still win at very high incomes due to wider slabs.