Every April the same question comes back at work: old regime or new? Someone in the next seat swears the old one saved them money. Someone else says the new one is simpler. Both can be right, because the answer depends on one thing only: how much you can actually claim as deductions.
This guide works it out in rupees for three salaries, using the slabs for the financial year 2026-27 (April 2026 to March 2027). Budget 2026 left these slabs as they were. We will not guess what suits you; we will show the arithmetic so you can see where your own numbers fall.
The two regimes in one minute
The new regime has lower rates and a higher tax-free limit, but it lets you claim almost none of the familiar deductions. The old regime has higher rates, but lets you subtract things like PF and life insurance premiums, health insurance, home loan interest and house rent allowance before tax is worked out.
Since the new regime became the default, your employer uses it unless you tell them otherwise. You can still choose the old one when you file your return, as long as you do not have business income.
New regime slabs, FY 2026-27
| Taxable income | Rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4 lakh to ₹8 lakh | 5% |
| ₹8 lakh to ₹12 lakh | 10% |
| ₹12 lakh to ₹16 lakh | 15% |
| ₹16 lakh to ₹20 lakh | 20% |
| ₹20 lakh to ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
Two things make the new regime generous at lower incomes. Salaried people get a standard deduction of ₹75,000. And a rebate wipes out the tax completely when taxable income is ₹12 lakh or less. Put together, a salary of up to ₹12.75 lakh pays no income tax at all under the new regime.
Old regime slabs (below 60)
| Taxable income | Rate |
|---|---|
| Up to ₹2.5 lakh | Nil |
| ₹2.5 lakh to ₹5 lakh | 5% |
| ₹5 lakh to ₹10 lakh | 20% |
| Above ₹10 lakh | 30% |
The old regime gives a ₹50,000 standard deduction, and a rebate only up to ₹5 lakh of taxable income. Both regimes add a 4% health and education cess on the tax.
What the old regime lets you subtract
These are the deductions most salaried people actually use. The Income-tax Act 2025 gave them new section numbers from April 2026, but they work the same way:
- Up to ₹1.5 lakh for EPF, PPF, ELSS funds, life insurance premiums, children’s tuition fees and home loan principal (the one people still call 80C).
- Health insurance premiums: up to ₹25,000 for yourself and family, more if you also pay for parents.
- Home loan interest on a house you live in: up to ₹2 lakh a year.
- NPS: an extra ₹50,000 on top of the ₹1.5 lakh.
- House rent allowance, if you pay rent and your salary includes HRA. How much is exempt depends on your rent, basic salary and city.
Example 1: a salary of ₹12 lakh
Say you earn ₹12 lakh a year and claim the common ones under the old regime: ₹1.5 lakh of PF and insurance, ₹25,000 of health insurance.
| New regime | Old regime | |
|---|---|---|
| Salary | ₹12,00,000 | ₹12,00,000 |
| Standard deduction | ₹75,000 | ₹50,000 |
| Other deductions | None allowed | ₹1,75,000 |
| Taxable income | ₹11,25,000 | ₹9,75,000 |
| Tax with 4% cess | ₹0 | ₹1,11,800 |
Under the new regime your taxable income is below ₹12 lakh, so the rebate takes the tax to zero. Under the old regime you pay ₹1,11,800. The new regime saves you ₹1,11,800, and you do not need to keep a single receipt.
Example 2: a salary of ₹20 lakh, with big deductions
Now someone earning ₹20 lakh who claims almost everything the old regime allows: the ₹50,000 standard deduction, ₹1.5 lakh of PF and insurance, ₹25,000 of health insurance, the full ₹2 lakh of home loan interest, ₹50,000 of NPS, and ₹2.4 lakh of HRA exemption. That is ₹7,15,000 of deductions in all.
| New regime | Old regime | |
|---|---|---|
| Salary | ₹20,00,000 | ₹20,00,000 |
| All deductions | ₹75,000 | ₹7,15,000 |
| Taxable income | ₹19,25,000 | ₹12,85,000 |
| Tax with 4% cess | ₹1,92,400 | ₹2,05,920 |
Even with a home loan, NPS and rent, the old regime costs ₹13,520 more here. This surprises a lot of people. The lower rates of the new regime are worth more than ₹7,15,000 of deductions at this salary.
Work it backwards and you get a useful rule of thumb: at ₹20 lakh, the old regime only wins if your deductions, including the standard deduction, come to more than about ₹7.6 lakh.
Example 3: a salary of ₹30 lakh
Same deductions as above, higher salary.
| New regime | Old regime | |
|---|---|---|
| Salary | ₹30,00,000 | ₹30,00,000 |
| All deductions | ₹75,000 | ₹7,15,000 |
| Taxable income | ₹29,25,000 | ₹22,85,000 |
| Tax with 4% cess | ₹4,75,800 | ₹5,17,920 |
The new regime is cheaper again, by ₹42,120. At ₹30 lakh, the old regime needs deductions of more than about ₹8.5 lakh to come out ahead.
So when does the old regime still win?
Only when your deductions are genuinely large compared with your salary. The usual cases are:
- You pay a high rent in a metro and your salary has a large HRA part.
- You have a home loan and pay close to ₹2 lakh of interest a year.
- You already put the full ₹1.5 lakh into PF, PPF or ELSS and ₹50,000 into NPS, and you would do it anyway.
- You pay health insurance for yourself and your parents.
If only one or two of these are true for you, the new regime is very likely cheaper. If all four are, sit down with your numbers, because the old regime might save you money.
A few things people get wrong
- Do not invest just to save tax. Putting money into a product you did not want, only to cut tax, can cost more than the tax you save. Choose the regime after your spending and saving plans, not before.
- Your employer’s choice is not final. Salaried people can pick the regime again when filing each year’s return, as long as there is no business income.
- Look at the take-home, not the rate. A 30% slab sounds harsh, but what matters is the tax on your whole income, which is always lower than the top rate.
- Check the cess and surcharge. Every example here adds the 4% cess. Surcharge only starts above ₹50 lakh of income.
Work out your own numbers
Our free income tax calculator works out both regimes side by side for your own salary and deductions, in your browser. Nothing you type is sent to us.
Frequently asked questions
Is the new tax regime better for everyone?
No, but it is better for most salaried people. The old regime wins only when your deductions are large, for example a big HRA claim plus a home loan plus full PF and NPS.
How much salary is tax free in the new regime for FY 2026-27?
Up to ₹12.75 lakh for a salaried person: the ₹75,000 standard deduction brings taxable income to ₹12 lakh, and the rebate removes the tax up to that point.
Can I switch between the regimes every year?
If you have only salary income, yes. You can choose when you file the return each year, whatever you told your employer.
Do I still get HRA exemption in the new regime?
No. HRA exemption, home loan interest on a house you live in, and the ₹1.5 lakh deductions are not available in the new regime.
This is general information to help you compare, not tax advice. Tax rules can change with each Budget; check the Income Tax Department’s own pages or a qualified adviser before you decide.
Updated 17 Oct 2026.
