Old vs new tax regime: which is better for you in 2026-27?

The new regime is the default. It has lower slab rates, a standard deduction of ₹75,000 for salaried people and a rebate that makes taxable income up to ₹12 lakh tax-free. In exchange, it allows almost none of the familiar deductions and exemptions.

The old regime keeps the higher slabs (30% from ₹10 lakh of taxable income) and a smaller standard deduction of ₹50,000, but lets you subtract HRA exemption, up to ₹1,50,000 of investments (formerly Section 80C), health insurance premiums, up to ₹50,000 of your own NPS contribution, up to ₹2,00,000 of interest on a self-occupied home loan, and professional tax. The employer's NPS contribution is deductible in both.

So the question is simple to state: are your deductions large enough to make up for the higher old regime rates? The answer depends on your salary, and the amount needed is larger than most people expect.

The table shows, for a salary with no other income, the tax under each regime before any deductions, and the total deductions you would need in the old regime (on top of its standard deduction) for it to cost no more than the new one. Tax includes 4% cess and, where it applies, surcharge.

• Up to a salary of ₹12.75 lakh the new regime tax is zero, so the old regime can only match it, never beat it.
• At ₹15 lakh you need about ₹5,44,000 of deductions. 80C and health cover alone do not get you there.
• Above about ₹25 lakh the break-even settles at roughly ₹8.01 lakh, because both regimes then tax each extra rupee at 30%.
• Without HRA, the common deductions add up to about ₹4.28 lakh. The old regime usually needs a large HRA exemption, a home loan, or both.

Take an employee on a salary of ₹25 lakh with a basic of ₹1,00,000 a month and HRA of ₹40,000. They pay rent of ₹45,000 a month in a metro, invest the full ₹1,50,000 in EPF and PPF plus ₹50,000 in NPS, pay ₹25,000 for family health cover and pay at least ₹2,00,000 of interest on a home loan for a house they own and occupy in their home town.

The HRA exemption is the least of the HRA received, rent minus 10% of basic, and 50% of basic in a metro, which here comes to ₹4,20,000. With all of these deductions the old regime is cheaper by ₹14,820 a year.

Take away the home loan and the old regime would cost ₹3,67,380 against ₹3,19,800 in the new regime, so the new regime would be cheaper. For many people the home loan interest is what decides the choice.

The old regime tends to win only when several large deductions come together:

• you pay high rent in a city where your HRA exemption is large, often ₹2 lakh or more a year;
• you pay substantial interest on a home loan for a self-occupied house, up to the ₹2,00,000 limit;
• you already use the full ₹1,50,000 through EPF, PPF, life cover or home loan principal, and add own NPS;
• your salary is high enough that the break-even has levelled off, so each deduction saves tax at 30%.

The new regime is the better choice if your salary is up to ₹12.75 lakh, if you live in your own house without a loan, or if you would be investing only to save tax. At the 30% slab a deduction saves 31.2% of what you put in (before any surcharge), so it is never worth buying a product you do not otherwise need.

1. List the deductions you will actually have this year: HRA exemption, 80C investments, health cover, own NPS, home loan interest and professional tax.
2. Compare the total with the break-even figure for your salary, or enter everything in the income tax calculator.
3. Declare your choice to your employer at the start of the year so the right TDS is deducted each month. If you do not declare, the new regime is applied.
4. If you have only salary and other non-business income, you can still pick either regime when you file your return, even if it differs from what you told your employer.
5. If you have business or professional income, the freedom to switch back and forth is restricted, so decide carefully before opting out of the new regime.