Old vs new tax regime for FY 2026-27: how to decide for your salary

Every April your employer asks which tax regime you want for TDS, and a lot of people answer by gut feel or by whatever a colleague picked. The choice is narrower than it looks. For FY 2026-27 the new regime is the default, its slabs are wide, and salaried people get a ₹75,000 standard deduction in it. The old regime keeps its deductions but taxes whatever is left much harder. So the useful question isn't which regime is better in general. It's whether your deductions add up to enough.

This guide works through that with actual numbers. Every figure below comes from the same slab tables the income tax calculator uses, so you can re-run any example with your own salary.

The two rule sets side by side

These are the FY 2026-27 slabs for a resident individual below 60. Both regimes add 4% health and education cess on top of the slab tax.

Three more differences matter. The standard deduction on salary is ₹75,000 in the new regime and ₹50,000 in the old. The rebate under section 87A wipes out tax entirely in the new regime if taxable income is ₹12 lakh or less (rebate up to ₹60,000); in the old regime it only reaches taxable income of ₹5 lakh (rebate up to ₹12,500). And the new regime gives up nearly all the deductions people plan their year around: 80C, 80D, the HRA exemption, interest on a self-occupied home loan and the extra ₹50,000 for NPS under 80CCD(1B). Even professional tax is deductible only in the old regime.

Example 1: ₹12,75,000 salary, right on the zero-tax line

Take Meera, whose gross salary for the year is ₹12,75,000. In the new regime her taxable income is ₹12,75,000 − ₹75,000 = ₹12,00,000. Slab tax is ₹20,000 (5% on the ₹4 lakh between ₹4 and ₹8 lakh) plus ₹40,000 (10% on the next ₹4 lakh), so ₹60,000. Her taxable income sits exactly at the ₹12 lakh limit, so the rebate cancels all ₹60,000. Tax: zero.

For the old regime to also reach zero, Meera's taxable income would have to fall to ₹5 lakh. That needs total deductions of ₹7,75,000, counting the ₹50,000 standard deduction and ₹2,500 professional tax. With only those two, her old-regime bill would be ₹1,86,420. Almost nobody at this salary has ₹7.75 lakh of genuine deductions, so for Meera the decision makes itself.

There's a small trap just above the line. At ₹13,00,000 gross, taxable income is ₹12,25,000 and slab tax is ₹63,750. The rebate no longer applies, but marginal relief caps the tax at the amount by which taxable income exceeds ₹12 lakh, here ₹25,000. Add 4% cess and the bill is ₹26,000. Crossing the line by ₹25,000 doesn't cost you ₹63,750, but it isn't free either.

Example 2: ₹15 lakh, renting in Mumbai

Ravi earns ₹15,00,000 gross. His basic is ₹6,00,000, his HRA is ₹3,00,000 and he pays ₹30,000 a month in rent in Mumbai. The HRA exemption is the lowest of three figures: HRA actually received (₹3,00,000), rent paid minus 10% of basic (₹3,60,000 − ₹60,000 = ₹3,00,000) and 50% of basic for a metro (₹3,00,000). All three land on ₹3,00,000, which is about as good as HRA gets for him. The HRA calculator runs this three-way test on your own numbers.

New regime first. Taxable income is ₹14,25,000. Slab tax is ₹20,000 + ₹40,000 + ₹33,750 (15% of the ₹2,25,000 above ₹12 lakh) = ₹93,750. Cess adds ₹3,750, for a total of ₹97,500.

Old regime, with deductions he can genuinely claim: ₹50,000 standard deduction, ₹2,500 professional tax, ₹3,00,000 HRA, ₹1,50,000 under 80C (his own EPF of ₹72,000 already fills about half of that), ₹25,000 of health insurance under 80D and ₹50,000 of NPS under 80CCD(1B). That's ₹5,77,500 in total, leaving taxable income of ₹9,22,500. Tax is ₹12,500 + 20% of ₹4,22,500 (₹84,500) = ₹97,000, plus ₹3,880 cess, so ₹1,00,880.

The new regime still wins, by ₹3,380, with HRA maxed out and every common deduction used. Now suppose Ravi also pays ₹50,000 a year for his senior-citizen parents' health cover. That's another ₹50,000 under 80D. Deductions rise to ₹6,27,500, taxable income drops to ₹8,72,500 and old-regime tax falls to ₹90,480 (₹87,000 plus ₹3,480 cess). Now the old regime is ₹7,020 cheaper. One premium flipped the answer.

The breakeven: how much you need to deduct

Examples help, but the more useful figure is the breakeven: the total old-regime deductions at which both regimes cost the same. Above it, old wins. Below it, new wins. Here's that number at a few salaries, with the ₹50,000 standard deduction and ₹2,500 professional tax counted inside the total.

The last row stops moving, and it's worth seeing why. Once taxable income is above ₹24 lakh in the new regime and above ₹10 lakh in the old, both charge 30% on every extra rupee, so the gap between them is fixed. New-regime slab tax on the first ₹24 lakh is ₹3,00,000. Old-regime slab tax on the first ₹10 lakh is ₹1,12,500. Set the two bills equal: ₹3,00,000 + 30% × (salary − ₹75,000 − ₹24,00,000) = ₹1,12,500 + 30% × (salary − deductions − ₹10,00,000). The salary cancels out, leaving ₹1,87,500 = 30% × (₹14,75,000 − deductions), so deductions = ₹8,50,000 at any salary in that range.

Now put that against what a salaried person can typically claim. Standard deduction ₹50,000, professional tax ₹2,500, 80C ₹1,50,000, 80D for yourself ₹25,000, 80D for senior parents ₹50,000, NPS under 80CCD(1B) ₹50,000, and home loan interest on a self-occupied house ₹2,00,000. That adds up to ₹5,27,500. Without a large HRA exemption on top, ₹8.5 lakh is out of reach.

Example 3: ₹30 lakh with a home loan

Say Anil earns ₹30,00,000, lives in the flat he owns and pays more than ₹2 lakh a year in home loan interest. He claims every deduction in that list: ₹5,27,500. His old-regime taxable income is ₹24,72,500. Tax is ₹1,12,500 + 30% of ₹14,72,500 (₹4,41,750) = ₹5,54,250, plus ₹22,170 cess, so ₹5,76,420.

In the new regime his taxable income is ₹29,25,000. Tax is ₹3,00,000 + 30% of ₹5,25,000 (₹1,57,500) = ₹4,57,500, plus ₹18,300 cess, so ₹4,75,800. The new regime is ₹1,00,620 cheaper despite the home loan, full 80C and both 80D claims. To break even he'd need another ₹3,22,500 of deductions, and there's no common item that size left to claim.

This catches people who chose the old regime a few years ago and never checked again. The new-regime slabs have been widened since then, and a setup that won comfortably before may lose now.

What to check before you lock it in

• Count only deductions you'll actually have. Rent you really pay, with receipts (and the landlord's PAN once annual rent crosses ₹1 lakh). Premiums in your name or your family's. Investments made within the financial year, not ones you mean to make.
• Separate what you'd do anyway from what you'd buy for tax. If most of your 80C is mandatory EPF, it costs nothing extra. If you'd be buying a policy you don't want just to fill the limit, weigh the tax saved against that product's return. The Section 80C calculator shows how much of the ₹1,50,000 you've already used.
• Look at income beyond salary. Interest, rent and capital gains change the totals. Equity capital gains are taxed at their own special rates in both regimes, so they rarely swing the choice, but interest income does add to the slab-rate total.
• Employer NPS doesn't tilt it. Employer contributions to NPS are deductible in the new regime as well, within a percentage-of-salary cap, so they don't belong in the breakeven sum. Confirm the current cap with payroll.

Switching, and when the choice is final

If you have only salary income and no business or professional income, you can pick the regime each year when you file your return, regardless of what you told your employer in April. The declaration to your employer only decides how much TDS is deducted month to month. If you declared the new regime and later find the old one cheaper, you claim it in the return and the excess TDS comes back as a refund. If the regime you file under works out costlier than what was deducted, you pay the difference as self-assessment tax before filing. People with business income face much tighter limits on switching back and forth, and that's a situation where a CA's view is worth paying for.

My approach is simple. Before you fill the employer's form, list the deductions you're sure of for this year, not the ones you hope to make, and add them up including the standard deduction and professional tax. Compare the total with the breakeven row nearest your salary. If you're more than ₹1 lakh below it, the new regime is almost certainly cheaper and you can stop there. If you're within ₹50,000 of it either way, run both regimes in the salary calculator, which also shows how the choice changes your monthly take-home. And if you're not sure where your gross salary figure comes from in the first place, the guide to CTC versus in-hand salary walks through it line by line.