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

Every April, salaried employees face the same decision: which tax regime should I choose? The new tax regime has been the default since FY 2023-24, but the old regime is still available for those who benefit from deductions. This guide helps you figure out which one saves more tax for your income level and financial situation.

The two regimes at a glance

New regime slabs (FY 2026-27)

Section 87A rebate: up to ₹60,000 for taxable income ≤ ₹12,00,000. 4% cess on tax. Standard deduction: ₹75,000.

Old regime slabs (FY 2026-27)

Section 87A rebate: ₹12,500 for taxable income ≤ ₹5,00,000. 4% cess on tax. Standard deduction: ₹50,000. Deductions: 80C (max ₹1.5L), 80D, HRA, Section 24(b) home-loan interest (max ₹2L).

Side-by-side tax comparison

Here is the tax payable under each regime for a salaried employee at various gross salary levels, with no old-regime deductions claimed:

Assumes no old-regime deductions. Includes 4% cess. New regime advantage shrinks as you add deductions in old regime.

When does the old regime win?

The old regime wins when your total deductions are large enough to offset its higher slab rates. The key deductions are:

• Section 80C: Up to ₹1.5 lakh (EPF, ELSS, PPF, LIC, principal repayment on home loan)
• HRA exemption: Variable — use the HRA calculator to find yours
• Section 24(b): Home-loan interest up to ₹2 lakh for self-occupied property
• Section 80D: Health insurance premium (₹25,000 self + ₹25,000 parents)
• NPS additional deduction: ₹50,000 under 80CCD(1B)

Who should choose the new regime?

The new regime is the right choice for most salaried employees in FY 2026-27, particularly if:

• You have no home loan — so Section 24(b) interest deduction isn't available to you
• You live in company accommodation or with your parents — no HRA exemption to claim
• Your 80C investments are modest — perhaps you are early in your career with lower EPF contributions and haven't built other 80C investments yet
• You prefer simplicity — no need to collect rent receipts, investment proofs, or submit declarations to HR
• Your CTC is under ₹15 lakh — the combination of lower slab rates and the generous ₹12.75L zero-tax threshold often gives a clear advantage

At very high incomes (above ₹5 crore), the new regime caps surcharge at 25% versus 37% in the old regime, making it the preferred option regardless of deductions.

Who should consider the old regime?

The old regime works in your favour when you have multiple substantial deductions that together add up to ₹3.5 lakh or more. This typically means you have at least two or three of these:

• Home loan with significant interest: Section 24(b) allows up to ₹2 lakh deduction on home-loan interest for a self-occupied property. In the early years of a loan when interest is highest, this alone can save you ₹60,000–₹80,000 in tax at a 30% marginal rate.
• Full 80C utilisation: EPF contributions + PPF + ELSS + LIC can fill the ₹1.5 lakh 80C ceiling. If your employer EPF already contributes ₹1 lakh+, a small additional investment fills the cap.
• High HRA in a metro city: If you pay significant rent in Mumbai, Delhi, Kolkata, or Chennai, the HRA exemption can be substantial — particularly on a high basic salary.
• NPS under 80CCD(1B): An additional ₹50,000 deduction specifically for NPS contributions, on top of the 80C ceiling. Available only in the old regime.
• Health insurance premiums: Up to ₹25,000 for self and family, and another ₹25,000–₹50,000 for parents under 80D.

Deductions still available in the new regime

The new regime eliminates most deductions, but a few important ones remain:

• Standard deduction — ₹75,000: Automatically applied for all salaried employees. No proof needed, no declaration required.
• Employer NPS — Section 80CCD(2): If your employer contributes to your NPS account, that amount — up to 10% of basic for private-sector employees, 14% for central government employees — is deductible even in the new regime. This is the single most valuable deduction left in the new regime. If your company offers NPS as an employer benefit, opt in.
• Gratuity and leave encashment exemptions: Statutory exemptions on payouts at retirement or separation remain available.
• Perquisites for official use: Laptops, mobile phones, and equipment provided by the employer for official use are not taxable as salary under either regime.

What is not available in the new regime: HRA exemption, Section 80C (EPF, ELSS, PPF, LIC), Section 24(b) home-loan interest, Section 80D health insurance, LTA exemption, and most other common deductions.

How to inform your employer of your regime choice

Your employer deducts TDS from your salary every month. To compute it correctly, they need to know which tax regime you are using for the year.

• When: At the start of the financial year (April), your employer asks for an investment declaration. This is when you declare your regime choice for TDS purposes for the whole year.
• How: Most companies handle this through their HRMS portal (GreytHR, Darwinbox, SAP, Workday, etc.). If you are in the old regime, you declare your expected investments and deductions so TDS is computed correctly. If you choose new regime, you simply don't declare deductions — TDS is computed on gross salary minus ₹75,000 standard deduction.
• If you say nothing: New regime is the default. If you don't submit a declaration, your employer will deduct TDS under the new regime.
• Mid-year change: You generally cannot change your regime mid-year for TDS purposes. The choice you make at the start of the year applies for TDS across all 12 months.
• At ITR filing time: You can switch regime when you file your ITR (by July 31). Switched from new to old? Claim your deductions in the ITR and get a refund of excess TDS. Switched from old to new? Pay the difference as self-assessment tax. This flexibility means the worst outcome of picking the "wrong" regime mid-year is a timing difference — not a permanent loss.

Surcharge for incomes above ₹50 lakh

For high earners, a surcharge applies on top of the base income tax. The surcharge rates are the same under both regimes except at the very top:

If your income exceeds ₹5 crore, the new regime is strongly preferred regardless of deductions — the 12-percentage-point surcharge difference outweighs almost any deduction benefit. For most salaried employees under ₹50 lakh, surcharge is not applicable.

Frequently asked questions

Disclaimer: Tax comparisons are illustrative and based on standard assumptions. Individual situations vary. Surcharge for incomes above ₹50 lakh is not included. This is not tax advice — consult a CA for your specific situation.