New vs old tax regime 2026-27: slabs, rebate and which to choose

Quick answer: For FY 2026-27 the new regime has nil tax up to ₹4 lakh, then 5% to 30% in ₹4 lakh steps, plus a ₹60,000 rebate — so income up to ₹12 lakh is tax-free, or ₹12.75 lakh for salaried people after the ₹75,000 standard deduction. The old regime only wins if your deductions (80C, HRA, home loan interest, 80D and so on) add up to roughly ₹6 lakh or more at a ₹15 lakh salary — and the bar rises as income goes up.

Key takeaways

• The new regime is the default. If you do nothing, your employer and the ITR use it.
• Salaried people earning up to ₹12.75 lakh pay zero tax under the new regime.
• From 1 April 2026, the Income-tax Act, 2025 replaced the 1961 Act. Rates didn't change, but section numbers did — 80C is now section 123.
• Salaried people can switch every year. People with business income can switch back only once.
• The old regime usually helps only with big HRA + home loan + full 80C together.

Every April, your employer asks which regime you want for TDS. Picking the wrong one can cost you thousands — or just lock up money in TDS until your refund. This guide lays out both slab structures, runs real numbers at different salaries, shows the break-even level of deductions, and explains what changed with the new Income-tax Act.

#New tax regime slabs (FY 2026-27)

What else you get under the new regime:

• Standard deduction: ₹75,000 for salaried people and pensioners
• Rebate: up to ₹60,000, which makes tax zero if taxable income is ₹12 lakh or less
• Marginal relief: if your income is just above ₹12 lakh, your tax can't be more than the amount above ₹12 lakh
• Employer NPS contribution (old 80CCD(2)) up to 14% of basic pay is still deductible
• Family pension deduction and agniveer corpus deductions continue

Add 4% health and education cess on the tax. Surcharge applies above ₹50 lakh.

#Old tax regime slabs (FY 2026-27)

• Senior citizens (60–80): nil up to ₹3 lakh. Super seniors (80+): nil up to ₹5 lakh.
• Standard deduction: ₹50,000
• Rebate: up to ₹12,500, so tax is zero if taxable income is ₹5 lakh or less
• You keep all the familiar deductions and exemptions (listed below).

#What you give up in the new regime

#Worked examples: tax at different salaries

Assumptions for the old regime: ₹50,000 standard deduction, full ₹1.5 lakh 80C and ₹25,000 80D. The "heavy" column also adds ₹1.8 lakh HRA exemption and ₹2 lakh home loan interest. All figures include 4% cess.

Example: At a ₹15 lakh salary, the new regime tax is ₹97,500. To beat it, you'd need about ₹6 lakh of deductions in the old regime — full 80C, 80D, a large HRA exemption and ₹2 lakh of home loan interest. Even then you save only about ₹2,300.

At ₹20 lakh and above, the new regime wins even with heavy deductions, because its lower slab rates save more than the deductions do.

#Marginal relief just above ₹12 lakh

Without relief, crossing ₹12 lakh by ₹1 would cost ₹60,000+ in tax. Marginal relief prevents that: your tax can't be more than your income above ₹12 lakh.

Example: A salaried person earning ₹12.85 lakh has taxable income of ₹12.10 lakh. Normal tax would be ₹61,500, but marginal relief caps it at ₹10,000 (the amount above ₹12 lakh), plus cess = ₹10,400.

#How to decide in 3 steps

1. Add up your real deductions — only what you'll actually pay: 80C, 80D, NPS 80CCD(1B), HRA exemption, home loan interest, LTA.
2. Compare with the break-even. As a rough guide:

3. Run both on the Income Tax Department's official calculator with your actual numbers before telling your employer.

Tip: Don't buy insurance or ELSS just to save tax in the old regime. If the new regime is cheaper, invest based on goals, not deductions.

#When the old regime still makes sense

• You pay high rent in a metro (large HRA exemption) and
• You have a home loan with big interest on a self-occupied house and
• You already max out 80C (EPF often covers most of it) and pay health insurance for parents.

If you have only one or two of these, the new regime usually wins.

#Switching between regimes

• Salaried, no business income: choose every year — tell your employer at the start of the year for TDS, and you can still pick the other regime when filing the ITR.
• Business or professional income: the new regime is the default. You can opt out with Form 10-IEA before the due date, and you can switch back to the new regime only once in your lifetime.
• If you chose one regime with your employer but the other is better, choose it in the ITR — any extra TDS comes back as a refund. See how to file ITR online.

#What changed with the Income-tax Act, 2025

From 1 April 2026, the new Act replaced the Income-tax Act, 1961:

• "Tax year" replaces "previous year" and "assessment year" in the law.
• Rates and slabs stayed the same — the change was meant to simplify, not raise tax.
• Section numbers changed: 80C → 123, NPS → 124, 80D → 126, standard deduction → 19, 80TTA/80TTB → 153, capital gains exemptions (54 etc.) → 82–86.

Your Form 16 and the ITR forms will start using the new numbers. If you see "section 123" where you expected 80C, it's the same deduction.

#Common mistakes

• Assuming the old regime is better because you "have 80C". EPF alone often fills 80C — and it may still not be enough.
• Forgetting the standard deduction when checking the ₹12 lakh limit — salaried people get ₹12.75 lakh.
• Claiming HRA without paying rent or without rent receipts — this gets flagged.
• Missing employer NPS (80CCD(2)) — it works in both regimes; ask HR if it's offered.
• Not telling your employer — if you don't, TDS defaults to the new regime.

Tip: Enter your salary and deductions in our income tax calculator to see both regimes side by side for FY 2026-27.

#Frequently asked questions

Is income up to ₹12 lakh really tax-free?

Yes, under the new regime the ₹60,000 rebate makes tax zero if taxable income is ₹12 lakh or less. Salaried people get ₹75,000 standard deduction on top, so ₹12.75 lakh salary is tax-free.

Does the rebate apply to capital gains?

Not to special-rate income like short-term gains on shares (section 111A) or long-term gains (112A). Those are taxed at their own rates even if total income is under ₹12 lakh.

Can I claim HRA in the new regime?

No. HRA exemption is available only in the old regime.

Which regime is better for ₹10 lakh salary?

The new regime — tax is zero up to ₹12.75 lakh salary.

Can I switch regimes every year?

Yes, if you have no business income. Business owners can switch back to the new regime only once.

Has 80C been removed?

No. It's now section 123 under the Income-tax Act, 2025, and it's available only in the old regime.

Is the new regime compulsory?

No. It's the default, but you can choose the old regime.

#Sources

• Business Today — Deductions and section numbers under the new Income-tax Act (Budget 2026)
• BankBazaar — Income tax slabs FY 2026-27
• Business Standard — 80C deductions move to section 123
• Income Tax Department — Tax calculator
• Bajaj Finserv — Income Tax Act 2025 key features