Budget 2026 left the slabs of both regimes unchanged for FY 2026-27, and the Income-tax Act, 2025 that took effect on 1 April 2026 carries the same structure under new section numbers. So the question for this year is the same as last year, and it can be answered with arithmetic: does the old regime's list of deductions add up to enough to beat the new regime's lower rates?
The two regimes side by side
| New regime (default) | Old regime | |
|---|---|---|
| Basic exemption | ₹4 lakh | ₹2.5 lakh (₹3 lakh at 60, ₹5 lakh at 80) |
| Slabs | 5% to ₹8 lakh, 10% to ₹12 lakh, 15% to ₹16 lakh, 20% to ₹20 lakh, 25% to ₹24 lakh, 30% above | 5% to ₹5 lakh, 20% to ₹10 lakh, 30% above |
| Rebate (section 156; 87A of the 1961 Act) | Full rebate where taxable income is up to ₹12 lakh, with marginal relief just above it | Up to ₹12,500 where taxable income is up to ₹5 lakh |
| Standard deduction (salary and pension) | ₹75,000 | ₹50,000 |
| Deductions allowed | Employer's NPS contribution, family pension deduction, a few others | section 123 (80C of the 1961 Act), section 126 (80D of the 1961 Act), section 124 (80CCD(1B) of the 1961 Act), HRA, LTA, home loan interest up to ₹2 lakh, section 133 (80G of the 1961 Act), section 129 (80E of the 1961 Act), section 153 (80TTA of the 1961 Act) and the rest |
| Surcharge above ₹5 crore | 25% | 37% |
Rebate is available to residents only; NRIs get neither. Cess of 4% applies in both.
Worked examples (salaried, resident)
| Gross salary | Old-regime deductions claimed | Tax — new regime | Tax — old regime | Better |
|---|---|---|---|---|
| ₹12 lakh | None | Nil (rebate) | ₹1,63,800 | New |
| ₹15 lakh | ₹3.5 lakh (section 123 (80C) ₹1.5 lakh, HRA ₹1.5 lakh, section 126 (80D) ₹50,000) | ₹97,500 | ₹1,48,200 | New |
| ₹15 lakh | ₹5.5 lakh (adding ₹2 lakh home loan interest) | ₹97,500 | ₹96,200 | Old, marginally |
| ₹25 lakh | ₹5.5 lakh | ₹3,19,800 | ₹3,97,800 | New |
| ₹25 lakh | ₹8 lakh (section 123 (80C), section 126 (80D), HRA ₹3 lakh, home loan ₹2 lakh, NPS ₹50,000) | ₹3,19,800 | ₹3,19,800 | Break-even |
Figures include standard deduction and 4% cess; rounded. HRA is shown as the exempt amount, which depends on rent paid, salary and city.
The pattern holds across incomes: the new regime wins unless old-regime deductions reach roughly ₹5.5 lakh at ₹15 lakh of salary and about ₹8 lakh at ₹25 lakh. Below ₹12.75 lakh of salary the new regime produces no tax at all and nothing in the old regime can beat that. The taxpayers who still benefit from the old regime are those with a home loan, high rent in a metro and full section 123 (80C) and NPS contributions — a specific and shrinking group.
Rental income
The 30% standard deduction on rent and the deduction of the full interest on a loan against a let-out property are available in both regimes. The old regime additionally allows the loss from a self-occupied house (interest up to ₹2 lakh) to be set off against salary; the new regime does not, and losses under house property cannot be set off against other income under it. A landlord with a large loan on the house he lives in is the classic old-regime case.
Business and professional income
For salaried and other non-business taxpayers, the regime is chosen each year in the return. A taxpayer with business or professional income who wants the old regime must file Form 10-IEA before the return due date, and once they switch back to the new regime they can opt out again only once in their lifetime. Presumptive taxpayers under section 58 (44AD and 44ADA of the 1961 Act) have the same one-time rule. A belated return is processed under the new regime whatever the form says, which is one more reason to file on time.
Making the choice for FY 2026-27
Employees should give their employer the declaration early in the year so TDS is computed on the right regime — the choice given to the employer is not binding in the return, but the mismatch creates a cash-flow problem. Compute both regimes on actual figures in March, not on assumptions. And note that investments made only for section 123 (80C) stop being worthwhile once the new regime is the better answer; the money may be better placed elsewhere.
We run both computations for every return
Send us your Form 16, rent receipts, loan certificate and investment proofs; we compute both regimes, file the right one and, for business taxpayers, the Form 10-IEA where needed. Income tax services or contact us.
Tax, GST and business setup advisors — Mumbai and Thane. Contact us to discuss your situation.
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