26 September 2026 · Ruhu AI
Old vs new tax regime: how to choose
Since the new tax regime became the default, the same question comes up every year: should you stay with the old regime and its deductions, or move to the new one with its lower slab rates? There is no single right answer, it depends on how much you claim in deductions. This guide explains the trade-off in plain English, shows you the break-even logic, and walks through an example, so you can decide with numbers instead of guesswork.
The two regimes, in one line
The old regime taxes you at higher slab rates but lets you reduce your taxable income with a long list of deductions and exemptions. The new regime taxes you at lower slab rates but removes most of those deductions. So the choice comes down to a simple test: are the deductions you actually claim worth more than the rate cut the new regime gives you?
At a glance (FY 2026-27)
| Feature | Old regime | New regime |
|---|---|---|
| Basic exemption | ₹2,50,000 (₹3,00,000 if 60–80, ₹5,00,000 if 80+) | ₹4,00,000 |
| Standard deduction (salaried) | ₹50,000 | ₹75,000 |
| Section 87A rebate (income up to) | ₹5,00,000 | ₹12,00,000 |
| Section 87A rebate (max) | ₹12,500 | ₹60,000 |
| 80C / 80D / HRA / LTA / home-loan interest (self-occupied) | Allowed | Not allowed |
| Employer NPS 80CCD(2) | Allowed | Allowed |
| Highest surcharge | 37% | Capped at 25% |
| Default regime | No | Yes |
New regime slabs (FY 2026-27)
| Total income | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Plus 4% health & education cess.
Old regime slabs (FY 2026-27)
| Total income | Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Basic exemption is ₹3,00,000 for senior citizens (60–80) and ₹5,00,000 for super seniors (80+). Plus 4% cess.
What you give up in the new regime
The new regime's lower rates come at a price: most deductions are not available. Before you switch, check whether you claim any of these, each one you lose narrows the gap:
- 80C (LIC, PPF, ELSS, EPF, home-loan principal)
- 80D (health insurance)
- HRA and LTA exemptions
- Home-loan interest on a self-occupied property (s.24(b))
- 80CCD(1B) (the ₹50,000 self NPS contribution)
- 80E, 80G, 80TTA/80TTB and most other Chapter VI-A deductions
Still allowed under the new regime: the standard deduction (₹75,000), employer's NPS contribution under 80CCD(2), and home-loan interest on a let-out property.
The break-even logic: when each regime wins
- You likely benefit from the OLD regime if you make full use of 80C, pay a home loan, claim HRA, and have health insurance, so your total deductions are large.
- You likely benefit from the NEW regime if you claim few or no deductions, or prefer simplicity and higher take-home without locking money into tax-saving instruments.
The exact crossover depends on your income and deductions, so compute both ways.
A worked example (illustrative)
A salaried person earning ₹15,00,000 who would claim ₹4,00,000 of deductions in the old regime (₹1.5L under 80C + ₹2L self-occupied home-loan interest + the standard deduction):
- Old regime: taxable ₹11,00,000 → tax ₹1,42,500 + 4% cess = ₹1,48,200
- New regime: taxable ₹14,25,000 (after ₹75,000 standard deduction) → tax ₹93,750 + 4% cess = ₹97,500
- Better here: the new regime, by about ₹50,700.
In this scenario the break-even sits around ₹4.75–5.0 lakh of old-regime deductions. Below that the new regime wins; above it, the old regime starts to. Figures are illustrative, your result depends on your exact income and deductions.
Salaried vs business: the choice works differently
- Salaried and pensioners (no business income) can choose freely every year at filing, no separate form is needed, just pick the old regime in the ITR.
- Business or professional income taxpayers must formally opt out to use the old regime, and can switch back into the new regime only once, after which they are locked into it while they have business income. Under the new Income-tax Act, 2025 this option is exercised through the return; confirm the exact form/procedure with your CA.
How to switch, and how often
The new regime is the default, so if you do nothing you're taxed under it. Decide before you file. Salaried taxpayers can change their choice each year; business taxpayers should understand the once-only switch-back rule before opting out.
The new Act section numbers (FY 2026-27)
The Income-tax Act, 2025 renumbers the provisions this guide refers to. The rules and amounts are unchanged; only the section numbers move, and most people still search and speak in the old numbers, so here is the mapping.
| Provision | 1961 Act | New Act, 2025 |
|---|---|---|
| New (default) regime | 115BAC | 202 |
| Rebate | 87A | 156 |
| Standard deduction (salary) | 16(ia) | 19 |
| Home-loan interest | 24(b) | 22 |
| HRA exemption | 10(13A) | Schedule II (with s.11) |
| 80C deductions | 80C | 123 |
| NPS (self / employer) | 80CCD | 124 |
| Health insurance | 80D | 126 |
Confirm a specific number on CBDT's official 1961-vs-2025 comparison utility before relying on it. Note the new s.156 (rebate) is a different provision from the old s.156 (notice of demand, now s.289).
FAQ
Which tax regime is the default? The new regime. If you make no choice, you're taxed under it.
Can I change my regime every year? Salaried taxpayers, yes, each year at filing. Business/professional taxpayers face the once-only switch-back restriction.
Does the new regime allow the standard deduction? Yes, ₹75,000 for salaried taxpayers (higher than the old regime's ₹50,000).
Is the new regime always better for high earners? No, it depends on deductions claimed, not income alone. A high earner with a home loan, HRA and full 80C may still be better off under the old regime. Compute both.
Where can I calculate this quickly? Ruhu's income-tax calculator applies the current-year slabs and shows both regimes side by side.