New vs Old Tax Regime 2026-27: Which Saves More Tax?

For most salaried people the new regime is cheaper in tax year 2026-27, and anyone earning up to ₹12.75 lakh pays nothing under it. The old regime only wins when deductions are large: roughly ₹5.4 lakh of them at a ₹15 lakh salary, and ₹8 lakh from ₹25 lakh upwards. The slabs did not change when the Income-tax Act, 2025 took effect on 1 April 2026, so last year's logic still holds, with one twist: the 50% HRA limit now covers eight cities, which helps some old-regime renters.

The two regimes at a glance

The new regime, the default under section 202, has lower rates and almost no deductions:

It keeps the ₹75,000 standard deduction and a rebate under section 156 (the old 87A) of up to ₹60,000 when taxable income is ₹12 lakh or less, so a salary of up to ₹12.75 lakh is tax-free. The mechanics are in income up to ₹12 lakh explained.

The old regime keeps higher slabs (nil up to ₹2.5 lakh, 5% to ₹5 lakh, 20% to ₹10 lakh, 30% above) but allows the full menu of deductions: section 123, the old 80C, up to ₹1.5 lakh, HRA, home loan interest, health insurance, NPS and more. Its standard deduction is ₹50,000 and its rebate only ₹12,500, for taxable income up to ₹5 lakh.

Both add a 4% cess.

Worked examples at four salary levels

Salary is the only income, and in the old regime the person claims realistic deductions.

₹8 lakh salary

• New regime: taxable income ₹7.25 lakh. The slab tax of ₹16,250 is wiped out by the rebate. Tax: ₹0.
• Old regime: even with the full ₹1.5 lakh under section 123, taxable income is ₹6 lakh and the tax is ₹33,800 with cess.

₹12 lakh salary

• New regime: taxable income ₹11.25 lakh; the ₹52,500 slab tax is fully covered by the rebate. Tax: ₹0.
• Old regime: with ₹1.5 lakh in section 123 and ₹50,000 of NPS, taxable income is ₹9.5 lakh and the tax is ₹1,06,600.

To match zero here you would need deductions of about ₹6.5 lakh. See the monthly in-hand for ₹12 LPA for the take-home figure.

₹18 lakh salary

• New regime: taxable income ₹17.25 lakh. Tax: ₹1,50,800 with cess.
• Old regime: with ₹2.25 lakh of deductions (section 123, NPS and health insurance), taxable income is ₹15.25 lakh and the tax is ₹2,80,800. Adding an HRA exemption of ₹3 lakh brings it down to ₹1,87,200, still more than the new regime.

₹30 lakh salary

• New regime: taxable income ₹29.25 lakh. Tax: ₹4,75,800 with cess.
• Old regime: with ₹4.25 lakh of deductions (section 123, NPS, health insurance and ₹2 lakh of home loan interest), the tax is ₹5,92,800.

The new regime wins in all four. For your own figures, run both regimes in the income tax calculator.

The break-even deductions

The old regime only beats the new one when your deductions and exemptions, beyond the standard deduction, offset its higher rates. Worked out with the calculator:

That is not "section 123 and done" territory. You only get there by stacking a large HRA exemption, ₹2 lakh of home loan interest, a full section 123, NPS and health insurance.

Who should still pick the old regime

• Parents claiming education and hostel allowances, which the Income-tax Rules, 2026 raised to ₹3,000 and ₹9,000 a month per child; see the new allowance limits.
• High-rent tenants with a large HRA component. From 2026-27 renters in Bengaluru, Hyderabad, Pune and Ahmedabad get the 50% HRA limit too, so a few more of them now cross the break-even. Check the exact exemption with the HRA exemption calculator.
• Home loan borrowers claiming the full ₹2 lakh of interest, especially alongside HRA.
• People with commitments that already fill the deduction limits, such as older high-premium insurance policies.

If none of these describe you, the new regime almost certainly leaves more money in your account.

At the very top, above ₹50 lakh, a surcharge applies. The new regime caps it at 25%, while the old regime goes to 37% above ₹5 crore. The surcharge guide covers the thresholds and the marginal relief around them.

How to switch

The new regime is the default. Your employer asks for your choice at the start of the year for TDS, but if you have only salary income you can pick either regime when you file, and switch again the next year. With business or professional income the switch is restricted, so check with a CA.

Frequently asked questions

Which tax regime is better for 2026-27, new or old?

For most salaried people, the new regime. Anyone earning up to ₹12.75 lakh pays nothing under it, and at higher salaries it stays ahead unless total deductions are very large.

How much deduction do I need for the old regime to be better?

About ₹5.4 lakh at a ₹15 lakh salary, ₹6.4 lakh at ₹18 lakh, ₹7.1 lakh at ₹20 lakh and ₹8 lakh from ₹25 lakh up. Those totals are far beyond section 123 alone.

Can I switch between the new and old regime every year?

Yes, if you have only salary income. You choose each year when filing, whatever you told your employer for TDS. With business income the switch is restricted.

Did the regimes change under the Income-tax Act, 2025?

The slabs, the standard deduction and the rebate stayed the same. The new regime moved to section 202, the rebate to section 156, and 80C to section 123. The HRA city list, which matters only in the old regime, grew from four cities to eight.

Do I lose HRA exemption in the new regime?

Yes. HRA, section 123 investments, health insurance, home loan interest on a self-occupied house and most other deductions are not available. The standard deduction and the employer's NPS contribution are among the few that remain.