New Tax Regime vs Old Regime: A Line-by-Line Comparison for FY 2026-27
A worked comparison of the new tax regime vs old regime for FY 2026-27 — slabs, standard deduction, the Section 87A rebate, and when each one actually wins.
For most salaried employees choosing between the new tax regime vs old regime for FY 2026-27, the new regime wins if you don't claim large deductions like HRA, 80C investments or a home loan — its slabs are wider and, thanks to the Section 87A rebate, income up to ₹12,00,000 a year is effectively tax-free after the standard deduction. The old regime can still win if your HRA exemption, 80C investments (PF, ELSS, life insurance), and a home loan or NPS contribution together push your deductions past roughly ₹4–5 lakh. There's no universal right answer — it depends entirely on your own numbers — so this article walks through both slab structures, the rebate math, and a full worked comparison on a ₹10,00,000 salary so you can run your own.
The Slabs, Side by Side
Both regimes tax income in slabs, but the new regime has more slabs at lower rates and a much higher tax-free threshold before rebate is even applied.
| Income Slab | New Regime Rate | Old Regime Rate |
|---|---|---|
| Up to ₹2,50,000 | Nil | Nil |
| ₹2,50,000 – ₹4,00,000 | Nil | 5% |
| ₹4,00,000 – ₹5,00,000 | 5% | 5% |
| ₹5,00,000 – ₹8,00,000 | 5% | 20% |
| ₹8,00,000 – ₹10,00,000 | 10% | 20% |
| ₹10,00,000 – ₹12,00,000 | 10% | 30% |
| ₹12,00,000 – ₹16,00,000 | 15% | 30% |
| ₹16,00,000 – ₹20,00,000 | 20% | 30% |
| ₹20,00,000 – ₹24,00,000 | 25% | 30% |
| Above ₹24,00,000 | 30% | 30% |
On top of the tax computed from these slabs, both regimes add a 4% health and education cess, and the same surcharge structure applies above ₹50 lakh of income in either regime. The real differences are the standard deduction, the rebate, and which exemptions and deductions you're allowed to claim underneath the slabs — not the surcharge rules.
Standard Deduction: ₹75,000 vs ₹50,000
Every salaried taxpayer gets a flat standard deduction against salary income, no bills or proof required. Under the new regime it's ₹75,000; under the old regime it's ₹50,000. This alone shifts ₹25,000 of income out of the taxable base if you pick the new regime, before you even look at slabs.
The Section 87A Rebate: Why "Up to ₹12 Lakh Tax-Free" Gets Repeated
Section 87A gives a rebate — not an exemption, a rebate that cancels out tax already computed — to taxpayers below a specific income threshold. Under the new regime, the rebate is up to ₹60,000, which fully cancels the tax liability for taxable income up to ₹12,00,000. Under the old regime, the rebate is a much smaller ₹12,500, cancelling tax only up to a taxable income of ₹5,00,000. This is the single biggest reason the new regime is now the default for most salaried employees without large deductions: it isn't that the slab rates in isolation are dramatically lower, it's that the rebate erases tax entirely for a much wider income band.
One important catch: this rebate applies only up to the exact threshold. Cross it by even a small amount — say, taxable income of ₹12,00,500 under the new regime — and you're taxed on the full slab-wise amount from ₹0, not just the excess over ₹12,00,000, though marginal relief provisions typically cap the extra tax to the amount by which you exceeded the threshold. This is a frequent point of confusion, so don't assume a small bonus or increment won't matter if you're right at the edge of ₹12,00,000.
What You Lose Under the New Regime
The new regime's simplicity comes at a cost: most exemptions and deductions available under the old regime aren't allowed under the new one. That includes:
- HRA exemption — even if you pay significant rent, you can't claim it against taxable income under the new regime.
- Section 80C — investments in EPF, PPF, ELSS, life insurance premiums and principal repayment on a home loan, up to ₹1,50,000/year, aren't deductible under the new regime.
- Section 80D — health insurance premiums aren't deductible under the new regime.
- Home loan interest (Section 24) — interest on a home loan for a self-occupied property, up to ₹2,00,000/year under the old regime, isn't available under the new regime.
- LTA — leave travel allowance exemption on actual travel bills isn't available either.
If your salary structure and life stage genuinely use several of these — you're paying meaningful rent, you have an EPF/PPF/insurance habit already, or you're servicing a home loan — the old regime can still come out ahead even with its narrower slabs and smaller rebate, because the deductions reduce your taxable income before any slab is applied.
A Worked Comparison: ₹10,00,000 Annual Salary
Take a salaried employee earning ₹10,00,000 a year, with ₹1,80,000 in eligible old-regime deductions: ₹1,20,000 HRA exemption and ₹60,000 in Section 80C investments (EPF plus one insurance policy). No home loan.
| Step | New Regime (₹) | Old Regime (₹) |
|---|---|---|
| Gross Salary | 10,00,000 | 10,00,000 |
| Less: Standard Deduction | 75,000 | 50,000 |
| Less: HRA Exemption | 0 | 1,20,000 |
| Less: Section 80C | 0 | 60,000 |
| Taxable Income | 9,25,000 | 7,70,000 |
| Tax before rebate (slab-wise) | 32,500 | 66,500 |
| Section 87A Rebate | 32,500 (taxable income ₹9,25,000 is under the ₹12,00,000 threshold, so the full computed tax is rebated) | 0 (taxable income is above the old regime's ₹5,00,000 rebate threshold) |
| Tax after rebate | 0 | 66,500 |
| Add: 4% Cess | 0 | 2,660 |
| Final Tax Payable | ₹0 | ≈₹69,160 |
In this specific case, the new regime wins decisively — because taxable income after just the standard deduction (₹9,25,000) stays under the ₹12,00,000 rebate threshold, the entire tax liability is wiped out by Section 87A. The old-regime taxpayer, even after claiming both HRA and 80C, still owes roughly ₹69,160. For the old regime to close this gap, this employee would need deductions large enough to bring taxable income down further, which typically requires a home loan or substantially higher rent and 80C investments than in this example. This is one worked scenario, not a universal outcome — run your own salary and actual deductions through the in-hand salary calculator before deciding, since the answer flips depending on your specific numbers.
When the Old Regime Still Wins
The old regime tends to come out ahead when several large deductions stack together — typically home loan interest (up to ₹2,00,000), a near-maximum HRA claim in a metro, and a full ₹1,50,000 of Section 80C investments. Add those up and you're often looking at ₹4,00,000–₹5,00,000 of deductions, which can bring taxable income low enough that the old regime's smaller rebate and higher rates still land below the new regime's tax. If you're a fresher without a home loan and minimal 80C investments so far, the new regime is very likely the better default — but if you already have a home loan or a well-established PF and insurance habit, it's worth running both calculations rather than assuming.
A Second Worked Example: ₹15,00,000 Salary With a Home Loan and High Rent
The gap narrows — and can even flip — once deductions get genuinely large. Take an employee earning ₹15,00,000 a year with a ₹6,00,000 annual basic, paying ₹25,000/month rent in a metro (a common situation for someone who owns a home financed by a loan in their hometown but works and rents in a different city), claiming the full ₹1,50,000 under Section 80C, and ₹2,00,000 of home loan interest under Section 24.
| Step | New Regime (₹) | Old Regime (₹) |
|---|---|---|
| Gross Salary | 15,00,000 | 15,00,000 |
| Less: Standard Deduction | 75,000 | 50,000 |
| Less: HRA Exemption | 0 | 2,40,000 |
| Less: Section 80C | 0 | 1,50,000 |
| Less: Home Loan Interest (Sec 24) | 0 | 2,00,000 |
| Taxable Income | 14,25,000 | 8,60,000 |
| Tax before rebate (slab-wise) | 93,750 | 84,500 |
| Section 87A Rebate | 0 (taxable income above the ₹12,00,000 threshold) | 0 (taxable income above the old regime's ₹5,00,000 threshold) |
| Add: 4% Cess | 3,750 | 3,380 |
| Final Tax Payable | ≈₹97,500 | ≈₹87,880 |
Here the old regime wins, but only by around ₹9,600 for the year — roughly ₹800 a month — despite stacking HRA, full 80C and the maximum home loan interest deduction. That margin is the honest picture: even with genuinely large, realistic deductions, the new regime's wider slabs and bigger rebate threshold have closed most of the old regime's traditional advantage. If your deductions are smaller than this — say, just 80C without a home loan — the new regime typically wins even at this income level. This is exactly why "just pick whichever regime saves more on paper for your specific numbers" beats any rule of thumb, including this article's own examples.
The One Deduction Both Regimes Allow: Employer NPS Contributions
Section 80CCD(2) — the deduction for an employer's contribution to your NPS account — is one of the few benefits available under both regimes, which is why it's frequently flagged as the new regime's one remaining lever. Under the old regime, private-sector employees can claim this deduction up to 10% of basic+DA; under the new regime, that limit rises to 14% of basic+DA for both private and government employees, a change introduced in a recent Budget. It only helps if your employer actually offers a structured NPS contribution as part of your CTC — it isn't something you can unilaterally claim by investing in NPS yourself under the new regime, that's a different provision (Section 80CCD(1B)) available only under the old regime. If you're negotiating a new offer and your CTC structure allows it, asking payroll to route a portion of your compensation through employer NPS is worth doing regardless of which regime you pick, precisely because it's one of the only levers that survives both.
Can You Switch Between Regimes Every Year?
Salaried employees without business income can switch between the new and old regime every financial year when filing their return, regardless of what they declared to their employer for TDS purposes during the year. If your employer over- or under-deducted TDS based on your declared regime, you reconcile the difference — refund or additional payment — at the time of filing. Self-employed individuals and those with business income have more restrictive switching rules, so this flexibility mainly benefits salaried employees.
How This Interacts With Your Salary Structure
Your regime choice also affects how your CTC should ideally be structured. Under the old regime, a higher HRA and a Section 80C-eligible structure (like an employer-facilitated NPS contribution) reduce your taxable income meaningfully. Under the new regime, those structuring choices barely matter for tax purposes since most exemptions aren't available — so a simpler, higher-Basic structure with fewer named allowances doesn't cost you anything under the new regime. If you're negotiating a new offer, understanding this can inform how you ask HR to structure your salary slip components, and how the PF portion in particular gets treated — see our PF deduction explainer for that piece specifically.
Tax rules change with every Union Budget — slabs, rebate thresholds and deduction limits have all moved in recent years, and they can move again. Verify the current figures against the Income Tax Department's official e-filing portal or a qualified tax professional before making a decision, and treat this article as general information rather than personalised financial advice.
Frequently asked questions
Which is better, the new tax regime or the old regime?
It depends on your deductions. If you don't have significant HRA, 80C investments, or home loan interest to claim, the new regime almost always wins because of its higher standard deduction (₹75,000) and the Section 87A rebate, which makes taxable income up to ₹12,00,000 effectively tax-free. If your eligible deductions add up to roughly ₹4-5 lakh or more, the old regime can still come out ahead.
Is income up to ₹12 lakh really tax-free under the new regime?
For salaried taxpayers, taxable income (after the ₹75,000 standard deduction) up to ₹12,00,000 attracts a Section 87A rebate of up to ₹60,000, which cancels the computed tax entirely. Crossing the threshold removes the rebate, though marginal relief limits the extra tax to the amount by which you exceeded it. This is not the same as gross salary being tax-free — it applies to taxable income after the standard deduction.
Can I switch between the new and old tax regime every year?
Yes, if you're a salaried employee without business income — you can choose either regime each year when filing your return, independent of what you declared to your employer for TDS. Employees with business income face more restrictive switching rules.
What deductions can I no longer claim under the new tax regime?
The new regime removes HRA exemption, Section 80C (EPF, PPF, ELSS, insurance premiums), Section 80D (health insurance), home loan interest under Section 24, and LTA exemption, among others. You keep the flat ₹75,000 standard deduction and the employer's NPS contribution deduction, but most other exemptions are gone.
Do tax slabs and the 87A rebate change every year?
Yes — both have changed in recent Union Budgets and can change again. Always verify the current financial year's slabs, standard deduction and rebate threshold against the Income Tax Department's official guidance before filing or making a regime decision, rather than relying on a previous year's figures.