Old Tax Regime vs New Tax Regime for Salaried Employees in India (FY 2026-27): Which One Saves More Tax?
“Should I choose the old tax regime or the new one?”
This is the single most asked tax question by salaried employees in India. Every year, during investment declaration season, millions of employees stare at the form their HR department sends and wonder which box to tick.
The answer is not the same for everyone. It depends on your salary level, where you live, whether you have a home loan, how much you invest in tax saving instruments, and whether you pay rent. At certain salary levels, the new regime wins by a wide margin. At others, the old regime can save you lakhs.
This guide gives you a clear, number by number comparison at multiple salary levels so you can make the right choice for FY 2026-27 (AY 2027-28). No vague advice. Just tables with actual rupee amounts.
What Changed for FY 2026-27?
Before diving into comparisons, let us address the biggest question: did anything change this year?
| Item | FY 2025-26 | FY 2026-27 | Changed? |
| New Regime Tax Slabs | 0% to 30% in 7 slabs | Same | No |
| Old Regime Tax Slabs | 0%, 5%, 20%, 30% | Same | No |
| Standard Deduction (New Regime) | ₹75,000 | ₹75,000 | No |
| Standard Deduction (Old Regime) | ₹50,000 | ₹50,000 | No |
| Section 87A Rebate (New Regime) | ₹60,000 (income up to ₹12 lakh) | ₹60,000 (income up to ₹12 lakh) | No |
| Section 87A Rebate (Old Regime) | ₹12,500 (income up to ₹5 lakh) | ₹12,500 (income up to ₹5 lakh) | No |
| Section 80C Limit | ₹1,50,000 | ₹1,50,000 | No |
| Section 80D Limit | ₹25,000 / ₹50,000 | ₹25,000 / ₹50,000 | No |
| HRA Exemption Rules | Available in old regime | Same | No |
| Governing Law | Income Tax Act, 1961 | Income Tax Act, 2025 | Yes (new act, same rates) |
| Default Regime | New Regime | New Regime | No |
| ITR Filing Deadline | July 31 | July 31 | No |
| Revised Return Window | 9 months from end of AY | 12 months from end of AY | Yes |
Key takeaway: The tax slabs, deductions, and exemptions are identical to last year. The Income Tax Act, 2025 replaced the 1961 Act from April 1, 2026, but the section numbers changed while the deduction principles and amounts stayed the same. So your calculation from last year still holds.
Tax Slabs: Side by Side Comparison
New Tax Regime (Default) for FY 2026-27
| Income Slab | Tax Rate |
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Plus: 4% Health and Education Cess on total tax
Rebate: Section 87A rebate of ₹60,000 if total income does not exceed ₹12,00,000
Effective zero tax: Salary up to ₹12,75,000 (₹12 lakh + ₹75,000 standard deduction)
Surcharge cap: Maximum surcharge is 25% (even for income above ₹5 crore)
Old Tax Regime for FY 2026-27
| Income Slab | Tax Rate |
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 to ₹5,00,000 | 5% |
| ₹5,00,001 to ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Plus: 4% Health and Education Cess on total tax
Rebate: Section 87A rebate of ₹12,500 if total income does not exceed ₹5,00,000
Effective zero tax: Salary up to approximately ₹5,50,000 (₹5 lakh + ₹50,000 standard deduction)
Surcharge: Up to 37% for income above ₹5 crore
Visual Slab Comparison
| Income Level | Old Regime Rate | New Regime Rate | Which Is Lower? |
| ₹3,00,000 | 5% | 0% | New |
| ₹5,00,000 | 5% | 5% | Same |
| ₹7,00,000 | 20% | 5% | New |
| ₹9,00,000 | 20% | 10% | New |
| ₹11,00,000 | 30% | 10% | New |
| ₹15,00,000 | 30% | 15% | New |
| ₹20,00,000 | 30% | 20% | New |
| ₹25,00,000 | 30% | 30% | Same |
Looking at slabs alone, the new regime wins at almost every income level. The old regime catches up only when you add deductions and exemptions. That is the real comparison we need to make.
Deductions and Exemptions: What Is Available Where?
This is the most important table in this entire guide. The old regime’s advantage comes entirely from the deductions and exemptions it allows. The new regime offers simplicity with lower slab rates but strips away most deductions.
Deductions Available ONLY in the Old Regime
| Section | Deduction | Maximum Limit |
| Section 80C | PPF, EPF (employee share), ELSS, LIC premium, home loan principal, tuition fees, NSC, Sukanya Samriddhi, 5 year FD | ₹1,50,000 |
| Section 80CCD(1B) | Additional NPS contribution by employee | ₹50,000 |
| Section 80D | Health insurance premium (self and family) | ₹25,000 (₹50,000 for senior citizens) |
| Section 80D | Health insurance for parents | ₹25,000 (₹50,000 if parents are senior citizens) |
| Section 80E | Education loan interest | No limit (full interest amount) |
| Section 80G | Donations to approved funds | 50% or 100% of donation |
| Section 80TTA | Savings bank interest | ₹10,000 |
| Section 80TTB | Interest income for senior citizens | ₹50,000 |
| Section 80EEA | Home loan interest (affordable housing) | ₹1,50,000 |
| Section 80DD | Medical treatment of dependent with disability | ₹75,000 or ₹1,25,000 |
| Section 80U | Individual with disability | ₹75,000 or ₹1,25,000 |
| Section 10(13A) | HRA Exemption | Based on formula |
| Section 10(5) | Leave Travel Allowance | Actual travel expenses |
| Section 24(b) | Home Loan Interest (self occupied) | ₹2,00,000 |
| Section 24(b) | Home Loan Interest (let out) | No limit |
Deductions Available in BOTH Regimes
| Deduction | Old Regime | New Regime |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Professional Tax | Up to ₹2,500 | Up to ₹2,500 |
| Section 80CCD(2): Employer NPS Contribution | 10% of Basic + DA (14% for government employees) | 14% of Basic + DA for all employees |
| Conveyance Allowance (disabled employees) | Available | Available |
| Transport Allowance (disabled employees) | Available | Available |
| Gratuity Exemption | Available | Available |
| Leave Encashment Exemption | Available | Available |
| VRS Exemption (Section 10(10C)) | ₹5,00,000 | ₹5,00,000 |
| Employer PF Contribution | Exempt | Exempt |
Maximum Possible Deductions Under Old Regime
For a salaried employee making full use of all available deductions:
| Deduction | Annual Amount |
| Standard Deduction | ₹50,000 |
| Section 80C (full limit) | ₹1,50,000 |
| Section 80CCD(1B) (NPS) | ₹50,000 |
| Section 80D (self + parents, all below 60) | ₹50,000 |
| HRA Exemption (metro city, moderate rent) | ₹1,50,000 to ₹2,50,000 |
| Home Loan Interest (Section 24(b)) | ₹2,00,000 |
| Professional Tax | ₹2,500 |
| Total Potential Deductions | ₹6,52,500 to ₹7,52,500 |
Very few employees actually claim all of these. Most salaried individuals claim Standard Deduction, Section 80C, Section 80D, and possibly HRA or home loan interest. The typical realistic deduction range is ₹2,50,000 to ₹4,50,000.
Head to Head Tax Comparison at Every Salary Level
Now for the part everyone wants: actual numbers. We will calculate tax under both regimes at six different salary levels. These are Gross Salary figures (not CTC).
Comparison at ₹6,00,000 Gross Salary
| Item | Old Regime | New Regime |
| Gross Salary | ₹6,00,000 | ₹6,00,000 |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Professional Tax | ₹2,500 | ₹2,500 |
| Section 80C | ₹1,50,000 | Not available |
| Section 80D | ₹25,000 | Not available |
| Taxable Income | ₹3,72,500 | ₹5,22,500 |
| Tax Before Rebate | ₹6,125 | ₹6,125 |
| Section 87A Rebate | ₹6,125 | ₹6,125 |
| Tax After Rebate | ₹0 | ₹0 |
| Cess | ₹0 | ₹0 |
| Total Tax Payable | ₹0 | ₹0 |
Winner at ₹6 LPA: Tie. Both regimes result in zero tax. The new regime is simpler because you do not need to make any investments or submit proofs.
Comparison at ₹8,00,000 Gross Salary
| Item | Old Regime | New Regime |
| Gross Salary | ₹8,00,000 | ₹8,00,000 |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Professional Tax | ₹2,500 | ₹2,500 |
| Section 80C | ₹1,50,000 | Not available |
| Section 80D | ₹25,000 | Not available |
| HRA Exemption | ₹0 (assumed no HRA claim) | Not available |
| Taxable Income | ₹5,72,500 | ₹7,22,500 |
| Tax Calculation | ₹2,500 (nil) + ₹12,500 (5%) + ₹14,500 (20%) = ₹27,000 | ₹0 (up to ₹4L) + ₹16,125 (5%) = ₹16,125 |
| Section 87A Rebate | ₹0 (income exceeds ₹5 lakh) | ₹16,125 (income below ₹12 lakh) |
| Tax Before Cess | ₹27,000 | ₹0 |
| Cess (4%) | ₹1,080 | ₹0 |
| Total Tax Payable | ₹28,080 | ₹0 |
Winner at ₹8 LPA: New Regime by ₹28,080. The new regime gives you zero tax thanks to the Section 87A rebate, while the old regime taxes you because your income exceeds the ₹5 lakh rebate threshold even after deductions.
Comparison at ₹10,00,000 Gross Salary
| Item | Old Regime | New Regime |
| Gross Salary | ₹10,00,000 | ₹10,00,000 |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Professional Tax | ₹2,500 | ₹2,500 |
| Section 80C | ₹1,50,000 | Not available |
| Section 80D | ₹25,000 | Not available |
| HRA Exemption | ₹1,20,000 (rent ₹15,000/month assumed) | Not available |
| Taxable Income | ₹6,52,500 | ₹9,22,500 |
| Tax Calculation | ₹0 + ₹12,500 + ₹30,500 = ₹43,000 | ₹0 + ₹20,000 + ₹12,250 = ₹32,250 |
| Section 87A Rebate | ₹0 | ₹32,250 (income below ₹12 lakh) |
| Tax Before Cess | ₹43,000 | ₹0 |
| Cess (4%) | ₹1,720 | ₹0 |
| Total Tax Payable | ₹44,720 | ₹0 |
Winner at ₹10 LPA: New Regime by ₹44,720. Even with ₹3,47,500 in total deductions under the old regime, the new regime wins because its ₹12 lakh rebate threshold wipes out the entire tax liability.
Comparison at ₹15,00,000 Gross Salary
| Item | Old Regime | New Regime |
| Gross Salary | ₹15,00,000 | ₹15,00,000 |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Professional Tax | ₹2,500 | ₹2,500 |
| Section 80C | ₹1,50,000 | Not available |
| Section 80D (self + parents) | ₹50,000 | Not available |
| HRA Exemption | ₹1,80,000 (rent ₹20,000/month in metro) | Not available |
| NPS 80CCD(1B) | ₹50,000 | Not available |
| Home Loan Interest (Section 24(b)) | ₹0 (no home loan) | Not available |
| Taxable Income | ₹10,17,500 | ₹14,22,500 |
| Tax Calculation | ₹0 + ₹12,500 + ₹1,00,000 + ₹5,250 = ₹1,17,750 | ₹0 + ₹20,000 + ₹40,000 + ₹33,375 = ₹93,375 |
| Section 87A Rebate | ₹0 | ₹0 (income exceeds ₹12 lakh) |
| Tax Before Cess | ₹1,17,750 | ₹93,375 |
| Cess (4%) | ₹4,710 | ₹3,735 |
| Total Tax Payable | ₹1,22,460 | ₹97,110 |
Winner at ₹15 LPA (without home loan): New Regime by ₹25,350. Even with ₹4,82,500 in deductions under the old regime, the new regime still wins.
But what if you also have a home loan? Adding ₹2,00,000 home loan interest under the old regime:
| With Home Loan | Old Regime | New Regime |
| Additional Deduction: Home Loan Interest | ₹2,00,000 | Not available |
| Revised Taxable Income | ₹8,17,500 | ₹14,22,500 |
| Revised Tax + Cess | ₹67,860 | ₹97,110 |
| Winner | Old Regime by ₹29,250 |
This is the crossover point. At ₹15 LPA, adding a home loan to your deduction basket tips the scale in favor of the old regime.
Comparison at ₹20,00,000 Gross Salary
| Item | Old Regime | New Regime |
| Gross Salary | ₹20,00,000 | ₹20,00,000 |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Professional Tax | ₹2,500 | ₹2,500 |
| Section 80C | ₹1,50,000 | Not available |
| Section 80D (self + parents) | ₹50,000 | Not available |
| HRA Exemption | ₹2,40,000 (rent ₹25,000/month in metro) | Not available |
| NPS 80CCD(1B) | ₹50,000 | Not available |
| Home Loan Interest | ₹2,00,000 | Not available |
| Taxable Income | ₹12,57,500 | ₹19,22,500 |
| Tax Calculation | ₹0 + ₹12,500 + ₹1,00,000 + ₹77,250 = ₹1,89,750 | ₹0 + ₹20,000 + ₹40,000 + ₹60,000 + ₹64,500 = ₹1,84,500 |
| Section 87A Rebate | ₹0 | ₹0 |
| Cess (4%) | ₹7,590 | ₹7,380 |
| Total Tax Payable | ₹1,97,340 | ₹1,91,880 |
Winner at ₹20 LPA (with full deductions including home loan): New Regime by ₹5,460. Even with approximately ₹7,42,500 in deductions, the new regime barely wins. The old regime becomes better only if you can push deductions beyond ₹7,50,000, which very few employees achieve.
Without home loan at ₹20 LPA:
| Without Home Loan | Old Regime | New Regime |
| Taxable Income | ₹14,57,500 | ₹19,22,500 |
| Tax + Cess | ₹2,59,740 | ₹1,91,880 |
| Winner | New Regime by ₹67,860 |
Comparison at ₹30,00,000 Gross Salary
| Item | Old Regime | New Regime |
| Gross Salary | ₹30,00,000 | ₹30,00,000 |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Professional Tax | ₹2,500 | ₹2,500 |
| Section 80C | ₹1,50,000 | Not available |
| Section 80D (self + parents, parents senior) | ₹75,000 | Not available |
| HRA Exemption | ₹3,00,000 (rent ₹35,000/month in metro) | Not available |
| NPS 80CCD(1B) | ₹50,000 | Not available |
| Home Loan Interest | ₹2,00,000 | Not available |
| Taxable Income | ₹21,72,500 | ₹29,22,500 |
| Tax Calculation | ₹0 + ₹12,500 + ₹1,00,000 + ₹3,51,750 = ₹4,64,250 | ₹0 + ₹20,000 + ₹40,000 + ₹60,000 + ₹80,000 + ₹1,00,000 + ₹1,56,750 = ₹4,56,750 |
| Cess (4%) | ₹18,570 | ₹18,270 |
| Total Tax Payable | ₹4,82,820 | ₹4,75,020 |
Winner at ₹30 LPA (with maximum deductions): New Regime by ₹7,800. Even at ₹30 lakh salary with every deduction maxed out including home loan, the new regime still wins slightly. The old regime’s deduction caps (₹1.5 lakh for 80C, ₹2 lakh for home loan interest) cannot keep pace with the new regime’s wider slab structure.
The Breakeven Table: How Much Deduction Makes Old Regime Win?
This is the most useful table in this guide. It tells you exactly how much in deductions (beyond standard deduction) you need to claim under the old regime to make it cheaper than the new regime.
| Gross Salary | New Regime Tax (₹) | Breakeven Deduction Needed in Old Regime | Realistic to Achieve? |
| ₹6,00,000 | ₹0 | Not applicable (both are zero tax) | N/A |
| ₹8,00,000 | ₹0 | ₹2,50,000+ | Very difficult (rebate gap too large) |
| ₹10,00,000 | ₹0 | ₹4,50,000+ | Nearly impossible |
| ₹12,75,000 | ₹0 | ₹7,25,000+ | Impossible |
| ₹15,00,000 | ₹97,110 | ₹3,25,000 to ₹5,50,000 | Possible with home loan |
| ₹20,00,000 | ₹1,91,880 | ₹7,00,000 to ₹7,50,000 | Difficult |
| ₹25,00,000 | ₹3,19,800 | ₹8,00,000+ | Very difficult |
| ₹30,00,000 | ₹4,75,020 | ₹8,00,000+ | Nearly impossible |
The pattern is clear: For salary up to ₹12,75,000, the new regime wins every time because the Section 87A rebate makes your tax zero. Between ₹13 lakh and ₹18 lakh, the old regime can win if you have a home loan plus full 80C and HRA claims. Above ₹20 lakh, the deduction caps under the old regime make it extremely difficult to beat the new regime.
Decision Framework: Which Regime Should You Choose?
Quick Decision Flowchart
| Your Situation | Recommended Regime | Reason |
| Gross salary up to ₹12,75,000 | New Regime | Zero tax regardless of deductions |
| Salary ₹13L to ₹18L, no home loan, low deductions (below ₹2L) | New Regime | Lower slab rates win easily |
| Salary ₹13L to ₹18L, home loan + full 80C + HRA claim | Old Regime | Total deductions cross ₹5.5 lakh breakeven |
| Salary ₹13L to ₹18L, home loan but no HRA (own house) | Case by case | Depends on exact deduction total |
| Salary above ₹20L, no home loan | New Regime | Cannot reach ₹7L+ deductions without home loan |
| Salary above ₹20L, with home loan + HRA + full 80C + 80D + NPS | Compare carefully | Close contest, calculate both |
| Salary above ₹50L | New Regime usually | 25% surcharge cap vs 37% in old regime |
| You do not want to track investments | New Regime | Zero paperwork, zero proof submission |
The Home Loan Factor
Home loan interest deduction (Section 24(b)) is the single biggest swing factor. It can shift the comparison by ₹40,000 to ₹60,000 in tax savings under the old regime.
| Home Loan Scenario | Interest Paid Annually | Deduction Under Old Regime | Available in New Regime? |
| Self occupied property, loan up to ₹35 lakh | ₹2,50,000 to ₹3,50,000 | ₹2,00,000 (capped) | No |
| Self occupied property, loan above ₹35 lakh | ₹3,50,000+ | ₹2,00,000 (capped) | No |
| Let out property | ₹2,50,000 to ₹5,00,000 | Full interest (no cap) | No |
| Pre construction interest | Up to ₹2,00,000 (in 5 installments) | ₹40,000 per year for 5 years | No |
Note: If you own a home and have an active home loan, the old regime almost always deserves a serious look. The ₹2 lakh interest deduction plus ₹1.5 lakh principal under 80C (total ₹3.5 lakh from home loan alone) is a powerful combination that the new regime simply cannot match.
The HRA Factor
HRA exemption is the second biggest swing factor, especially for employees living in metro cities and paying high rent.
| Monthly Rent | City Type | Approximate Annual HRA Exemption | Conditions |
| ₹10,000 | Metro | ₹72,000 to ₹96,000 | Depends on basic salary and actual HRA received |
| ₹15,000 | Metro | ₹1,08,000 to ₹1,44,000 | Higher basic = higher exemption |
| ₹20,000 | Metro | ₹1,44,000 to ₹1,92,000 | Must have rent receipts |
| ₹25,000 | Metro | ₹1,80,000 to ₹2,40,000 | Landlord PAN required if rent exceeds ₹1 lakh/year |
| ₹30,000 | Metro | ₹2,16,000 to ₹3,00,000 | Only available in old regime |
| ₹10,000 | Non-metro | ₹48,000 to ₹72,000 | 40% of basic (vs 50% for metro) |
| ₹15,000 | Non-metro | ₹72,000 to ₹1,08,000 | Lower exemption than metro |
HRA Exemption is calculated as the minimum of three amounts:
- Actual HRA received from employer
- Rent paid minus 10% of basic salary
- 50% of basic salary (metro cities: Mumbai, Delhi, Chennai, Kolkata) or 40% of basic salary (other cities)
If you live in your own house or do not pay rent, HRA exemption is zero, which significantly weakens the case for the old regime.
Five Real Life Employee Scenarios
Scenario 1: Fresh Graduate in Bengaluru (₹7 LPA CTC)
| Detail | Value |
| Age | 24 years |
| CTC | ₹7,00,000 |
| Gross Salary | ₹6,40,000 |
| Lives in | Shared apartment, pays ₹8,000/month rent |
| Home Loan | No |
| Investments | ₹50,000 in ELSS (80C) |
| Health Insurance | ₹0 (covered under parents) |
| Regime | Taxable Income | Tax Payable |
| New Regime | ₹5,62,500 | ₹0 (rebate applies) |
| Old Regime | ₹4,87,500 | ₹0 (rebate applies) |
Verdict: New Regime. Both give zero tax, but the new regime requires no investment proof submission or paperwork.
Scenario 2: Mid Level Professional in Mumbai (₹14 LPA CTC)
| Detail | Value |
| Age | 30 years |
| CTC | ₹14,00,000 |
| Gross Salary | ₹12,60,000 |
| Lives in | Rented apartment, ₹22,000/month |
| Home Loan | No |
| Investments | ₹1,50,000 (full 80C) |
| Health Insurance | ₹15,000 (80D) |
| Item | Old Regime | New Regime |
| Gross Salary | ₹12,60,000 | ₹12,60,000 |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Professional Tax | ₹2,500 | ₹2,500 |
| 80C | ₹1,50,000 | ₹0 |
| 80D | ₹15,000 | ₹0 |
| HRA Exemption | ₹1,52,400 | ₹0 |
| Taxable Income | ₹8,90,100 | ₹11,82,500 |
| Tax + Cess | ₹85,340 | ₹0 (rebate applies) |
Verdict: New Regime saves ₹85,340. Despite claiming nearly ₹3.7 lakh in deductions under the old regime, the new regime’s ₹12 lakh rebate threshold makes everything zero.
Scenario 3: Senior Manager in Delhi with Home Loan (₹22 LPA CTC)
| Detail | Value |
| Age | 36 years |
| CTC | ₹22,00,000 |
| Gross Salary | ₹19,80,000 |
| Lives in | Own flat (EMI ₹45,000/month) |
| Home Loan | Yes, interest component ₹3,20,000/year |
| Investments | ₹1,50,000 (80C) + ₹50,000 NPS (80CCD(1B)) |
| Health Insurance | ₹25,000 self + ₹25,000 parents (80D) |
| HRA | ₹0 (lives in own house) |
| Item | Old Regime | New Regime |
| Gross Salary | ₹19,80,000 | ₹19,80,000 |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Professional Tax | ₹2,500 | ₹2,500 |
| 80C | ₹1,50,000 | ₹0 |
| 80CCD(1B) NPS | ₹50,000 | ₹0 |
| 80D | ₹50,000 | ₹0 |
| Home Loan Interest (24(b)) | ₹2,00,000 (capped) | ₹0 |
| HRA | ₹0 | ₹0 |
| Taxable Income | ₹14,77,500 | ₹19,02,500 |
| Tax + Cess | ₹2,64,680 | ₹1,87,460 |
Verdict: New Regime saves ₹77,220. Despite ₹4,52,500 in deductions (including home loan), the new regime still wins because there is no HRA exemption (own house). The old regime would need HRA of around ₹2,50,000+ on top of everything else to beat the new regime here.
Scenario 4: Senior Professional in Mumbai, Renting + Home Loan on Investment Property (₹28 LPA CTC)
| Detail | Value |
| Age | 40 years |
| CTC | ₹28,00,000 |
| Gross Salary | ₹25,20,000 |
| Lives in | Rented apartment, ₹35,000/month |
| Home Loan | Yes, on let out property, interest ₹3,80,000/year |
| Investments | ₹1,50,000 (80C) + ₹50,000 NPS |
| Health Insurance | ₹25,000 self + ₹50,000 parents (senior) |
| Rental Income from Property | ₹18,000/month |
| Item | Old Regime | New Regime |
| Gross Salary | ₹25,20,000 | ₹25,20,000 |
| Income from House Property | ₹2,16,000 rent minus 30% deduction minus ₹3,80,000 interest = Net loss ₹2,28,800 | ₹2,16,000 rent minus 30% deduction = ₹1,51,200 (no interest deduction) |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Professional Tax | ₹2,500 | ₹2,500 |
| 80C | ₹1,50,000 | ₹0 |
| 80CCD(1B) NPS | ₹50,000 | ₹0 |
| 80D | ₹75,000 | ₹0 |
| HRA Exemption | ₹2,88,000 | ₹0 |
| Home Loan Interest | Included in house property calculation | ₹0 |
| Taxable Income | ₹16,75,700 | ₹25,93,700 |
| Tax + Cess | ₹3,06,146 | ₹3,88,466 |
Verdict: Old Regime saves ₹82,320. This is a textbook case where the old regime wins. The combination of high HRA (₹2.88 lakh), home loan interest on let out property (₹3.80 lakh, uncapped), full 80C, 80D, and NPS pushes total deductions well past ₹8 lakh.
Scenario 5: CXO Level Executive (₹50 LPA CTC)
| Detail | Value |
| Age | 48 years |
| CTC | ₹50,00,000 |
| Gross Salary | ₹45,00,000 |
| All possible deductions claimed | Yes |
| Total deductions (old regime) | ₹8,75,000 |
| Item | Old Regime | New Regime |
| Taxable Income | ₹35,72,500 | ₹44,22,500 |
| Tax | ₹8,46,750 | ₹7,86,750 |
| Surcharge (15% old, 15% new, for income ₹50L to ₹1Cr) | Not applicable at this income level | Not applicable |
| Cess (4%) | ₹33,870 | ₹31,470 |
| Total Tax | ₹8,80,620 | ₹8,18,220 |
Verdict: New Regime saves ₹62,400. Even at ₹50 LPA with maximum possible deductions, the new regime still wins. Above ₹50 lakh, the surcharge differential (25% cap in new regime vs 37% in old regime) further widens the gap.
Summary: Old Regime vs New Regime at Every Salary Level
| Gross Salary | Tax in New Regime | Tax in Old Regime (with typical deductions) | Tax in Old Regime (with home loan + HRA + max deductions) | Better Regime (typical case) |
| ₹6,00,000 | ₹0 | ₹0 | ₹0 | Tie (New is simpler) |
| ₹8,00,000 | ₹0 | ₹28,080 | ₹10,400 | New Regime |
| ₹10,00,000 | ₹0 | ₹44,720 | ₹20,800 | New Regime |
| ₹12,75,000 | ₹0 | ₹72,800 | ₹31,200 | New Regime |
| ₹15,00,000 | ₹97,110 | ₹1,22,460 | ₹67,860 | Depends (Old with home loan) |
| ₹20,00,000 | ₹1,91,880 | ₹2,59,740 | ₹1,97,340 | New Regime (unless max deductions) |
| ₹25,00,000 | ₹3,19,800 | ₹3,95,720 | ₹3,22,400 | New Regime |
| ₹30,00,000 | ₹4,75,020 | ₹5,60,040 | ₹4,82,820 | New Regime |
| ₹50,00,000 | ₹8,18,220 | ₹9,36,000 | ₹8,80,620 | New Regime |
How to Switch Between Tax Regimes
For Salaried Employees
| Aspect | Details |
| When to choose | At the beginning of the financial year or during investment declaration |
| How to inform employer | Submit regime choice through Form 10-IEA or company HR portal |
| Can you switch every year? | Yes, salaried employees can switch between old and new regime every year |
| Default if not chosen | New Regime (since FY 2023-24) |
| When does it lock in? | Your final choice is declared when you file your ITR |
| Can you change at ITR filing? | Yes, you can choose a different regime at the time of filing ITR than what you told your employer |
For Business Owners (Income from Business/Profession)
| Aspect | Details |
| Default Regime | New Regime |
| Can opt for Old Regime? | Yes, by filing Form 10-IEA before ITR due date |
| Can switch back to New? | Yes, but only once in a lifetime |
| Lock in rule | Once you return to new regime after opting out, you cannot go back to old |
What Happens If You Chose Wrong?
If you informed your employer that you want the old regime but realize at ITR filing time that the new regime saves more tax, you can simply select the new regime while filing your ITR. Your employer will have deducted TDS based on the old regime (likely higher TDS), so you will get the excess TDS refunded when the ITR is processed.
Similarly, if you chose the new regime with your employer but want to file under the old regime, you can do so at ITR filing time (only for salaried employees; business owners face restrictions).
Tax Saving Strategies Under Each Regime
If You Choose the New Regime
| Strategy | Benefit |
| Ensure employer claims NPS contribution under 80CCD(2) | Up to 14% of basic + DA is deductible |
| Maximize standard deduction | Automatically applied at ₹75,000 |
| Claim professional tax | Automatically deducted (up to ₹2,500) |
| Consider leave encashment | Exempt up to ₹25,00,000 on retirement |
| Employer PF contribution | Exempt (up to certain limits) |
| No investment pressure | You do not need to invest in 80C instruments |
| Use the tax saved for better investments | ELSS lock in is 3 years; PPF is 15 years. Without these obligations, you can invest in more liquid options |
If You Choose the Old Regime
| Priority | Deduction | Annual Saving Potential |
| 1st | Maximize Section 80C (₹1,50,000) | Up to ₹46,800 (at 30% + cess) |
| 2nd | Claim HRA if renting | Up to ₹93,600 (at ₹2 lakh HRA) |
| 3rd | Claim Home Loan Interest Section 24(b) | Up to ₹62,400 (at ₹2 lakh interest) |
| 4th | Health Insurance 80D (self + parents) | Up to ₹31,200 (at ₹75,000 premium) |
| 5th | NPS 80CCD(1B) additional ₹50,000 | Up to ₹15,600 |
| 6th | Education Loan Interest 80E | Depends on interest amount |
Section 80C Investment Options Compared:
| Investment | Lock in Period | Returns (Approximate) | Risk Level |
| PPF (Public Provident Fund) | 15 years | 7.1% (tax free) | Very Low |
| ELSS Mutual Funds | 3 years | 10% to 15% (market linked) | Moderate to High |
| Employee PF (EPF) | Until retirement | 8.25% (tax free up to ₹2.5L contribution) | Very Low |
| NPS Tier 1 | Until 60 | 9% to 12% (market linked) | Moderate |
| NSC (National Savings Certificate) | 5 years | 7.7% | Very Low |
| 5 Year Tax Saving FD | 5 years | 6.5% to 7.5% | Very Low |
| Sukanya Samriddhi | 21 years | 8.2% | Very Low |
| ULIP | 5 years | Variable | Moderate |
| Life Insurance Premium | Policy term | Variable | Low |
| Tuition Fees (2 children) | N/A | N/A | N/A |
| Home Loan Principal | Loan tenure | N/A | N/A |
Common Mistakes When Choosing a Tax Regime
| Mistake | Why It Is Wrong | Correct Approach |
| Choosing old regime just because “deductions save tax” | Deductions help only if they exceed the breakeven amount | Calculate exact tax under both regimes before choosing |
| Investing in bad products just for 80C | Endowment plans and ULIPs often give poor returns | Invest in ELSS or PPF if you need 80C. Never buy insurance just for tax saving |
| Assuming HRA exemption equals full HRA | HRA exemption is the minimum of three conditions | Calculate using the formula, not the full HRA component |
| Not considering the opportunity cost | Money locked in PPF for 15 years could earn more elsewhere | Compare post tax returns of 80C investments vs free investing under new regime |
| Choosing regime based on someone else’s advice | Everyone’s salary structure, rent, and investments are different | Use your own numbers, not your colleague’s calculation |
| Forgetting employer NPS benefit in new regime | 80CCD(2) works in both regimes and has a higher cap in new regime (14% vs 10%) | Ask your employer about NPS contributions |
| Not switching regime at ITR filing | Many people assume the choice is locked after telling their employer | You can choose either regime when actually filing your ITR |
Frequently Asked Questions (FAQs)
1. Which tax regime is better for a salary of ₹10 lakh in FY 2026-27?
The new tax regime is clearly better for a ₹10 lakh salary. Under the new regime, after the ₹75,000 standard deduction, your taxable income becomes ₹9,25,000, which is below the ₹12 lakh Section 87A rebate threshold. This means your tax is zero. Under the old regime, even with ₹1,50,000 in Section 80C and ₹25,000 in Section 80D deductions, your taxable income would be around ₹6,72,500, resulting in a tax of approximately ₹36,660. The new regime saves you this entire amount with no investment requirements.
2. Can I switch between old and new tax regime every year?
Yes, salaried employees can switch between the old and new tax regime every financial year. There is no restriction on how many times you switch. You inform your employer at the start of the year for TDS calculation purposes, but the final choice is made when you file your ITR. Even if you told your employer one regime, you can select the other when filing your return. For business owners, the rules are different. They can opt out of the new regime once by filing Form 10-IEA, and if they switch back to the new regime, they cannot opt out again.
3. What deductions are available under the new tax regime?
The new regime allows very limited deductions. You get the ₹75,000 standard deduction, professional tax deduction (up to ₹2,500), employer NPS contribution under Section 80CCD(2) up to 14% of basic plus DA, gratuity exemption, leave encashment exemption, VRS exemption up to ₹5 lakh, and transport allowance for disabled employees. All major deductions like Section 80C, 80D, HRA exemption, home loan interest under Section 24(b), 80CCD(1B) NPS, and LTA are not available.
4. I pay ₹20,000 rent per month. Should I choose the old regime for HRA exemption?
It depends entirely on your salary level and total deductions. If your gross salary is below ₹12,75,000, the new regime gives you zero tax regardless of HRA, so the new regime is better. If your salary is between ₹13 lakh and ₹18 lakh, the HRA exemption (approximately ₹1,44,000 to ₹1,92,000 annually for ₹20,000 rent in a metro city) combined with 80C, 80D, and other deductions may or may not cross the breakeven point. You need to calculate with your exact salary structure. Above ₹20 lakh, HRA alone is unlikely to tip the scale unless you also have a home loan and full Chapter VI-A deductions.
5. Is the old tax regime being removed or phased out?
No. As of FY 2026-27, both regimes continue to exist. The new regime is the default (meaning if you do not actively choose, the new regime applies), but the old regime remains fully available. The government has not announced any plans to discontinue the old regime. However, since FY 2020-21, all enhancements (higher rebate threshold, wider slabs, higher standard deduction) have been made only to the new regime, which suggests the government is gradually making the new regime more attractive.
6. How does the Section 87A rebate work differently in each regime?
Under the new regime, the Section 87A rebate is ₹60,000, which wipes out tax for individuals with total income up to ₹12,00,000. With the ₹75,000 standard deduction, the effective zero tax threshold for salaried employees is ₹12,75,000. Marginal relief is also available for income slightly above ₹12 lakh, meaning your tax will not exceed the amount by which your income exceeds ₹12 lakh. Under the old regime, the rebate is only ₹12,500 for income up to ₹5,00,000, making the effective zero tax threshold approximately ₹5,50,000 (with ₹50,000 standard deduction). This massive gap in rebate amounts is the primary reason the new regime dominates at salary levels up to ₹12.75 lakh.
7. My employer offers NPS. Does that help in the new regime?
Yes. Employer NPS contribution under Section 80CCD(2) is one of the few deductions available in both regimes. In fact, the cap is more generous in the new regime: 14% of basic plus DA for all employees (private and government), compared to 10% for private sector employees under the old regime (government employees get 14% in both). If your basic salary is ₹6,00,000 per year, your employer can contribute up to ₹84,000 to NPS, and this amount is deductible from your taxable income even under the new regime. Ask your employer if they offer NPS as part of the salary structure.
8. I have both a home loan and pay rent (I rent in a different city from where my property is). Which regime should I choose?
This is one of the rare situations where the old regime almost always wins. You can claim HRA exemption for the rent you pay (if the rented property is in a different city from your owned property), home loan interest deduction under Section 24(b) for the property you own, home loan principal repayment under Section 80C, and all other Chapter VI-A deductions. Combined deductions in this scenario easily cross ₹5 lakh to ₹8 lakh, making the old regime substantially cheaper. Calculate both options with your exact numbers, but the old regime is likely your answer.
Quick Reference Card
| Item | Old Regime | New Regime |
| Basic Exemption | ₹2,50,000 | ₹4,00,000 |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Section 87A Rebate | ₹12,500 (up to ₹5L income) | ₹60,000 (up to ₹12L income) |
| Effective Zero Tax Salary | ~₹5,50,000 | ~₹12,75,000 |
| Section 80C | ₹1,50,000 | Not available |
| Section 80D (max) | ₹1,00,000 | Not available |
| HRA Exemption | Available | Not available |
| Home Loan Interest | ₹2,00,000 (self occupied) | Not available |
| NPS Employer 80CCD(2) | 10% of basic (14% for govt) | 14% of basic for all |
| Maximum Tax Rate | 30% + surcharge up to 37% | 30% + surcharge capped at 25% |
| Default Regime | No | Yes |
| Can Switch Annually (Salaried) | Yes | Yes |
| Investment Proof Required | Yes | No |
| Best For | Home loan holders with high rent | Employees with few deductions |
This comparison is based on tax laws applicable for FY 2026-27 (AY 2027-28) under the Income Tax Act, 2025. Tax rules can change with each budget. Always verify current rates on the official Income Tax Department portal (incometax.gov.in) and consider consulting a tax professional for your specific situation. Use our income tax calculator for quick computation.
