Every salaried taxpayer in India picks between two systems: the new regime, with lower rates and almost no deductions, and the old regime, with higher rates but HRA, 80C, home loan interest and more. The better choice depends on one thing: how much you can claim in deductions. Here's how to work it out properly.
The slabs side by side
These rates apply in tax year 2026-27, the first year under the Income-tax Act, 2025. Budget 2026 left them unchanged from FY 2025-26. Both regimes add 4% health and education cess on the tax.
| New regime (default) | Rate | Old regime (below 60) | Rate |
|---|---|---|---|
| Up to ₹4 lakh | Nil | Up to ₹2.5 lakh | Nil |
| ₹4–8 lakh | 5% | ₹2.5–5 lakh | 5% |
| ₹8–12 lakh | 10% | ₹5–10 lakh | 20% |
| ₹12–16 lakh | 15% | Above ₹10 lakh | 30% |
| ₹16–20 lakh | 20% | ||
| ₹20–24 lakh | 25% | ||
| Above ₹24 lakh | 30% |
Under the old regime, the tax-free limit is ₹3 lakh for people aged 60 to 79 and ₹5 lakh for those 80 and over. The new regime has the same slabs at every age.
What each regime lets you deduct
| Deduction or exemption | New regime | Old regime |
|---|---|---|
| Standard deduction for salary | ₹75,000 | ₹50,000 |
| Employer's NPS contribution | Up to 14% of basic + DA | Up to 10% of basic + DA |
| HRA exemption | No | Yes |
| LTA (leave travel allowance) | No | Yes |
| 80C: PF, PPF, ELSS, life insurance, tuition, home loan principal (up to ₹1.5 lakh) | No | Yes |
| 80D: health insurance premiums | No | Yes |
| Your own extra NPS contribution (up to ₹50,000) | No | Yes |
| Home loan interest on a self-occupied house (up to ₹2 lakh) | No | Yes |
| Professional tax | No | Yes |
These are the familiar old section names; the Income-tax Act, 2025 renumbered them (80C is now section 123, for example) without changing what they allow.
The ₹12 lakh rebate, and why ₹12.75 lakh salary pays no tax
Under the new regime, a resident individual whose taxable income is ₹12 lakh or less gets a rebate of up to ₹60,000, which wipes out the tax completely. Salaried people also get the ₹75,000 standard deduction first, so a salary of up to ₹12.75 lakh pays no income tax. The old regime's rebate is much smaller: up to ₹12,500, for taxable income up to ₹5 lakh.
Just above ₹12 lakh, marginal relief stops your tax from jumping: the tax can't be more than the amount by which your income crosses ₹12 lakh. At a taxable income of ₹12,10,000, normal slab tax would be ₹61,500, but marginal relief caps it at ₹10,000 (plus cess).
The break-even point
The old regime only wins if your deductions are big enough to make up for its higher rates. The table shows, at each salary, how much you'd need in deductions beyond the standard deduction (HRA exemption, 80C, 80D, home loan interest, NPS and so on) for the old regime to come out ahead.
| Annual salary | Tax under the new regime | Old regime wins only if other deductions exceed |
|---|---|---|
| ₹12.75 lakh | ₹0 | Practically never (you'd need ₹7.25 lakh just to match ₹0) |
| ₹15 lakh | ₹97,500 | ₹5.44 lakh |
| ₹20 lakh | ₹1,92,400 | ₹7.08 lakh |
| ₹25 lakh | ₹3,19,800 | ₹8.00 lakh |
| ₹30 lakh | ₹4,75,800 | ₹8.00 lakh |
Figures include 4% cess and ignore employer NPS, which both regimes allow. Above ₹24 lakh both regimes charge 30% on extra income, so the break-even settles at ₹8 lakh. Most people's deductions add up to well under that, which is why the new regime suits most salaried taxpayers, unless they have high rent plus a home loan.
Worked examples
Example 1: ₹12 lakh salary
New regime: ₹12,00,000 − ₹75,000 standard deduction = ₹11,25,000. That's under ₹12 lakh, so the rebate makes the tax ₹0.
Old regime, with ₹1.5 lakh of 80C, ₹25,000 of 80D and ₹1.2 lakh of HRA exemption: ₹12,00,000 − ₹50,000 − ₹1,50,000 − ₹25,000 − ₹1,20,000 = ₹8,55,000. Tax = ₹12,500 + 20% of ₹3,55,000 (₹71,000) = ₹83,500, plus cess = ₹86,840.
The new regime saves ₹86,840. At this salary it isn't close.
Example 2: ₹20 lakh salary with rent and a home loan
Deductions under the old regime: HRA exemption ₹2,40,000, 80C ₹1,50,000, 80D ₹25,000, extra NPS ₹50,000 and home loan interest ₹2,00,000 (on a house in another city). That's ₹6,65,000 beyond the standard deduction.
| New regime | Old regime | |
|---|---|---|
| Taxable income | ₹19,25,000 | ₹12,85,000 |
| Tax before cess | ₹1,85,000 | ₹1,98,000 |
| Tax with 4% cess | ₹1,92,400 | ₹2,05,920 |
Even with substantial deductions, the new regime is ₹13,520 cheaper, because ₹6.65 lakh is below the ₹7.08 lakh break-even at this salary. About ₹43,000 more in deductions would tip it the other way.
Choosing and switching
- Salaried, with no business income: you can choose either regime every year. Tell your employer at the start of the year so the right TDS is deducted, but your final choice is made when you file your return. To use the old regime, you must file by the due date (usually 31 July). A late return is taxed under the new regime.
- With business or professional income (including freelancing): you can opt out of the new regime by filing the prescribed form before the return due date, but switching is limited. Once you've moved out and come back, you can't leave the new regime again.
- If you didn't tell your employer, they deduct TDS under the new regime. You can still choose the old regime in your return and claim a refund of any extra tax.
How to decide in 10 minutes
- Add up every deduction you'd actually claim under the old regime: HRA exemption, 80C, 80D, home loan interest, NPS, LTA and professional tax.
- Find your salary in the break-even table, or run both regimes in the calculator.
- If your total is clearly below the break-even, choose the new regime. Don't buy insurance or investments you don't need just to reach it.
- If you're close, remember the old regime also needs proofs and paperwork every year.
- Re-check every April. A raise, a new home loan or a change in rent can flip the answer.
HRA is often the biggest old-regime deduction. Work out your exact exemption first with the HRA calculator, or read the HRA guide.
Frequently asked questions
Which tax regime is the default?
The new regime. If you do not choose, your employer deducts TDS under the new regime, and your return is filed under it unless you opt for the old regime when filing on time.
Did Budget 2026 change the income tax slabs?
No. For tax year 2026-27 the slabs, the ₹75,000 standard deduction under the new regime and the rebate for income up to ₹12 lakh are the same as in FY 2025-26. The main change is that the Income-tax Act, 2025 replaced the 1961 Act, which renumbered the sections.
Is income up to ₹12 lakh really tax-free?
Under the new regime, yes, for resident individuals: taxable income up to ₹12 lakh gets a rebate of up to ₹60,000 that cancels the tax. Salaried people also get the ₹75,000 standard deduction, so a salary of up to ₹12.75 lakh pays no income tax. Special-rate income such as capital gains is treated differently.
Can I switch between the old and new regime every year?
Yes, if you do not have business or professional income. Salaried individuals can choose each year when filing the return, but the old regime is available only if the return is filed by the due date. People with business or professional income have limited switching.
Can I claim HRA or 80C under the new regime?
No. The new regime does not allow HRA exemption, LTA, 80C, 80D or home loan interest on a self-occupied house. It does allow the ₹75,000 standard deduction and the employer’s NPS contribution up to 14% of basic plus DA.
At what salary is the old regime better?
It depends on your deductions, not just your salary. At ₹15 lakh you need more than about ₹5.44 lakh of deductions beyond the standard deduction; at ₹20 lakh about ₹7.08 lakh; at ₹25 lakh and above about ₹8 lakh. Most people’s deductions are below this, so the new regime usually wins.
I told my employer new regime. Can I still choose old regime later?
Yes, if you are salaried without business income. Choose the old regime in your income tax return filed by the due date, claim your deductions there, and any excess TDS will be refunded.