Background: The Two Tax Regimes in India
Since FY 2020-21, Indian taxpayers have had two options: the Old Tax Regime (with deductions) and the New Tax Regime (lower rates, fewer deductions). For FY 2026-27, the New Regime has been substantially overhauled with revised slabs, a higher rebate limit, and a larger standard deduction.
New Regime Slabs — FY 2026-27
| Taxable Income | Tax Rate |
|---|---|
| Up to ₹4,00,000 | 0% |
| ₹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% |
Standard Deduction: ₹75,000 (automatically applied for salaried employees and pensioners).
Section 87A Rebate: Full rebate (up to ₹60,000) if taxable income ≤ ₹12,00,000. This makes gross income up to approximately ₹12.75L effectively tax-free under the new regime.
Old Regime Slabs — FY 2026-27
| Taxable Income | Tax Rate |
|---|---|
| Up to ₹2,50,000 | 0% |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Standard Deduction: ₹50,000.
Section 87A Rebate: Full rebate (up to ₹12,500) if taxable income ≤ ₹5,00,000.
Major deductions available: 80C (₹1.5L), 80D (health insurance), HRA, LTA, 80CCD (NPS), home loan interest under Section 24(b), and more.
Side-by-Side Comparison
| Feature | New Regime | Old Regime |
|---|---|---|
| Standard Deduction | ₹75,000 | ₹50,000 |
| 80C Deduction | Not available | Up to ₹1,50,000 |
| 80D (Health Insurance) | Not available | Up to ₹25,000–₹50,000 |
| HRA Exemption | Not available | Available |
| Home Loan Interest (Sec 24b) | Not available | Up to ₹2,00,000 |
| NPS (80CCD 1B) | Employer NPS only | Additional ₹50,000 |
| 87A Rebate Limit | ₹12,00,000 | ₹5,00,000 |
| Cess | 4% | 4% |
Real Salary Examples
Gross Salary: ₹10 Lakh / year
- New Regime: Tax = ₹0 (taxable income after ₹75K deduction = ₹9.25L, which is ≤ ₹12L → full rebate)
- Old Regime (₹1.5L 80C, ₹25K 80D): Taxable = ₹7.75L → Tax = ~₹82,500
- New Regime saves: ₹82,500
Gross Salary: ₹15 Lakh / year
- New Regime: Taxable = ₹14.25L → Tax ≈ ₹1,18,300 + 4% cess = ₹1,23,032
- Old Regime (₹1.5L 80C, ₹25K 80D, ₹60K HRA): Taxable ≈ ₹12.65L → Tax ≈ ₹1,53,000 + 4% cess = ₹1,59,120
- New Regime saves: ~₹36,000
Gross Salary: ₹20 Lakh / year (High deduction earner)
- New Regime: Taxable = ₹19.25L → Tax ≈ ₹2,51,300 + cess = ₹2,61,352
- Old Regime (₹1.5L 80C, ₹50K 80D, ₹1L HRA, ₹50K NPS): Taxable ≈ ₹15.5L → Tax ≈ ₹2,47,500 + cess = ₹2,57,400
- Old Regime saves: ~₹4,000 (marginal)
Who Should Choose Which Regime?
- New Regime is better for most salaried individuals earning up to ₹12.75L, young professionals with few deductions, and those not investing heavily in 80C instruments.
- Old Regime may be better for those with HRA + large 80C + home loan interest + 80D deductions that collectively exceed the extra benefit from new regime slabs. Typically individuals earning ₹15L+ with deductions above ₹4–5L.
The Bottom Line
With the FY 2026-27 revisions, the New Regime is now the default choice for most salaried taxpayers in India. The combination of a ₹75K standard deduction + ₹12L rebate limit + revised slabs makes it genuinely better for the large majority.
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