Old vs New Tax Regime 2026-27: Which Pays Less?
The new regime is the default under the Income-tax Act, 2025 and has lower rates and a bigger rebate; the old regime keeps deductions like section 123 and HRA. Which one actually costs you less depends on how much you can deduct.
Researched by Mirza Seraj BaigFacts last checked against official sources on 17 September 2026Every salaried taxpayer in Tax Year 2026-27 is, by default, taxed under the new regime — you have to actively opt for the old one. The new regime trades away deductions for lower rates and a rebate that makes income up to ₹12 lakh tax-free after the standard deduction. The old regime keeps section 123 (the former 80C), HRA exemption and similar deductions, but taxes what's left at higher rates.
There is no rule of thumb that works for every income level — it depends entirely on how much you can actually deduct under the old regime. The income tax calculator on this site works out both regimes side by side from the same numbers used here.
Old vs new tax regime, 2026-27
Figures for a salaried taxpayer below 60. Both include 4% health and education cess.
| Feature | New regime | Old regime |
|---|---|---|
| Default regime | Yes — applies unless you opt for the old regime | No — must be actively chosen each year (salaried) or once (business income) |
| Nil tax up to | ₹4,00,000 | ₹2,50,000 (₹3,00,000 aged 60–79; ₹5,00,000 aged 80+) |
| Top rate | 30%, above ₹24,00,000 | 30%, above ₹10,00,000 |
| Standard deduction (salaried) | ₹75,000 | ₹50,000 |
| Rebate (section 156) | Up to ₹60,000, for income up to ₹12,00,000 — makes a ₹12,75,000 salary tax-free after the standard deduction | Up to ₹12,500, for income up to ₹5,00,000 |
| Section 123 (former 80C) deduction | Not available | Up to ₹1,50,000, for PPF, SSY, ELSS, life insurance and similar |
| HRA exemption | Not available | Available, under rule 279 of the Income-tax Rules, 2026 |
| Number of slabs | 7 (nil, 5%, 10%, 15%, 20%, 25%, 30%) | 4 (nil, 5%, 20%, 30%) |
Which regime costs less?
The new regime wins outright for anyone with few deductions: no HRA to claim, no section 123 investments, income under roughly ₹12.75 lakh (salaried) where the rebate erases the tax entirely. It also wins by default if you simply do nothing.
The old regime can still cost less at higher incomes with real deductions — a full ₹1,50,000 under section 123, a home loan interest deduction, and a large HRA exemption in a metro city can together outweigh the new regime's lower rates. The only way to know for a specific income is to run both: enter your salary, deductions and HRA into the income tax and HRA calculators and compare the two totals directly.
Frequently asked questions
Is the new tax regime always better?
No. It is better for most salaried people with few deductions, because of its lower rates and the ₹12 lakh rebate. Someone with a large home loan, full section 123 investments and a high HRA exemption can still pay less under the old regime — the only way to know is to calculate both.
Can I switch between the old and new regime every year?
Salaried individuals can choose either regime each year when filing their return. Those with business or professional income can switch only once after opting out of the new regime, with limited exceptions.
Do I need to do anything to stay in the new regime?
No. The new regime is the default under section 202 of the Income-tax Act, 2025 — you only need to act if you want the old regime instead, by choosing it when filing your return.
Which deductions are lost under the new regime?
Section 123 (the former 80C, up to ₹1,50,000), HRA exemption, and most other Chapter-style deductions do not apply under the new regime. The standard deduction (₹75,000 for salaried employees) is one of the few it keeps.