New vs Old Tax Regime in FY 2026-27: A Simple Way to Decide
Every salaried person in India faces the same question each year: new regime or old regime? Budget 2026 changed nothing in the slabs, which is actually good news — the rules you learned last year still apply in FY 2026-27, and the decision comes down to one number: your total deductions.
The two regimes in 30 seconds
The new regime (default) taxes you at lower rates — nothing up to ₹4 lakh, then 5% bands stepping up to 30% above ₹24 lakh — but allows almost no deductions beyond the ₹75,000 standard deduction. Crucially, the Section 87A rebate makes taxable income up to ₹12 lakh completely tax-free (₹12.75 lakh of salary).
The old regime keeps the higher classic slabs (5% above ₹2.5L, 20% above ₹5L, 30% above ₹10L) but lets you deduct 80C (₹1.5L), 80D health insurance, HRA, home-loan interest up to ₹2L, NPS extra ₹50k, and more.
The break-even rule of thumb
Ignore the noise and ask one question: how much can I genuinely claim under the old regime? The new regime wins for most people until deductions get very large. Roughly:
| Gross salary | Old regime wins only if deductions* exceed… |
|---|---|
| ₹10 lakh | Old regime can't win — new regime tax is already ₹0 |
| ₹12.75 lakh | Old regime can't win — new regime tax is ₹0 |
| ₹16 lakh | ≈ ₹4.7 lakh |
| ₹20 lakh | ≈ ₹4.5 lakh |
| ₹30 lakh | ≈ ₹4.3 lakh |
*Deductions beyond the standard deduction — 80C + 80D + HRA exemption + home-loan interest + NPS, combined.
Worked example: ₹18 lakh salary
Say you earn ₹18 lakh, pay ₹25,000/month rent in Bengaluru, put ₹1.5L in 80C and ₹25,000 in health insurance.
- New regime: taxable ₹17.25L → tax ≈ ₹1.70L (after cess).
- Old regime: HRA exemption ≈ ₹1.9L + 80C ₹1.5L + 80D ₹25k + standard ₹50k → taxable ≈ ₹13.85L → tax ≈ ₹2.36L.
The new regime saves about ₹66,000 — even with decent deductions. That's the pattern for most renters without a home loan. Run your own numbers in our Income Tax Calculator; it applies the rebate, marginal relief, surcharge and cess for both regimes.
Who should still pick the old regime?
- Home-loan holders: ₹2L of Section 24(b) interest plus 80C principal repayment gets you most of the way to break-even on its own.
- High-rent metro dwellers with big HRA: a generous HRA component + metro rent can produce ₹2.5L+ exemptions — check yours with the HRA Exemption Calculator.
- Deduction stackers: people who genuinely max 80C, 80D (self + senior-citizen parents ≈ ₹75k), and 80CCD(1B) NPS ₹50k.
Three mistakes to avoid
- Buying investments just to save tax. Locking ₹1.5L a year into a low-return endowment plan to claim 80C often costs more than the tax it saves. Compare the regimes first.
- Forgetting you can switch every year. Salaried taxpayers choose afresh each filing season (business income has restrictions). Last year's choice doesn't bind you.
- Ignoring employer NPS. The 80CCD(2) employer contribution is deductible in both regimes — one of the few levers that works under the new regime. See what it builds with the NPS Calculator.
The bottom line
For FY 2026-27, the new regime is the right answer for most salaried taxpayers under ₹13 lakh (automatically) and for most people whose deductions fall short of roughly ₹4–4.5 lakh. If you have a home loan plus strong HRA or maxed-out deductions, the old regime deserves a serious look. Either way, it's a five-minute check — do the comparison before your employer's tax-declaration deadline, not after.