Old or new tax regime: how to choose for 2026-27

By Team Savingy

Published: 1 Nov 2026

A straightforward guide comparing the Old and New Tax Regimes for AY 2026-27, detailing slab rates, standard deductions, Section 87A rebates, and decision rules.

What it is

Understanding the income tax system requires evaluating two distinct pathways available to Indian taxpayers. The New Tax Regime was introduced through the Finance Act 2020 under section 115BAC of the Income Tax Act, 1961, taking effect from Assessment Year (AY) 2021-22. Starting from AY 2024-25 onwards, the New Tax Regime functions as the default tax structure for Individuals, Hindu Undivided Families (HUFs), Associations of Persons (AOPs), Bodies of Individuals (BOIs), and Artificial Juridical Persons (AJPs). Additionally, legislative framework updates establish that the Income Tax Act, 2025 is set to replace the existing Income Tax Act, 1961 with effect from 1 April 2026.

The primary distinction between the two systems lies in how base rates and deductions interact. The Old Tax Regime maintains higher tax rates while permitting a broad range of deductions and exemptions. Taxpayers choosing the Old Tax Regime can reduce their taxable income through deductions under Chapter VI-A alongside Section 24(b), which covers interest on borrowed capital for self-occupied property. Salaried individuals can also claim specific salary exemptions under the Old Tax Regime, including House Rent Allowance (HRA) and Leave Travel Allowance (LTA).

In contrast, the New Tax Regime offers lower tax rates across expanded slab tiers but removes most Chapter VI-A deductions and common exemptions. How frequently a taxpayer can switch between these two frameworks depends on their income sources. Assessees who do not have business or professional income are permitted to choose the Old Tax Regime every year when filing their tax returns. On the other hand, assessees who earn business or professional income can opt for the Old Tax Regime only once by filing Form 10-IEA on or before the due date specified under section 139(1) of the Income Tax Act.

What it costs

The direct financial cost under either regime is determined by applicable tax slabs, standard deductions, statutory rebates, and surcharge caps. As accessed on 2026-11-01, specific tax rules apply for AY 2026-27 across both tax pathways.

For salaried employees and pensioners, standard deduction limits differ between the two options. Under the New Tax Regime for AY 2026-27, eligible salaried individuals and pensioners receive a standard deduction of ₹75,000. Under the Old Tax Regime, the standard deduction for salaried employees and pensioners is ₹50,000.

The tax slab structure under the New Tax Regime for AY 2026-27 is formatted across seven distinct income brackets:

• Up to ₹4,00,000: Nil
• ₹4,00,000 to ₹8,00,000: 5%
• ₹8,00,000 to ₹12,00,000: 10%
• ₹12,00,000 to ₹16,00,000: 15%
• ₹16,00,000 to ₹20,00,000: 20%
• ₹20,00,000 to ₹24,00,000: 25%
• Above ₹24,00,000: 30%

Statutory tax relief under Section 87A rebate provides another key point of divergence. Under the New Tax Regime, taxpayers with total income up to ₹12,00,000 are eligible for a rebate of up to ₹60,000 or the total tax amount, whichever is less, effectively bringing net tax liability to zero for total income within this threshold. Under the Old Tax Regime, the Section 87A rebate applies to total income up to ₹5,00,000, capping the maximum rebate amount at ₹12,500 or the tax amount, whichever is less.

For high-income individuals, surcharge rates introduce notable cost differences. Under the New Tax Regime, the maximum surcharge rate is capped at 25% for taxpayers having income exceeding ₹5 crores. Under the Old Tax Regime, the maximum surcharge rate reaches up to 37% for high earners.

When it is right

Selecting the New Tax Regime is suitable when a taxpayer does not make substantial tax-deductible outlays or investments. If an individual does not pay significant interest on borrowed capital under Section 24(b) for self-occupied property or make substantial contributions under Chapter VI-A, the lower tax slab rates of the default regime provide a lower tax burden. Salaried individuals who prefer minimal administrative record-keeping benefit from the higher ₹75,000 standard deduction under the New Tax Regime without needing to collect rent receipts for HRA claims or travel documentation for LTA claims.

Furthermore, the New Tax Regime is right for individuals with total income up to ₹12,00,000. Because the Section 87A rebate eliminates tax liability up to ₹60,000 under the default system, individuals within this income range achieve complete relief from tax payments without locking capital into specific tax-saving investments. High-income individuals with total earnings above ₹5 crores also find the New Tax Regime structurally advantageous due to the lower maximum surcharge cap of 25% compared to the 37% cap under the older regime.

Conversely, opting for the Old Tax Regime is right when a taxpayer's aggregate eligible deductions and exemptions exceed the structural tax savings provided by the lower slab rates of the New Tax Regime. If an individual pays substantial home loan interest under Section 24(b), receives significant HRA exemptions, utilizes LTA allowances, and maximizes Chapter VI-A deductions, the combined reduction in total taxable income can lower net tax payable below what the default regime yields.

When it is not

Choosing the New Tax Regime is not appropriate for individuals who maintain extensive tax-deductible expenses. Taxpayers who service self-occupied home loans under Section 24(b), pay high residential rent eligible for HRA, and fully utilize Chapter VI-A deductions give up these tax-reducing provisions under the default framework. In such situations, remaining in the default regime could result in a higher tax liability despite its lower slab rates.

Opting for the Old Tax Regime is not appropriate for taxpayers who lack major eligible deductions or who prefer liquidity over committing funds to specified savings instruments. For salaried individuals without substantial rent payments or home loan interest, the ₹50,000 standard deduction under the Old Tax Regime provides less direct deduction relief than the ₹75,000 standard deduction available under the New Tax Regime.

The Old Tax Regime is also not suitable for taxpayers with income up to ₹12,00,000 who have few deductions, as staying in the old structure generates tax liability on income between ₹5,00,000 and ₹12,00,000 due to the tighter Section 87A rebate cap of ₹5,00,000. Additionally, taxpayers with business or professional income must exercise caution: opting for the Old Tax Regime requires filing Form 10-IEA on or before the due date under section 139(1), and because business assessees can make this choice only once, selecting the Old Tax Regime prematurely can limit future flexibility.

The one check to run

To evaluate which framework results in lower tax payable for your personal numbers, use the tax-regime calculator located below this article. When you are signed in, the calculator automatically pre-fills your basic income details from your account records.

To perform the check, enter your total gross annual income, including salary, business or professional receipts, and any secondary income streams. Next, enter all eligible deduction amounts you qualify for under the Old Tax Regime, including interest on self-occupied property under Section 24(b), Chapter VI-A deductions, HRA, and LTA. For salaried users, the tool applies the appropriate standard deduction of ₹75,000 under the New Tax Regime and ₹50,000 under the Old Tax Regime, along with the respective Section 87A rebate caps.

Once your numbers are submitted, review the calculated net tax payable displayed for both regimes. The lower output identifies the tax-efficient selection for your situation. Non-business taxpayers can re-evaluate this calculation every year prior to filing, whereas individuals with business or professional income should assess their multi-year deduction outlook before submitting Form 10-IEA.