Old vs New Tax Regime for Business Owners: How to Choose

Quick answer

The new regime under section 115BAC(1A) — lower slab rates, a much narrower set of deductions — is the default. The old regime — higher slab rates, a wide range of deductions and exemptions — is taken by exercising the option under section 115BAC(6).

For a business owner the decision is heavier than for a salaried filer, because a taxpayer with business or professional income faces restrictions on moving between the regimes that a salaried taxpayer does not.

For AY 2026-27 — the income of FY 2025-26, the return most owners are filing now — the new regime taxes nothing up to ₹4,00,000, and the section 87A rebate generally wipes out the tax on a total income up to ₹12,00,000. That is a high bar for the old regime to clear on deductions alone. Compute both on your real numbers, and remember the answer changes your advance tax from the June instalment onward.

Who this page is for

An individual carrying on a business or a profession in their own name, or as a partner drawing a share, who has to decide which regime to file under. It covers the decision itself — the arithmetic, the option, and the knock-on into advance tax. If your business is a private limited company or an LLP, the entity's own tax is a different question under different provisions, not stated here.

For the mechanics of the return, see our income tax return filing guide; for the instalment machinery in full, the advance tax payment guide. This page links rather than repeats.

Which year you are choosing for

Get this straight before any number means anything, because two tax statutes are running side by side right now.

The Income-tax Act, 2025 came into force on 1 April 2026 — that is section 1(3), not section 1(2), which is the extent clause — and it governs tax year 2026-27, meaning FY 2026-27. AY 2026-27 is the income of FY 2025-26 and remains governed by the Income-tax Act, 1961. The Department calls the two "entirely separate compliance obligations".

Every rate on this page is an AY 2026-27 rate, on the 1961-Act side of that line. Rates for tax year 2026-27 come from a different Schedule of the Finance Act, 2026, were not verified here, and are not stated anywhere below.

What each regime gives you

• Old regime: deductions and exemptions across a wide field — the familiar Chapter VI-A claims, house-property interest, business-linked reliefs — charged at higher slab rates.
• New regime: lower slab rates and a higher entry threshold, with most of those deductions unavailable.

Which comes out lower depends entirely on how many deductions you genuinely claim and can document. Neither regime is "for business owners" as a class.

The AY 2026-27 new-regime slabs

Under section 115BAC(1A)(iii) of the Income-tax Act, 1961, as amended by the Finance Act, 2025, "with effect from assessment year 2026-27":

Three figures sit alongside the table and change the arithmetic materially:

• Standard deduction — ₹75,000 where tax is computed under section 115BAC(1A). The old-regime figure remains ₹50,000. Both are deductions against salary, so they only enter the comparison if you draw one.
• Family pension deduction — ₹25,000 in the new regime.
• Health and education cess — 4% on the tax, with no marginal relief on the cess itself.

The section 87A rebate, and where it stops

From AY 2026-27 the section 87A rebate ceiling rises to a total income of ₹12,00,000 and the rebate itself to ₹60,000, with marginal relief above the ceiling. In practice a resident individual at or below that total income, taxed under the new regime, generally pays nothing.

Two limits an owner should hold on to:

• The rebate is not available against special-rate income — capital gains charged under section 111A or section 112, for example. If part of your year is a share sale or a property sale, do not assume the rebate covers it. That single point moves more owners' answers than any deduction does.
• ₹12,00,000 is total income, not turnover. It is what is left after whatever deductions your regime allows.

On marginal relief we state the position and stop: it exists above the ceiling, so crossing ₹12,00,000 by a small margin does not produce a tax step out of all proportion to the extra income. We do not publish the marginal-relief arithmetic, because the source we verified records the relief without a computation we captured.

Why there is no old-regime slab table above

No memorandum we captured restates the old-regime slabs for AY 2026-27, and the 1961 Act text was not reachable from any official host in this pass — so those rates must be confirmed for your year before you rely on a comparison. For the same reason this page states no surcharge rate and no surcharge threshold, and every worked example below is computed without surcharge.

The switching catch for business income

This is what makes an owner's decision different in kind, not just in degree.

The new regime is the default. The old regime is taken by exercising the option under section 115BAC(6) — and that sub-section is also where the conditions attaching to the option live. A salaried taxpayer without business income can generally approach the choice afresh each year. A taxpayer with business or professional income cannot approach it on the same footing: the rules restrict how freely you can move between the regimes once the option is exercised. That restriction is why a hasty choice costs an owner more than it costs anyone else, and why this decision deserves a computation rather than a hunch.

Now the honest part. This page does not state how many times you may switch. We did not verify the switching mechanics under section 115BAC(6) against the statute in this pass, and we will not reproduce a formulation we have seen circulated but cannot stand behind. The general shape — business income restricted where salary is not — is why this section exists. The exact mechanics for your year must be confirmed against section 115BAC(6) before you rely on them: how the option is exercised, by when, what withdrawing it does, and what follows.

Two practical consequences hold anyway, and neither depends on the unverified detail:

1. Decide before the year starts, not at filing. The election drives your advance tax from the first instalment in June. Treating it as a filing-season question means you have been paying on an assumption for nine months.
2. Decide for a horizon, not a year. A year with heavy capital spend, or the year a loan is repaid and its interest deduction disappears, can flip the answer.

If the option is genuinely marginal for you, that is a conversation with an adviser on your facts, not a table lookup — which is what our regime comparison service and tax planning are for.

How to decide

1. Compute your tax under both regimes on your real numbers.
2. Count only the deductions you genuinely claim and can document — not the ones you keep meaning to make.
3. Weigh the restriction on switching: will this choice still suit you next year and the year after?
4. Pick the lower, and if that is the old regime, exercise the option under section 115BAC(6) on time.

The hurdle the old regime has to clear

The old regime does not merely have to produce some deductions. It has to produce enough to overcome two things at once:

• The lower new-regime slab rates. The first ₹4,00,000 is untaxed, and the 5% and 10% bands run all the way to ₹12,00,000 before the rate reaches 15%.
• The extra ₹25,000 of standard deduction — ₹75,000 in the new regime against ₹50,000 in the old. This only bites if you draw a salary, for instance as a director of your own company. If all your income is business profit, there is no standard deduction on either side and the comparison rests entirely on slab rates and deductions.

Add the section 87A rebate and the bar rises again for anyone near ₹12,00,000 of total income. That is why the honest answer for many owners with modest, undocumented deductions is the default — and why an owner carrying substantial home-loan interest and a full set of Chapter VI-A claims may still land on the old regime.

Worked example 1: an owner with business income only

Assumptions: resident individual; AY 2026-27, so income of FY 2025-26 charged under the Income-tax Act, 1961; new regime, section 115BAC(1A); net business profit after all allowable expenses and depreciation of ₹18,00,000 and no other income, so total income is ₹18,00,000; no salary, therefore no standard deduction on either side; no special-rate income, so nothing charged under section 111A or 112; no surcharge applied — confirm the surcharge position if your income could attract it.

Total income of ₹18,00,000 is above the section 87A ceiling, so no rebate. Add health and education cess at 4% on ₹1,60,000, which is ₹6,400.

Tax under the new regime: ₹1,66,400.

And here is where we stop rather than bluff. We cannot show you the old-regime column, because we have not verified old-regime slab rates for AY 2026-27 and will not print a number we cannot source. What we can tell you is exactly what the old regime has to achieve on these facts: deductions large enough to bring its tax below ₹1,66,400 despite its higher rates. That figure is worth producing, because the difference is the entire decision.

Worked example 2: an owner sitting near the rebate ceiling

Assumptions: as in example 1 — resident individual, AY 2026-27, new regime, income entirely business profit so no standard deduction, no special-rate income, no surcharge applied.

Case A — total income exactly ₹12,00,000. Tax on the slabs is ₹20,000 in the 5% band plus ₹40,000 in the 10% band, which is ₹60,000 before rebate. Total income does not exceed the section 87A ceiling, and the rebate is capped at ₹60,000, so it absorbs the tax in full. Cess is charged on tax, and the tax is nil. Tax: nil.

Case B — total income ₹12,60,000. The extra ₹60,000 falls in the 15% band, adding ₹9,000. Tax before rebate is ₹69,000. Total income now exceeds the ceiling, so the rebate is not available on the plain terms of the section — which would mean ₹60,000 of extra income carrying ₹69,000 of extra tax. Marginal relief above the ceiling exists precisely to stop that, and it applies here. We do not state the resulting figure, for the reason given above; take it from the Department's calculator.

The lesson survives the missing figure: income just above ₹12,00,000 is a place to be careful, not a cliff to panic about. If you have a genuine lever — a deduction the new regime allows, a receipt whose timing you legitimately control — that band is where it is worth using. And if your income near that line includes capital gains, the rebate never covered that part.

Do not forget advance tax

Whichever regime you take changes your liability, and therefore your advance tax. The two decisions are not independent: the regime decides the rates you apply when estimating, so it decides every instalment — starting on 15 June, long before the return exists.

The threshold, and the formula

Advance tax is payable where the tax payable for the year is ₹10,000 or more — section 208 of the 1961 Act for AY 2026-27, section 404 of the 2025 Act for tax year 2026-27. The Department confirms the threshold is "unchanged from the old Act". Note the test: ₹10,000 of tax, not ₹10,000 of income.

Under section 405 of the Income-tax Act, 2025 the amount is A = B − C: A is the advance tax payable in the financial year, B is income-tax on the estimated income at the rates in force in that financial year, and C is the tax deductible or collectible at source during that year on the income taken into account.

C is subtracted before the instalments are worked out. This is the commonest source of over-payment among owners whose clients deduct TDS: they compute the full liability, instalment all of it, then claim TDS credit at filing — having financed the government twice over. Net first, then instalment.

The regime choice enters at B. Change the regime and B changes, and with it every instalment.

The four instalments

Under section 408(1) of the Income-tax Act, 2025; the Department records the instalments as unchanged from the 1961 Act, which governs FY 2025-26 payments:

The percentages are cumulative, not incremental: the September instalment is not another 45%, it is whatever takes you to 45% of the total. A payment made on or before 31 March still counts as advance tax for that year under section 408(3) — it is simply late for the 15 March instalment.

Presumptive filers pay once, by 15 March

An assessee declaring profits on a presumptive basis pays the whole amount in a single instalment, on or before 15 March — section 408(2) of the Income-tax Act, 2025, and the same position under the old Act. One date, not four.

The presumptive ceilings themselves — ₹2 crore for an eligible business, ₹50 lakh for a specified profession, each with a higher figure where cash receipts stay within 5% — sit in section 58 of the Income-tax Act, 2025, stated there for tax year 2026-27 onward; confirm the AY 2026-27 position before applying them now. Our guide for freelancers and independent professionals covers the presumptive route in depth.

Worked example 3: what the regime choice does to the instalments

Assumptions: the same owner as example 1 — resident individual, AY 2026-27, new regime, total income ₹18,00,000, total tax ₹1,66,400, no surcharge applied. Clients deducted ₹40,000 of TDS across FY 2025-26. Instalment percentages are quoted from section 408(1) of the Income-tax Act, 2025; the Department records the instalments and the ₹10,000 threshold as unchanged from the 1961 Act, which governs these payments. Each instalment is paid on time, so no interest arises.

A = B − C = ₹1,66,400 − ₹40,000 = ₹1,26,400.

Two things to take from it. The TDS netting is worth ₹40,000 of working capital — an owner who instalments the gross ₹1,66,400 instead of the net ₹1,26,400 parks that with the government for up to a year and gets it back only as a refund after filing.

And change the regime and every row changes. If this owner validly took the old regime and their tax came out at a different figure, B changes, A changes, and all four instalments move — including the June one, paid nine months before anyone opens the return. That is why the regime decision belongs to the start of the year.

What it costs to get it wrong

• Section 424 (successor to section 234B): where an assessee liable to pay advance tax fails to pay, or pays less than 90% of the assessed tax, simple interest runs at 1% for every month or part of a month from 1 April following the tax year — on the assessed tax, or on the shortfall.
• Section 425 (successor to section 234C): interest for deferment — 3% on the shortfall against each of the first three instalments, 1% against the 15 March one. Section 425(2) builds in a tolerance on the first two: no interest where at least 12% is paid by 15 June or 36% by 15 September. December and March have none.
• Section 425(4) excuses a shortfall caused by underestimating capital gains, winnings, profits of a business or profession arising for the first time, or dividend income — but only if you pay the full tax on that income in any remaining instalment, or by 31 March. A first year of business is covered; a second year is not.

The full machinery and further examples are in the advance tax payment guide; if you would rather it were computed and paid on time, we handle advance tax.

Dates that follow from the choice

For AY 2026-27, under Explanation 2 to section 139(1) of the 1961 Act as substituted by the Finance Act, 2026, a business owner whose accounts are not audited files by 31 August 2026 — that row moved, while a purely salaried filer did not and is still on 31 July. Audit cases file by 31 October; see when a tax audit applies.

On fixing a return already filed, a revised return under section 139(5) runs to the end of the assessment year — 31 March 2027 for AY 2026-27 — or the completion of assessment, whichever is earlier. 31 December is the belated-return boundary, not the revised one. But treat revision as a way to correct arithmetic, not as a second attempt at the election: that is governed by section 115BAC(6), which this page does not state.

Common mistakes

• Choosing a regime without computing both. The default is not a recommendation. It is what happens when nobody decides.
• Ignoring the restriction on switching for business income. It is the one thing that makes an owner's choice different from a salaried filer's, and most comparison pages skip it.
• Forgetting to exercise the option on time where you are taking the old regime. Missing it leaves you on the default whatever your spreadsheet said.
• Not updating advance tax for the chosen regime. The regime decides B in A = B − C, so an estimate built on last year's regime is wrong from June.
• Instalmenting the gross tax without netting TDS. Section 405 subtracts it first.
• Counting deductions you do not actually claim. The old regime only wins on deductions that are real, documented and survive scrutiny.
• Assuming the section 87A rebate covers a capital gain. It is not available against special-rate income.
• Treating the ₹12,00,000 rebate ceiling as turnover. It is total income.
• Carrying an AY 2026-27 rate into FY 2026-27 planning. Different Act, different Schedule, different verification.

What this page does not claim

Stated plainly, because a comparison guide that hides its gaps is worse than one that has none.

• Old-regime slab rates for AY 2026-27. Not stated anywhere. The 1961 Act text was not reachable from an official host in this pass, and no memorandum we captured restates them. Confirm from the Finance Act, 2026 First Schedule or the Department's calculator before comparing.
• Slab rates for tax year 2026-27 (FY 2026-27). Not stated. Every rate above is an AY 2026-27 rate under section 115BAC(1A) of the 1961 Act; next year's come from a different Schedule and were not verified here.
• The exact switching mechanics under section 115BAC(6), including how many times an owner may move between regimes. Not stated, not implied, not paraphrased from anywhere else.
• Surcharge rates and thresholds. Not verified, so not stated; all three worked examples are computed without surcharge.
• The marginal-relief computation above the ₹12,00,000 rebate ceiling. The relief is confirmed to exist; the arithmetic is not published here.
• Any form number for exercising the option. Forms are prescribed by rules that were not part of what we verified.
• A clause-by-clause list of deductions disallowed in the new regime. Check it against section 115BAC for your year.

Run the numbers both ways, check the option position for your business income before the year starts rather than at filing, and reset the advance tax to match. The regime choice then becomes a decision rather than a guess. If you would rather have both computations run on your actual figures, that is what our regime comparison and business ITR filing services are for.

Sources and currency

Applies to: Assessment year 2026-27 — income of FY 2025-26 (1 April 2025 to 31 March 2026), charged under the Income-tax Act, 1961. Rates for tax year 2026-27, charged under the Income-tax Act, 2025, are not stated here.

The AY 2026-27 slab rates, the section 87A rebate, the standard and family-pension deductions and the cess were read from the Memoranda to the Finance Bill, 2025 and the Finance (No. 2) Bill, 2024 on 20 August 2026. The advance-tax threshold, formula, instalments and interest were read from the Gazette of India text of the Income-tax Act, 2025 and checked against the Income Tax Department's Tax Payments guidance. The text of the Income-tax Act, 1961 was not reachable from any official host in this pass, so nothing here quotes it and the old-regime slab rates are deliberately not stated. Income-tax provisions change at each Finance Act; confirm the current position before relying on a figure for a filing.

• Memorandum to the Finance Bill, 2025 — section 115BAC(1A) slabs and the section 87A rebate, with effect from assessment year 2026-27
• Memorandum to the Finance (No. 2) Bill, 2024 — the ₹75,000 standard deduction under section 115BAC(1A)
• Income-tax Act, 2025 (No. 30 of 2025) — Gazette of India Extraordinary, 21 August 2025 (sections 58, 404, 405, 408, 424, 425)
• Finance Act, 2026 (No. 4 of 2026) — Gazette of India Extraordinary, 30 March 2026 (s.2(1) and s.3(1) charging sections, s.5(a) return due dates)
• Income Tax Department, e-filing portal — Tax Payments
• Income Tax Department, e-filing portal — Income Tax Returns