Old vs New Tax Regime

India has two income-tax regimes. The old regime has higher slab rates but lets you claim a wide range of deductions and exemptions (80C, 80D, HRA, home-loan interest and more). The new regime has lower slab rates and a higher basic exemption, but disallows most of those deductions. The new regime is now the default, though you can opt for the old one under section 115BAC(6).

For AY 2026-27 — the income of FY 2025-26, the return most people are filing now — the new-regime slabs under section 115BAC(1A) are: nil up to ₹4,00,000, 5% from ₹4,00,001 to ₹8,00,000, 10% to ₹12,00,000, 15% to ₹16,00,000, 20% to ₹20,00,000, 25% to ₹24,00,000, and 30% above ₹24,00,000. Salary income gets a ₹75,000 standard deduction in this regime, against ₹50,000 in the old one, and family pension gets ₹25,000. Health and education cess of 4% applies on top, with no marginal relief of its own.

The section 87A rebate is what makes the new regime decisive at moderate incomes. From AY 2026-27 its ceiling is total income of ₹12,00,000 and the rebate itself is up to ₹60,000, with marginal relief just above the ceiling so that crossing it by a rupee does not cost you the whole rebate. Two limits matter and are widely missed: the rebate is not available once total income exceeds the ceiling beyond the marginal-relief band, and it is not available against special-rate income at all — so a year with capital gains can carry real tax even where total income looks rebate-eligible.

Worked example — salaried, new regime, AY 2026-27. Assumptions: resident individual, gross salary ₹16,00,000, no other income, default new regime, standard deduction ₹75,000, no chapter VI-A claims. Total income is ₹15,25,000. Tax is nil on the first ₹4,00,000, ₹20,000 on ₹4–8 lakh at 5%, ₹40,000 on ₹8–12 lakh at 10%, and ₹48,750 on the remaining ₹3,25,000 at 15% — ₹1,08,750. Total income exceeds ₹12,00,000, so the section 87A rebate does not apply. Adding 4% cess of ₹4,350 gives ₹1,13,100. Whether the old regime beats that depends on its own slab rates and on how much of your 80C, 80D, HRA and home-loan interest actually survives there — which is a computation on your real figures, not a rule of thumb, and it is exactly the computation we run.

Which is better isn't a one-size answer — it depends on how many deductions you actually claim. People with significant deductions often gain from the old regime; those with few may pay less under the new one. The rough test worth knowing is that the old regime has to overcome both the lower new-regime rates and the ₹25,000 of extra standard deduction before it starts winning, so the deductions have to be real and documented, not aspirational.

Do not leave the decision to filing time if you are salaried. Your employer sets salary TDS on the regime you indicate, so indicating late — or not at all — means a year of deductions computed on the default and a large reconciliation in the return. The choice can usually be revisited at filing for a salaried taxpayer without business income, but the cash-flow damage is done by then.

One caution on currency. The figures above are stated for AY 2026-27, which is governed by the Income-tax Act, 1961. Tax year 2026-27 is charged separately, under the Income-tax Act, 2025, at the rates in the Finance Act, 2026 — and we do not restate the AY 2026-27 slabs as though they were next year's. We confirm the rates for your year before we compute anything.

We compute your tax under both regimes on your real numbers, recommend the one that's lower for you, and file under it.