Last updated: 16 October 2026
It's that time of year when HR drops the "please confirm your tax regime" mail, and suddenly every WhatsApp group turns into a mini CA office. Someone swears the new regime is free money. Someone else is still stuffing ELSS and PPF proofs into a folder like it's 2019. Both can be right — for different people.
From 1 April 2026, income is taxed under the Income-tax Act, 2025 (what used to be called a financial year is now a tax year). The big choice is the same as before: stay in the new regime (it's the default) or actively opt for the old regime. Budget 2026 did not change the slab rates for Tax Year 2026-27, so the numbers below are the ones that apply now.
This is a plain explainer, not personal tax advice. Run your own numbers (or ask a CA) before you tick a box.
What the two regimes actually are
Think of it like two thali options at the same restaurant.
New tax regime (Section 202 of the Income-tax Act, 2025; the old Section 115BAC): lower slab rates, higher basic exemption, a bigger standard deduction, and a fat rebate that can wipe out tax for many middle-income earners. In return, you give up most of the classic deductions — HRA, Section 123 (old 80C), health insurance under Section 126 (old 80D), self-occupied home-loan interest, and so on.
Old tax regime: higher slab rates and a lower basic exemption, but you can still claim the familiar exemptions and deductions if you actually have them.
The new regime is the default. You don't fill a form to "join" it. You only act if you want the old one.
Side-by-side: slabs for a resident under 60
Figures for Tax Year 2026-27 (income from 1 April 2026 to 31 March 2027). Same slab structure was already in place after Budget 2025; Budget 2026 left them unchanged. Health and education cess is 4% on tax (plus surcharge, if any) in both regimes.
| Income slab | Old regime | New regime (default) |
|---|---|---|
| Up to ₹2.5 lakh | Nil | — |
| Up to ₹4 lakh | — | Nil |
| ₹2.5–5 lakh | 5% | — |
| ₹4–8 lakh | — | 5% |
| ₹5–10 lakh | 20% | — |
| ₹8–12 lakh | — | 10% |
| Above ₹10 lakh | 30% | — |
| ₹12–16 lakh | — | 15% |
| ₹16–20 lakh | — | 20% |
| ₹20–24 lakh | — | 25% |
| Above ₹24 lakh | — | 30% |
Source (checked 16 Oct 2026): Section 202 of the Income-tax Act, 2025 (new-regime slabs); Income Tax Department slab tables for AY 2026-27 under the 1961 Act (old-regime slabs, same rates carried into Tax Year 2026-27); Finance Bill 2026 memorandum — no change in individual rates. Note: "AY 2026-27" on the portal is the year before Tax Year 2026-27.
Fintelligent
Senior citizens get a higher basic exemption only under the old regime (₹3 lakh if 60–79, ₹5 lakh if 80+). Under the new regime, age doesn't change the slabs.
Standard deduction and the "zero tax" rebate
Standard deduction (from salary or pension, under Section 19 of the new Act / old Section 16):
- New regime: up to ₹75,000
- Old regime: up to ₹50,000
No proofs. Flat cut.
Rebate under Section 156 (the old Section 87A), for resident individuals:
- New regime: rebate up to ₹60,000 if total income does not exceed ₹12 lakh. With the ₹75,000 standard deduction, many salaried people pay nil tax up to about ₹12.75 lakh of salary (special-rate income like capital gains doesn't get this rebate).
- Old regime: rebate up to ₹12,500 if total income does not exceed ₹5 lakh.
That ₹12 lakh / ₹12.75 lakh zero-tax band is why a lot of people with "normal" salaries and few big deductions are better off simply staying in the new regime.
What you can claim (and what you can't)
| Benefit | Old regime | New regime |
|---|---|---|
| Standard deduction | ₹50,000 | ₹75,000 |
| Section 123 (old 80C): EPF, PPF, ELSS, life insurance, tuition fees, home-loan principal, etc. | Up to ₹1.5 lakh | Not available |
| Extra NPS under Section 124 (old 80CCD(1B)) | Up to ₹50,000 more | Not available |
| Employer NPS contribution (Section 124 / old 80CCD(2)) | Yes (14% if Central/State Government employer; 10% for other employers) | Yes (up to 14% of salary for all employers under the new regime) |
| Health insurance, Section 126 (old 80D) | Yes (₹25,000 / ₹50,000 limits) | Not available |
| HRA exemption (Schedule III Sl. No. 11 / old Section 10(13A)) | Yes | Not available |
| Self-occupied home-loan interest (Section 22 / old 24(b)) | Up to ₹2 lakh | Not available (let-out property rules differ) |
| Section 156 rebate | Up to ₹5 lakh income | Up to ₹12 lakh income |
So if your "tax saving" plan is mostly EPF + a bit of PPF, the new regime may still win. If you have fat HRA, a home loan, full Section 123, health insurance for parents, and extra NPS, the old regime can still claw back more.
A simple ₹ example
Two colleagues, both resident, under 60, both earning ₹15 lakh salary in Tax Year 2026-27. No surcharge. Cess at 4%. Numbers are rounded illustrations.
Riya — few claims She has only the standard deduction. No HRA claim, no home loan, no extra 80C beyond what's already in salary paperwork that she isn't using for the old regime.
- New regime: taxable income ≈ ₹14.25 lakh after ₹75,000 standard deduction. Tax before cess ≈ ₹93,750 → about ₹97,500 with cess. (She's above the ₹12 lakh rebate band.)
- Old regime: taxable income ≈ ₹14.5 lakh after ₹50,000 standard deduction. Tax before cess ≈ ₹2,47,500 → about ₹2,57,400 with cess.
Fintelligent
Riya stays in the new regime without thinking twice. Opting for old would be like paying extra for a buffet she isn't eating.
Aamir — heavy claims Same ₹15 lakh salary, but he can actually show: Section 123 investments ₹1.5 lakh, health insurance ₹25,000, HRA exemption about ₹1.8 lakh, and self-occupied home-loan interest ₹2 lakh.
- Old regime: after ₹50,000 standard deduction plus those claims, taxable income falls to roughly ₹9 lakh. Tax before cess ≈ ₹92,500 → about ₹96,200 with cess.
- New regime: he still can't use HRA / 123 / 126 / home-loan interest, so he's in the same ballpark as Riya — around ₹97,500.
For Aamir, old and new are close at this income; with slightly higher HRA or another ₹50,000 NPS under Section 124, old usually edges ahead. Below about ₹12.75 lakh of salary with light deductions, new often wins by a mile because of the rebate.
These are simplified walk-throughs. Your Form 16, perquisites, professional tax, and exact HRA formula will move the needle. Always compare both sides with your real numbers.
Who should pick which? (Rules of thumb)
Lean new regime if:
- your salary is up to roughly ₹12.75 lakh and you don't have large old-regime claims,
- you rent but your HRA exemption is small, or you live in your own house with little or no home-loan interest,
- you hate January proof season and prefer simpler tax,
- most of your "80C" is just mandatory EPF anyway.
Lean old regime if:
- you claim meaningful HRA, and/or
- you have a home loan with interest near the ₹2 lakh cap, and/or
- you routinely fill the ₹1.5 lakh Section 123 bucket plus Section 126 health cover and maybe extra NPS,
- your total old-regime deductions and exemptions (beyond the standard deduction) are large enough that the higher slabs still leave you paying less than under the new rates.
A rough gut check many planners use: if your old-regime extras are only one or two lakhs, new often wins at mid incomes; if they're several lakhs (HRA + loan + full 123 + 126), old can still win. Don't invent investments just to "justify" the old regime — a forced ELSS SIP that wrecks your cash flow is not a tax win.
Fintelligent
How to choose and tell HR / the ITR
- Compare both with your expected income and real claims for Tax Year 2026-27. The Income Tax Department's e-filing portal has regime comparison help; a spreadsheet works too.
- Tell your employer which regime to use for TDS on salary, so your monthly take-home isn't a surprise. You can still settle the final choice in the return (with the usual timing rules).
- Opting out for Tax Year 2026-27: under Rule 136 of the Income-tax Rules, 2026, the choice under Section 202(4) is made in the return of income filed under Section 263(1) — there is no separate Form 10-IEA for this tax year.
- No business or profession income (typical salaried filer): choose the old regime in the return, filed on or before the due date. Miss the due date and you're generally stuck with the new regime for that year.
- Business or profession income: exercise the option on or before the due date. Once exercised, it applies to later tax years and can be withdrawn only once (after that, you generally cannot opt out again while you still have business income).
- Don't confuse years: Form 10-IEA still appears in portal help for Assessment Year 2026-27 under the old Income-tax Act, 1961 (that is the year before Tax Year 2026-27). For Tax Year 2026-27 under the Income-tax Act, 2025, use the regime option inside the return.
Keep rent receipts, loan interest certificates, insurance premium proofs and investment statements handy if you pick old. The new regime's charm is that you mostly don't need that folder.
Verified 16 Oct 2026: Rule 136 puts the Section 202(4) option in the return under Section 263(1) (Form 10-IEA is for the 1961 Act / AY pathway only). HRA is Schedule III Sl. No. 11. Section 126 caps match ₹25,000 / ₹50,000 (senior-citizen / medical-expenditure aggregates). Live TY 2026-27 ITR UI is not out yet (returns due 2027), so that pixel check stays future.
The bottom line
The new regime is no longer the "experimental" option — it's the default, with lower rates and a rebate that makes many salaries up to about ₹12.75 lakh tax-free. The old regime is still useful if your life looks like a deduction checklist: rent in a metro, home loan, full Section 123, family health cover, maybe extra NPS.
Don't pick a regime because your desk neighbour did. Pick it because your ₹ math is lower. And remember: tax saving is only useful after you've covered the boring stuff — emergency fund, a sensible monthly budget, and goals you actually care about.
Related reads
- What is ELSS?
- PPF vs FD
- EPF vs PPF vs NPS
- What is a SIP?
- What is an emergency fund?
- Term insurance vs endowment plan
- What is a credit score?
- How to make a monthly budget
Sources (checked 16 October 2026): Income Tax Department, Salaried Individuals — tax slabs and regime notes for AY 2026-27 (new regime default; old vs new slabs for residents under 60; Section 87A rebate ₹60,000 up to ₹12 lakh new / ₹12,500 up to ₹5 lakh old; 4% cess; deductions list including 80C, 80D, 24(b), HRA, 80CCD); Income Tax Department, Threshold limits (standard deduction ₹75,000 new / ₹50,000 old under Section 16(ia); rebate limits); Income Tax Department, Schedule XV (Section 123 / old 80C eligible investments); Income Tax Department, FAQs on new vs old tax regime (default regime; note: Form 10-IEA guidance on this page is for the 1961 Act / AY pathway); Income Tax Department, Income-tax Rules, 2026 (Rule 136: Section 202(4) option is exercised in the return under Section 263(1)); India Code, Section 202, Section 156, Section 19, Section 124; Income Tax Department, Income-tax Act, 2025 (as amended by Finance Act, 2026) and ICAI section mapping (80C→123, 80CCD→124, 80D→126, 24→22, 87A→156, 115BAC→202; HRA under Schedule III); PIB, Budget 2025-26 rebate and slabs press release (₹12 lakh / ₹12.75 lakh nil-tax messaging with ₹75,000 standard deduction); Union Budget 2026-27 documents / KPMG Budget highlights (no change in individual income-tax slabs or rates for Tax Year 2026-27; Income-tax Act, 2025 effective 1 April 2026). Example tax figures are illustrations with 4% cess and no surcharge; they are not a substitute for a full computation or professional advice.
