Old vs New Tax Regime for FY 2025-26 (AY 2026-27)
The new tax regime is the default for AY 2026-27 and, after Budget 2025 raised the 87A rebate to Rs. 60,000, it is the better choice for most taxpayers. But the old regime is not dead: heavy HRA, home-loan interest and 80C/80D claims can still tilt the balance. This guide compares slabs, rebates, deductions and switching rules with worked rupee examples for this filing season.
Slab rates compared for AY 2026-27
| New regime - income | Rate | Old regime - income (below 60) | Rate |
|---|---|---|---|
| Up to Rs. 4,00,000 | Nil | Up to Rs. 2,50,000 | Nil |
| Rs. 4,00,001 - 8,00,000 | 5% | Rs. 2,50,001 - 5,00,000 | 5% |
| Rs. 8,00,001 - 12,00,000 | 10% | Rs. 5,00,001 - 10,00,000 | 20% |
| Rs. 12,00,001 - 16,00,000 | 15% | Above Rs. 10,00,000 | 30% |
| Rs. 16,00,001 - 20,00,000 | 20% | Old regime basic exemption: Rs. 3,00,000 for residents aged 60-79 and Rs. 5,00,000 for residents aged 80 plus. New regime: Rs. 4,00,000 for all ages. | |
| Rs. 20,00,001 - 24,00,000 | 25% | ||
| Above Rs. 24,00,000 | 30% | ||
Key differences at a glance
| Particulars | New regime | Old regime |
|---|---|---|
| Status for AY 2026-27 | Default | Optional (opt-in) |
| Standard deduction (salary/pension) | Rs. 75,000 | Rs. 50,000 |
| 87A rebate (resident individuals) | Up to Rs. 60,000; income up to Rs. 12,00,000 | Up to Rs. 12,500; income up to Rs. 5,00,000 |
| 80C, 80D, HRA, LTA, home-loan interest (self-occupied) | Not available | Available |
| Employer NPS - 80CCD(2) | Available (up to 14% of salary) | Available (up to 10%/14%) |
| Maximum surcharge | 25% | 37% |
| Switching - salaried | Choose freshly each year in the ITR | |
| Switching - business income | Opt out via Form 10-IEA before the due date; only one withdrawal allowed | |
Worked examples for FY 2025-26
Salary Rs. 13 lakh, 80C only
New regime: taxable Rs. 12,25,000; slab tax Rs. 63,750, but marginal relief caps it at Rs. 25,000 + cess = Rs. 26,000. Old regime: taxable Rs. 11,00,000 (after Rs. 50,000 SD + Rs. 1,50,000 80C); tax Rs. 1,42,500 + cess = Rs. 1,48,200. New regime saves Rs. 1,22,200.
Salary Rs. 20 lakh, heavy deductions
Old regime: HRA exemption Rs. 3,50,000, SD Rs. 50,000, home-loan interest Rs. 2,00,000, 80C Rs. 1,50,000, NPS Rs. 50,000, 80D Rs. 25,000 leave taxable income Rs. 11,75,000; tax Rs. 1,65,000 + cess = Rs. 1,71,600. New regime: taxable Rs. 19,25,000; tax Rs. 1,85,000 + cess = Rs. 1,92,400. Old regime saves Rs. 20,800 - only because of the large HRA claim.
Freelancer, income Rs. 8 lakh
Presumptive business income Rs. 8,00,000 (no standard deduction). New regime: slab tax Rs. 20,000, fully covered by the 87A rebate - tax nil. Opting for the old regime would need Form 10-IEA before the due date and is hard to reverse, so it rarely makes sense at this income.
When the old regime can still win
- High rent in a metro city giving a large HRA exemption in addition to 80C and 80D.
- Substantial home-loan interest on a self-occupied house (up to Rs. 2,00,000 under section 24(b)).
- Large 80G donations, education-loan interest (80E) or disability deductions.
- Combined deductions and exemptions exceeding roughly Rs. 5-8 lakh at higher salaries - test your exact numbers in the income tax calculator.
When the new regime wins
- Taxable income up to Rs. 12 lakh: the Rs. 60,000 87A rebate makes tax nil - the old regime cannot match this.
- Few or undocumented deductions, or rent paid without receipts.
- Income above Rs. 5 crore, where the surcharge cap of 25% (vs 37%) lowers the top effective rate to about 39%.
- You want a simpler return without deduction proofs and schedules.
Switching rules and Form 10-IEA
- Salaried and other non-business taxpayers: tick the regime choice inside the ITR each year - no separate form. The choice made for TDS with your employer is not final; you can change it while filing.
- Business or professional income: opting out of the new regime requires Form 10-IEA on or before the section 139(1) due date. The option continues for later years, and after one withdrawal you cannot opt for the old regime again while business income exists.
- A belated return generally locks you into the new regime, since the old-regime option must be exercised in a return filed by the due date.
How to decide in five steps
- Compute taxable income under the new regime: gross salary minus Rs. 75,000 standard deduction and employer NPS under 80CCD(2); apply the new slabs and the 87A rebate if income is up to Rs. 12 lakh.
- Compute taxable income under the old regime: deduct Rs. 50,000 standard deduction, HRA exemption, home-loan interest, 80C, 80D and every other eligible item you can actually document.
- Add surcharge and 4% cess to both and compare the final tax payable, not just the slab tax.
- Check the procedural lock-ins: business income needs Form 10-IEA by the due date, and a belated return usually forfeits the old regime.
- File before 31 July 2026 so both options stay open, and keep the deduction proofs for the regime you pick.
Common mistakes
- Comparing on slab rates alone. The rebate, standard deduction and surcharge caps matter as much as the slabs.
- Assuming the employer's TDS choice is binding. Salaried taxpayers can switch regimes in the ITR regardless of payroll declarations.
- Filing late and losing the old regime. Missing the 31 July 2026 due date can forfeit the old-regime option for the year.
- Counting HRA or 80C in a new-regime computation. These are old-regime-only items; only the standard deduction and 80CCD(2) survive for most salaried taxpayers.
- Business taxpayers switching casually. The Form 10-IEA opt-out is effectively once-in-a-lifetime after withdrawal.
Frequently asked questions
Which regime is the default for AY 2026-27?
The new regime. Salaried taxpayers may pick the old regime in the ITR each year; business taxpayers must file Form 10-IEA before the due date.
What is the 87A rebate difference between the regimes?
New regime: up to Rs. 60,000 for taxable income up to Rs. 12 lakh. Old regime: up to Rs. 12,500 for taxable income up to Rs. 5 lakh.
How much in deductions does the old regime need to win?
At salaries above Rs. 13-14 lakh, usually well over Rs. 5-8 lakh of combined deductions and exemptions. Below Rs. 12.75 lakh of salary, the new regime already gives zero tax.
Can I switch regimes every year?
Yes if you have no business income. With business or professional income, switching is restricted through Form 10-IEA and only one withdrawal is allowed.
Which deductions survive in the new regime?
The Rs. 75,000 standard deduction, employer NPS under 80CCD(2), family pension deduction and Agniveer corpus deduction are the main ones. HRA, 80C, 80D and LTA do not apply.
Does HRA work in the new regime?
No. HRA exemption under section 10(13A) needs the old regime, which is why high-rent metro taxpayers should always compare both options.
Get the regime choice right before filing
All India ITR's experts run both computations on your actual Form 16, rent and investment data, pick the cheaper regime and file your return - including Form 10-IEA where needed.
Related current ITR guides
More AY 2026-27 tax guides
Save tax: Home loan benefits · NPS (80CCD) · Donations (80G) · Education loan (80E) · Interest income (80TTA/80TTB) · Form 15G/15H · Capital gains exemptions (54/54F/54EC)
Investors and traders: F&O and intraday tax · ESOP and RSU tax · Share buyback tax · Foreign income and Schedule FA · Gift tax (56(2)(x)) · HUF taxation
Calculators and tools: Income tax calculator · Advance tax calculator · 80C tax-saving calculator · NPS calculator · Gratuity calculator · EPF calculator · Crypto tax calculator · HRA calculator
Filing and compliance: Section 87A rebate · Marginal relief · Form 10-IEA · PAN-Aadhaar link · AIS and TIS · ITR-U updated return · Discard ITR and condonation · TDS on rent and property · Income Tax Act 2025
Sources reviewed
- Income Tax Department: Salaried individuals for AY 2026-27 - regimes, slabs and deductions
- PIB, Ministry of Finance: Union Budget 2025-26 highlights - new regime structure and Rs 12 lakh rebate
This comparison covers individual taxpayers for FY 2025-26 (AY 2026-27). Surcharge cases, special-rate income, foreign tax relief and business regime restrictions need a case-by-case review before filing.
