Old vs New Tax Regime for AY 2026-27: Which Saves More?
Old regime with deductions or the new default regime? Compare slabs, the standard deduction and 80C impact for AY 2026-27, with a simple way to decide.
For AY 2026-27 (FY 2025-26), the new regime is the default, and after the Finance Act 2025 it is more generous than ever — income up to ₹12 lakh can be tax-free. But the old regime still wins for some. Here is the honest comparison and a simple rule to decide.
The new regime slabs (FY 2025-26)
Under Section 115BAC, the default new regime slabs are:
| Taxable income | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Plus a 4% Health & Education Cess. Two features make it powerful:
- Section 87A rebate up to ₹60,000 — a resident individual with taxable income up to ₹12 lakh pays zero tax.
- Standard deduction of ₹75,000 for salaried and pensioners — so a salaried person can be tax-free up to about ₹12.75 lakh.
The rebate covers only normal income. Special-rate income such as capital gains under Sections 111A / 112A is not covered, so you can still owe tax on those even if your total is around ₹12 lakh. Budget 2026 left these slabs unchanged, so they continue for FY 2026-27.
The old regime slabs (unchanged)
| Taxable income | Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Here the 87A rebate is only ₹12,500 (up to ₹5 lakh taxable) and the standard deduction is ₹50,000 — but you can claim the full deduction toolkit: 80C (₹1.5 lakh), 80D health insurance, HRA, home-loan interest (₹2 lakh), NPS 80CCD(1B) (₹50,000), and more. Senior citizens get a higher basic exemption — ₹3 lakh for 60–80, ₹5 lakh for 80+.
The simple rule to decide
The choice comes down to how many deductions you actually claim:
- Few or no deductions → the new regime almost always wins. Lower slabs plus the ₹12 lakh rebate beat the old regime's higher rates.
- Heavy deductions → the old regime can still win. If your 80C is maxed, you pay significant health premiums, claim large HRA and are servicing a home loan with ₹2 lakh interest, the old regime's deductions may cut your taxable income below what the new regime saves on rate.
The break-even shifts with income and deduction mix. The only reliable answer is to compute both on your actual numbers — a five-minute job for a CA, and something you should do every year, because a regime that won last year may not win this year.
A note for the salaried
Salaried employees can switch between regimes each year at the time of filing, subject to the rules for those with business income, who face restrictions on switching. So even if your employer deducted TDS under one regime, you can file under the other if it is better — the excess adjusts as a refund or balance.
How CorporateWalla helps
We run both regimes on your real figures before filing, factor in the 111A / 112A carve-out on any capital gains, and file under whichever genuinely saves you more — not whichever is the default.
Frequently Asked Questions
Q: Which regime is the default for AY 2026-27?
A: The new regime under Section 115BAC. You must actively opt for the old regime if you want it.
Q: Is income up to ₹12 lakh really tax-free?
A: Yes, for a resident individual under the new regime, via the enhanced Section 87A rebate — up to ₹12 lakh taxable income, about ₹12.75 lakh for salaried after the ₹75,000 standard deduction. Special-rate capital gains are excluded.
Q: Can I switch regimes every year?
A: Salaried individuals generally can choose each year at filing. Those with business or professional income face restrictions once they opt out of the new regime.
Q: Does the old regime still make sense?
A: Yes, if your deductions are large — maxed 80C, health insurance, HRA and a home loan with ₹2 lakh interest can tip the maths in its favour.