The new tax regime is now the default. But default does not mean cheaper. If you have significant deductions, the old regime can still win. This guide shows both, with real numbers, so you pick the one that saves you the most.
Verify the exact slabs, rebate limits and standard deduction for AY 2026-27 on incometax.gov.in before filing. Tax rates are set in the annual Budget and can change. The figures below reflect the current AY 2026-27 position.
The quick rule
- Few or no deductions? The new regime is usually cheaper and simpler.
- Big deductions (home loan interest, full 80C, HRA, 80D)? The old regime often wins.
The tipping point is how much you claim in deductions. If your deductions are large enough, the old regime’s higher rates are outweighed by the income they shield. If you barely claim anything, the new regime’s lower rates win.
Tax slabs compared (AY 2026-27)
New regime (default):
| Income slab | 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% |
With the Section 87A rebate, income up to ₹12,00,000 is effectively tax-free under the new regime, and salaried people also get a standard deduction (making the effective tax-free salary higher). The standard deduction and rebate figures should be confirmed on the official portal.
Old regime:
| Income slab | 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% |
The old regime has lower slab thresholds and higher rates in the middle, but it lets you claim the full range of deductions.
What the new regime takes away
The new regime gives lower rates but removes most deductions and exemptions, including:
- 80C (PPF, ELSS, LIC, EPF, tuition)
- 80D (health insurance) in most cases
- HRA exemption
- Home loan interest on a self-occupied property
- Most other chapter VI-A deductions
The salaried standard deduction is still available under the new regime. But if you rely on 80C, HRA and home loan interest, the new regime asks you to give those up in exchange for lower rates. Whether that is a good deal depends on how much you claim.
Worked example: when the old regime wins
Meet Ananya. Salaried, gross income ₹14,00,000. She has:
- 80C: ₹1,50,000 (EPF + ELSS)
- 80D: ₹25,000 (health insurance)
- Home loan interest: ₹2,00,000
- Standard deduction: ₹50,000 (old regime)
Her deductions total ₹4,25,000, bringing taxable income to ₹9,75,000 under the old regime. Because she shields so much income, her old-regime tax comes out lower than the new regime, where she would keep almost none of those deductions.
For someone like Ananya with a home loan and full 80C, the old regime typically wins. The deductions do the heavy lifting.
Worked example: when the new regime wins
Meet Vikram. Salaried, gross income ₹12,00,000. He has:
- 80C: only ₹40,000
- No home loan
- No HRA claim (lives in his own city, no rent)
Vikram claims almost nothing, so the old regime’s deductions do little for him. Under the new regime his lower rates plus the rebate mean he pays significantly less, and in his case close to nothing after the rebate on income up to ₹12,00,000. For a low-deduction filer, the new regime is the clear winner and simpler too.
How to decide
- Add up every deduction you can genuinely claim: 80C, 80D, HRA, home loan interest.
- If the total is large (roughly the price of a home loan plus full 80C), test the old regime.
- If you claim little, the new regime is almost always cheaper.
- Do not guess. Calculate both.
Every good filing platform computes both regimes for you and shows the difference in rupees. The best income tax filing platforms all do this, and ClearTax in particular shows a clear side-by-side. See the ClearTax review for how that comparison looks in practice.
FAQ
Which tax regime is better, old or new?
It depends on your deductions. With large deductions like a home loan and full 80C, the old regime often saves more. With few deductions, the new regime is usually cheaper and simpler.
Is the new tax regime the default?
Yes. For AY 2026-27 the new regime is the default. You must actively choose the old regime if you want it.
Can I switch between regimes every year?
Salaried individuals without business income can generally choose each year. Those with business income face restrictions on switching. Confirm the current rules on incometax.gov.in.
Does the new regime allow any deductions?
Very few. The salaried standard deduction still applies, but most others like 80C, HRA and home loan interest do not.
Up to what income is there no tax under the new regime?
With the Section 87A rebate, income up to ₹12,00,000 is effectively tax-free under the new regime for AY 2026-27, and salaried filers get a standard deduction on top. Confirm the exact figures on the official portal.
