Old vs new tax regime for salaried employees Tax Year 2026–27
The new regime is the default and taxes less on paper. The old regime taxes more but lets you subtract more. Which leaves you better off depends entirely on how much you have to subtract.
What each regime allows
| New regime | Old regime | |
|---|---|---|
| Status | Default | Optional, must be declared |
| Standard deduction | ₹75,000 | ₹50,000 |
| Tax-free up to | ₹12,00,000 taxable, via the section 87A rebate | ₹5,00,000 taxable |
| HRA exemption | No | Yes |
| Section 80C | No | Yes, up to ₹1,50,000 |
| Section 80D health insurance | No | Yes |
| Section 80CCD(1B), your own NPS | No | Yes, up to ₹50,000 |
| Home loan interest, self-occupied | No | Yes, up to ₹2,00,000 |
| Employer NPS, section 80CCD(2) | Yes, up to 14% of Basic + DA | Yes, up to 10% |
| Professional Tax, section 16(iii) | No | Yes |
| Top surcharge rate | 25% | 37% |
The slabs
New regime
- ₹0 to ₹4,00,000 at 0%
- ₹4,00,000 to ₹8,00,000 at 5%
- ₹8,00,000 to ₹12,00,000 at 10%
- ₹12,00,000 to ₹16,00,000 at 15%
- ₹16,00,000 to ₹20,00,000 at 20%
- ₹20,00,000 to ₹24,00,000 at 25%
- ₹24,00,000 and above at 30%
Old regime
- ₹0 to ₹2,50,000 at 0%
- ₹2,50,000 to ₹5,00,000 at 5%
- ₹5,00,000 to ₹10,00,000 at 20%
- ₹10,00,000 and above at 30%
Both regimes add 4% Health and Education Cess on top of the tax, and surcharge above ₹50,00,000 of taxable income.
Worked example: ₹15 lakh CTC
Same package, three scenarios:
| Scenario | Annual tax | Monthly in-hand |
|---|---|---|
| New regime | ₹88,503 | ₹1,10,810 |
| Old regime, nothing to claim | ₹2,31,886 | ₹98,862 |
| Old regime, ₹35,000 metro rent + full 80C + 80D + NPS | ₹88,884 | ₹1,10,778 |
With nothing to claim, the new regime wins by ₹11,949 a month. Load the old regime up with a full set of deductions and it turns into a ₹32 a month advantage the other way.
That is the whole decision, and it is why nobody can tell you which regime is "better" without knowing your rent and your investments.
How to actually decide
- Add up what you genuinely claim: rent, 80C, health insurance, NPS, home loan interest. Not what you could claim in theory.
- Run both regimes with those numbers in the calculator.
- Declare the winner to your employer, because they calculate your monthly TDS from it.
Re-check after any significant raise. The old regime's deductions are mostly fixed amounts, so their relative value shrinks as your income grows.
The one quirk worth knowing
Between ₹12,00,000 and roughly ₹12,70,588 of taxable income under the new regime, the section 87A rebate tapers rather than stopping. In that band the marginal rate is about 104%, because the tax is capped at the excess over ₹12,00,000 and then cess is charged on top. A small raise in that range can leave you very slightly worse off.
Common questions
Which regime is better for me?
We will not tell you, because it depends on numbers only you have. The rough test: work out your total old-regime deductions including HRA exemption. If that total is small, the new regime almost certainly wins. If it is large (full 80C, significant metro rent, a home loan) the old regime can still be worth keeping. Run both rather than guessing.
Can I switch regimes every year?
Salaried employees without business income can generally choose afresh each year when filing. But your employer deducts TDS through the year on whichever regime you declared to them, so switching at filing time means a refund or a shortfall rather than a smoother year.
What happens if I do not declare a regime?
The new regime applies by default. If you want the old one you have to say so.
Does the new regime allow any deductions at all?
Three that matter to salaried employees: the ₹75,000 standard deduction, the employer’s NPS contribution under section 80CCD(2) up to 14% of Basic + DA, and the section 87A rebate up to ₹12,00,000 of taxable income. Everything else is gone, including the deduction for Professional Tax.
Related
Written by Divya Akash Dutta. Published 18 August 2026. Last reviewed 18 August 2026 for Tax Year 2026–27.