New vs Old Tax Regime 2026-27: Slabs, ₹12 Lakh Rebate, Which to Pick

In the new vs old tax regime 2026-27 comparison, the new regime is the default under section 202 of the Income-tax Act, 2025 and makes total income up to ₹12 lakh tax-free for resident individuals through a rebate of up to ₹60,000 (₹12.75 lakh for salaried people after the ₹75,000 standard deduction). The old regime has higher slab rates but allows deductions such as section 123 (old 80C), HRA, health insurance and home loan interest. It wins only if those deductions are large, so compare both with your own figures every year.

New regime slabs for tax year 2026-27

The Union Budget of 1 February 2026 did not change the slabs. Under section 202(1) of the Income-tax Act, 2025, the rates for tax year 2026-27 (income earned from 1 April 2026 to 31 March 2027) are:

• Up to ₹4,00,000: nil
• ₹4,00,001 to ₹8,00,000: 5%
• ₹8,00,001 to ₹12,00,000: 10%
• ₹12,00,001 to ₹16,00,000: 15%
• ₹16,00,001 to ₹20,00,000: 20%
• ₹20,00,001 to ₹24,00,000: 25%
• Above ₹24,00,000: 30%

The ₹12 lakh rebate. Tax on exactly ₹12 lakh is ₹60,000 (₹20,000 plus ₹40,000). Section 156 gives a resident individual a rebate equal to that tax, so the result is zero. Just above ₹12 lakh, marginal relief limits the tax to the amount by which income exceeds ₹12 lakh. The rebate does not cover income taxed at special rates, such as certain capital gains.

The new regime disallows most deductions (section 123, health insurance, HRA, self-occupied home loan interest), but keeps the standard deduction and the employer’s NPS contribution within limits.

Old regime: slabs and deductions

Below 60, the old regime taxes nil up to ₹2.5 lakh, 5% to ₹5 lakh, 20% to ₹10 lakh and 30% above (basic exemption ₹3 lakh at 60 to 79, ₹5 lakh at 80 plus). The rebate is only up to ₹12,500, for income up to ₹5 lakh. In return it offers deductions:

• Section 123 (old 80C): up to ₹1.5 lakh for PF, PPF, life insurance premium, home loan principal, children’s tuition fees, ELSS and five-year tax-saving deposits.
• Health insurance premium for self and family, with a further amount for parents.
• Interest on a loan for a self-occupied house, up to ₹2 lakh.
• HRA exemption for salaried people who pay rent, worked out by formula.
• Standard deduction of ₹50,000.

A tax deduction alone is never a reason to buy a financial product.

New vs old tax regime 2026-27: a worked comparison

Ankit is a resident software tester in Noida with a salary of ₹15,00,000 and no other income.

New regime. Salary less ₹75,000 standard deduction gives total income of ₹14,25,000. Tax: ₹20,000 plus ₹40,000 plus 15% of ₹2,25,000 (₹33,750) = ₹93,750. Add 4% cess (₹3,750): ₹97,500.

Old regime. Ankit pays rent, and his HRA exemption works out to ₹1,80,000. He claims ₹1,50,000 under section 123, ₹25,000 for health insurance and the ₹50,000 standard deduction. Deductions total ₹4,05,000, so total income is ₹10,95,000. Tax: ₹12,500 plus ₹1,00,000 plus 30% of ₹95,000 (₹28,500) = ₹1,41,000. Add cess (₹5,640): ₹1,46,640.

In Ankit’s new vs old tax regime 2026-27 comparison, the new regime saves him ₹49,140. On the same salary, the old regime would win only if his deductions and exemptions together (including the ₹50,000 standard deduction) were more than about ₹5.94 lakh, bringing total income below roughly ₹9.06 lakh.

Now take Pooja, a bank clerk in Patna with a salary of ₹12,75,000. Under the new regime her total income is ₹12,00,000, the rebate wipes out the tax, and she pays nothing. The old regime cannot beat zero.

New vs old tax regime 2026-27: how to choose and switch

Section 202(4) sets the rules for opting out:

1. No business or professional income (salary, pension, rent, interest, capital gains): you choose the old regime in your return, filed by the due date. You can change every year.
2. Business or professional income (shop, practice, freelancing): you exercise the option in the prescribed manner by the due date. It continues for later years and can be withdrawn only once. Treat it as a long-term decision.

Telling your employer. Your employer deducts TDS under the regime you indicate (the new regime if you say nothing). That is only for TDS; a salaried person makes the final choice in the return.

Common mistakes. Claiming section 123 or HRA while filing in the new regime brings a demand. A person with business income who files late may lose the old regime for that year.

For a complex case (several properties, capital gains, business income), ask a chartered accountant to check both computations.

Frequently asked questions

Which is better, the new vs old tax regime 2026-27?

For most people the new regime is better in 2026-27, because income up to ₹12 lakh (₹12.75 lakh for salary) is tax-free and every slab rate is lower. The old regime can win only where deductions such as HRA, section 123, health insurance and home loan interest are large. Compare both with your own numbers.

Is income up to ₹12 lakh tax-free in 2026-27?

Yes, for a resident individual under the new regime, if total income does not exceed ₹12 lakh. The section 156 rebate of up to ₹60,000 cancels the tax. It does not cover income taxed at special rates, such as certain capital gains.

Can a salaried person switch between old and new regime every year?

Yes. A person without business or professional income can choose the old regime in each year’s return filed by the due date, and go back to the new regime the next year. People with business income can withdraw from the old regime only once.

Can I claim 80C in the new tax regime?

No. The deduction under section 123 (old 80C) is not available in the new regime. Nor are the HRA exemption, the health insurance deduction or interest on a self-occupied home loan.

Quick quiz

Go beyond the new vs old tax regime 2026-27 question: New Income-tax Act 2025 and GST Basics certificate course (a certificate of completion, not a professional qualification).

Sources

• Income-tax Act, 2025: s.19 (standard deduction), s.123 (old 80C), s.156 (rebate), s.202 (new regime and option to opt out)
• Union Budget 2026-27 (1 February 2026): no change in new regime slabs
• Finance Act, 2026

This page is for education and general information, not tax or legal advice for a specific case, and it does not recommend any investment. Consult a chartered accountant for your own return. Law as on 31 October 2026.