If you have one question before you file ITR online for AY 2026–27, it is almost certainly this: should I choose the new tax regime or stick with the old one? Budget 2025 fundamentally changed the new regime — zero tax up to ₹12 lakh under Section 87A, a revised standard deduction of ₹75,000 for salaried taxpayers, and new income slabs that make the new regime attractive for a far wider bracket of taxpayers than before. Yet the old regime still wins decisively for people with home loans, substantial Section 80C investments, and HRA exemptions. As a CA in Mumbai advising individuals across all income levels, the answer is never one-size-fits-all. This guide runs the numbers honestly so you can make the right choice before the July 31, 2026 filing deadline.
AY 2026–27 Tax Slabs at a Glance
Both regimes are available for individual taxpayers. The new regime is the default — if you do not actively opt for the old regime before or during filing, the new regime applies automatically.
New Tax Regime Slabs for AY 2026–27
| Income Slab | Tax 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% |
Section 87A rebate: Under the new regime, the tax liability on income up to ₹12,00,000 is fully rebated to zero. For salaried taxpayers with a standard deduction of ₹75,000, this effective exemption extends to ₹12,75,000 gross salary.
Old Tax Regime Slabs for AY 2026–27
| Income Slab | Tax Rate |
|---|---|
| Up to ₹2,50,000 (₹3L for senior citizens 60–79; ₹5L for 80+) | NIL |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Under the old regime, you retain all deductions: Section 80C (₹1.5L), 80D (₹25,000–₹50,000), HRA exemption, home loan interest under Section 24b (up to ₹2L), standard deduction of ₹50,000, NPS (Section 80CCD(1B), ₹50,000), and more. These deductions are entirely unavailable under the new regime (except the enhanced standard deduction for salaried taxpayers).
What the New Regime Gives Up — Deductions Lost
The new regime's cleaner slabs come at the cost of these deductions and exemptions:
- Section 80C: ₹1,50,000 (PPF, ELSS, life insurance, PF, tuition fees, principal repayment)
- Section 80D: ₹25,000–₹1,00,000 (health insurance premiums for self, family, parents)
- HRA exemption (up to 50% of basic salary in metro cities)
- Home loan interest under Section 24b: Up to ₹2,00,000 for self-occupied property
- Standard deduction: ₹50,000 (old) vs ₹75,000 (new, for salaried only)
- Section 80CCD(1B): Additional ₹50,000 NPS deduction
- LTA exemption (Leave Travel Allowance — up to 2 trips in a block of 4 years)
- Section 80E: Education loan interest deduction (no cap on amount)
- Section 80G: Donations to approved charities
- Section 80TTA/80TTB: Interest income deduction (savings account / senior citizen FD)
"The new regime wins on simplicity and for low-deduction taxpayers. The old regime wins when your deductions exceed the slab benefit. The tipping point depends on your specific numbers — not general rules."
Real-World Comparison: Three Income Levels
Example 1 — Gross Salary ₹10 Lakh (Salaried, Mumbai)
| Component | New Regime | Old Regime |
|---|---|---|
| Gross Salary | ₹10,00,000 | ₹10,00,000 |
| Standard Deduction | −₹75,000 | −₹50,000 |
| HRA Exemption | NIL | −₹1,20,000 |
| Section 80C | NIL | −₹1,50,000 |
| Section 80D | NIL | −₹25,000 |
| Taxable Income | ₹9,25,000 | ₹6,55,000 |
| Tax (before rebate/cess) | ₹52,500 | ₹41,000 |
| Section 87A Rebate | NIL (income > ₹12L? No — but this is under ₹12L net) | NIL |
| 4% Health & Education Cess | ₹2,100 | ₹1,640 |
| Total Tax Payable | ₹54,600 | ₹42,640 |
Example 2 — Gross Salary ₹15 Lakh (Salaried, with home loan)
| Component | New Regime | Old Regime |
|---|---|---|
| Gross Salary | ₹15,00,000 | ₹15,00,000 |
| Standard Deduction | −₹75,000 | −₹50,000 |
| HRA Exemption | NIL | −₹1,80,000 |
| Home Loan Interest (Sec 24b) | NIL | −₹2,00,000 |
| Section 80C | NIL | −₹1,50,000 |
| Section 80D | NIL | −₹25,000 |
| Section 80CCD(1B) NPS | NIL | −₹50,000 |
| Taxable Income | ₹14,25,000 | ₹8,45,000 |
| Tax (before cess) | ₹1,73,750 | ₹79,000 |
| 4% Cess | ₹6,950 | ₹3,160 |
| Total Tax Payable | ₹1,80,700 | ₹82,160 |
Example 3 — Gross Salary ₹25 Lakh (Salaried, minimal deductions)
| Component | New Regime | Old Regime |
|---|---|---|
| Gross Salary | ₹25,00,000 | ₹25,00,000 |
| Standard Deduction | −₹75,000 | −₹50,000 |
| Section 80C only | NIL | −₹1,50,000 |
| Section 80D only | NIL | −₹25,000 |
| Taxable Income | ₹24,25,000 | ₹22,75,000 |
| Tax (before cess) | ₹4,93,750 | ₹5,32,500 |
| 4% Cess | ₹19,750 | ₹21,300 |
| Total Tax Payable | ₹5,13,500 | ₹5,53,800 |
The Break-Even Deduction Point
The key question is: at what level of total deductions does the old regime start winning? Based on AY 2026–27 slabs and the enhanced ₹75,000 standard deduction under the new regime, the approximate break-even thresholds are:
| Gross Salary | Old Regime Wins If Total Deductions Exceed |
|---|---|
| Up to ₹7.5 lakh | New regime almost always wins (zero tax up to ₹12.75L net salary) |
| ₹7.5L – ₹12L | Old regime may win only with very high HRA + home loan + full 80C |
| ₹12L – ₹20L | Old regime wins if deductions exceed ~₹3.75L–₹4.5L |
| ₹20L – ₹30L | Old regime wins if deductions exceed ~₹4.5L–₹5.5L |
| Above ₹30L | New regime typically wins unless massive home loan + HRA claims exist |
Regime-Switching Rules — What You Must Know Before Filing
For Salaried Individuals
Salaried taxpayers can switch between regimes every year at the time of filing their ITR. If you chose the new regime for AY 2025–26 but the old regime is better for AY 2026–27, you can switch. Your employer uses Form 12BB for TDS deduction purposes — inform your employer of your regime choice early in the financial year to avoid excess TDS deductions. However, the final regime choice is locked in when you file your ITR and cannot be changed after the filing deadline.
For Business Owners and Professionals (ITR-3 Filers)
The rules are stricter for taxpayers with business or professional income. Once a business owner opts out of the new regime to the old regime, and then switches back to the new regime in a subsequent year, they cannot return to the old regime again. This is a one-way restriction under the Income Tax Act. If you are an ITR-3 filer, the regime decision must be made carefully — ideally with tax projections for 2–3 years — because you may be permanently locked out of the old regime after switching back.
Special Cases: When the New Regime Wins Even for High-Deduction Taxpayers
- Taxpayers earning below ₹12.75 lakh (salaried): The Section 87A rebate eliminates tax entirely under the new regime — the old regime cannot compete regardless of deductions, because even with maximum deductions your taxable income rarely reaches zero.
- Senior citizens without home loans: If a senior citizen's primary deductions are only 80C and 80D, the new regime often saves tax because of the wider zero-rate band up to ₹4 lakh and lower rates up to ₹12 lakh.
- Taxpayers with high capital gains: Capital gains are taxed at special rates under both regimes — the regime choice affects only slab-rate income. A taxpayer with ₹20L salary and ₹5L LTCG should compute the slab-rate portion under both regimes and add capital gains tax separately.
Get Your Regime Comparison Done by a CA
We run new vs old regime calculations for every client before filing — factoring in HRA, home loans, NPS, capital gains, and business income. One call, the right answer.
Book a Free ConsultationHow a CA in Mumbai Handles Regime Selection
At KC Shah & Associates, regime selection is not a guess — it is a calculation. Before filing any individual ITR, our CA in Mumbai team inputs the client's actual income, all eligible deductions, any capital gains at special rates, and home loan interest certificates. We compute the exact tax under both regimes, present the difference, and recommend the optimal choice. For clients using our outsourced accounting services, this data is already organised year-round, so the regime comparison is completed within hours of the financial year close.
Conclusion
For AY 2026–27, the new tax regime wins for taxpayers earning up to ₹12.75 lakh (salaried) and for those with minimal deductions at higher income levels. The old regime wins decisively when you have significant HRA claims, a home loan, full Section 80C investments, NPS contributions, and health insurance premiums — typically when total deductions exceed ₹3.5L–₹4L. The right answer depends on your specific numbers, not a general rule. Run both calculations before you file ITR online, and if you are an ITR-3 business filer, remember that the regime switch decision may be irreversible. Reach out to KC Shah & Associates for a personalised regime comparison before July 31, 2026.
Written by CA Karan Shah
Founder of KC Shah & Associates. With over 5 years of experience in income tax, GST, and virtual CFO services, Karan helps startups and SMEs across India achieve financial clarity and stay audit-ready.