Old vs new tax regime for 2026-27
The single biggest tax decision most individuals make each year, and how to get it right
For tax year 2026-27 the new regime is the default and makes income up to Rs 12 lakh tax-free, a Rs 4 lakh basic exemption, a Rs 60,000 rebate under Section 87A, and (for salaried and pensioners) a Rs 75,000 standard deduction, but it allows almost no other deductions. The old regime keeps the full deduction stack (80C, 80D, home-loan interest and the rest) against lower exemptions and a 37% top surcharge. The new regime wins for most people below about Rs 12 lakh and for anyone without a large deduction stack; the old regime wins above Rs 12 lakh when your deductions are big enough.
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Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact Income Tax Department. Read our editorial scope →
What each regime gives you
The new regime has seven slabs (nil up to Rs 4 lakh, then 5/10/15/20/25/30% up to and above Rs 24 lakh), a Rs 75,000 standard deduction for salaried and pensioners, a Rs 60,000 rebate that wipes tax up to Rs 12 lakh, surcharge capped at 25%, and almost no Chapter VI-A deductions. The old regime has an age-tiered basic exemption (Rs 2.5 lakh, Rs 3 lakh for seniors, Rs 5 lakh for super-seniors), the full deduction stack, a Rs 50,000 standard deduction, an 87A rebate only up to Rs 5 lakh, and surcharge up to 37%.
Old vs new at a glance (2026-27)
| Feature | Old regime | New regime |
|---|---|---|
| Basic exemption | Rs 2.5 / 3 / 5 lakh (by age) | Rs 4 lakh (no age tiers) |
| 87A rebate | Rs 12,500 (up to Rs 5 lakh) | Rs 60,000 (up to Rs 12 lakh) |
| Standard deduction | Rs 50,000 | Rs 75,000 |
| Top surcharge | 37% | 25% (capped) |
| Chapter VI-A deductions | Full stack | Almost none |
Which regime wins for you
Work out your total old-regime deductions, then compare. Below about Rs 12 lakh of income the new regime usually wins outright, because tax is nil and you keep your money without locking it into 80C instruments. Above Rs 12 lakh, the old regime only wins if your deductions are large enough to offset the new regime's higher exemption and rebate. A rough rule: the more deductions you genuinely have (home-loan interest, 80C, 80D, NPS), the more likely the old regime helps; if your deductions are modest, the new regime wins.
tipRun your actual numbers both ways with the Regime Optimiser before deciding. The Rs 12 lakh tax-free band has made the new regime the better choice for far more people than the old advice assumed.
How to choose and switch
If you have no business or professional income, you can switch regime every year simply by selecting it in your return. If you have business or professional income, you opt out of the new regime using Form 10-IEA, and the choice is constrained: you can move out of the new regime and back in only once in a lifetime, after which you are locked into the new regime while business income continues. So a business owner should think harder before opting out.
warningMarginal relief applies just above Rs 12 lakh in the new regime, so a small overshoot does not create a tax cliff, but the relief is capped at the excess over Rs 12 lakh plus cess.
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Source / notes
- Income-tax Act 1961 s.115BAC (regime mechanics) (Income-tax Act 2025 ss.199-205)
- Income-tax Act 1961 s.87A rebate (Income-tax Act 2025 s.156)
- Form 10-IEA + Rule 21AGA (opt-out for business income)
Frequently asked questions
Is the new regime really tax-free up to Rs 12 lakh?+
Yes for tax year 2026-27. The new regime has a Rs 4 lakh basic exemption and a Rs 60,000 rebate under Section 87A that wipes out tax on total income up to Rs 12 lakh. A salaried person also gets a Rs 75,000 standard deduction, so the effective tax-free salary is about Rs 12.75 lakh. Special-rate income such as equity gains is excluded from the rebate.
Should I always choose the new regime?+
Not always, but for most people below about Rs 12 lakh, and for anyone without a large deduction stack, yes. The old regime wins only when your total deductions (home-loan interest, 80C, 80D, NPS and so on) are large enough to offset the new regime's higher exemption and Rs 60,000 rebate, which usually means higher income with substantial genuine deductions. Run both before deciding.
Can I switch regime every year?+
If you have no business or professional income, yes, you choose each year in your return. If you have business or professional income, you opt out of the new regime via Form 10-IEA, and you can move out and back in only once in a lifetime, after which you are locked into the new regime while business income continues. So business owners should choose carefully.
What happens just above Rs 12 lakh in the new regime?+
Marginal relief applies, so a small amount of income just over Rs 12 lakh does not trigger a sudden large tax bill. The tax is limited to roughly the amount by which your income exceeds Rs 12 lakh (plus cess), rather than the full slab tax, which removes the cliff effect at the rebate threshold.
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