Old vs New Tax Regime – Which Is Better? (AY 2026–27)
Compare old and new income tax regimes in India based on tax slabs, deductions, rebates, and take-home salary.
If you want to understand why your in-hand salary changes after tax, see CTC to In-Hand Salary After Tax.
- New tax regime is the default regime
- Zero tax up to ₹12.75 lakh taxable income under new regime
- Old regime is better for those with high deductions
Based on Income Tax rules applicable for AY 2026–27.
Try Income Tax Comparison Calculator
For full tax calculation with detailed breakdown, use our Income Tax Calculator.
Enter total annual salary (before tax)
Not applicable under New Tax Regime.
Includes LTA (Sec 10(5)), 80E, 80G, etc.
This calculator is primarily intended for salaried individuals. It does not account for complex income sources such as capital gains or business income.
Income Tax Slab Comparison (FY 2025-26)
| Income | New Regime | Old Regime |
|---|---|---|
| Up to ₹2.5L | Nil | Nil |
| ₹2.5L – ₹4L | Nil | 5% |
| ₹4L – ₹5L | 5% | 5% |
| ₹5L – ₹8L | 5% | 20% |
| ₹8L – ₹10L | 10% | 20% |
| ₹10L – ₹12L | 10% | 30% |
| ₹12L – ₹16L | 15% | 30% |
| ₹16L – ₹20L | 20% | 30% |
| ₹20L – ₹24L | 25% | 30% |
| Above ₹24L | 30% | 30% |
New vs Old Tax Regime – Salary Comparison Examples
| CTC | New Regime | Old Regime | Better Option |
|---|---|---|---|
| ₹10 LPA | ~₹66,000 / month | ~₹62,000 / month | New Regime |
| ₹15 LPA | ~₹1,02,000 / month | ~₹95,000 / month | New Regime* |
*Old regime may be better if you claim HRA, 80C, or home loan deductions.
Note: Health & education cess of 4% applies to both regimes.
Main Components of Income Tax Calculation
Whether you choose the old or new tax regime, income tax is calculated based on a few key components. Understanding these helps you estimate your final take-home salary accurately.
- Gross Salary: Total earnings including basic salary, HRA, allowances, and bonus.
- Standard Deduction: Fixed deduction (₹75,000 under new regime and ₹50,000 under old regime for salaried employees).
- Deductions & Exemptions: Section 80C, 80D, HRA, home loan interest (primarily under old regime).
- Tax Slabs: Applicable tax rates based on taxable income under chosen regime.
- Rebate (Section 87A): Reduces tax liability for eligible individuals within income limits.
- Health & Education Cess: Additional 4% applied on total tax payable.
Your final income tax liability is calculated after applying all of the above components.
Standard Deduction in Old vs New Tax Regime
The standard deduction for salaried employees differs between the two tax regimes.
- New Tax Regime: ₹75,000 standard deduction
- Old Tax Regime: ₹50,000 standard deduction
This deduction directly reduces your taxable income before applying income tax slabs. A higher standard deduction under the new regime further lowers your effective tax liability and increases your monthly take-home salary.
For example, if your gross salary is ₹12 lakh:
- Under the new regime, taxable income becomes ₹11.25 lakh after ₹75,000 deduction.
- Under the old regime, taxable income becomes ₹11.5 lakh after ₹50,000 deduction.
This difference alone can increase your annual take-home salary under the new regime.
To understand how this impacts your final in-hand amount, see CTC to In-Hand Salary After Tax.
Rebate Under Section 87A – How Zero Tax Works
Under the new tax regime, individuals with taxable income up to ₹12.75 lakh can have zero tax liability due to rebate under Section 87A.
This means even if tax is calculated as per slabs, the rebate reduces it to zero (subject to limits). This is one of the biggest reasons why the new tax regime often gives higher take-home salary.
However, rebate conditions and limits must be satisfied. Always calculate your taxable income carefully before choosing a regime.
Why New Tax Regime Often Gives Higher Take-Home Salary
The new tax regime offers lower tax rates and a higher rebate, which reduces overall tax liability. Since fewer deductions are involved, tax calculation is simpler and monthly take-home salary is usually higher for salaried individuals with limited investments.
This is especially true for employees earning between ₹7–20 lakh who do not fully utilize deductions like HRA, Section 80C, or home loan interest.
To understand the calculation behind this difference, read how in-hand salary is calculated from CTC.
Which Tax Regime Should You Choose?
Choose New Regime if
- Your taxable income is up to ₹12.75 lakh
- You don’t claim HRA or 80C
- You want higher take-home pay
- You prefer simple tax filing
Choose Old Regime if
- You claim HRA
- You invest heavily in 80C, 80D
- You have a home loan
- Your deductions exceed ₹3–4 lakh
Employees claiming deductions should also review tax deductions for salaried employees.
Confused which tax regime is better for you?
Use our Salary Take Home Calculator to instantly compare both regimes.
Real Example: ₹14 LPA Salary – Old vs New Regime
Suppose an employee earns ₹14 lakh annually with the following:
- Basic Salary: ₹6 lakh
- HRA: ₹2 lakh
- 80C Investment: ₹1.5 lakh
- Standard Deduction: ₹50,000
Under the old regime, deductions reduce taxable income significantly. However, under the new regime, lower slab rates may still result in lower total tax.
The final difference can impact your monthly in-hand salary by ₹3,000–₹8,000 depending on deductions claimed.
To calculate your exact difference, use our calculator.
Popular Deductions Allowed in Old Tax Regime
The old regime allows several deductions and exemptions including:
- Section 80C (PF, ELSS, LIC, etc.)
- Section 80D (Health insurance)
- HRA exemption
- Home loan interest deduction
If your total deductions exceed ₹3–4 lakh, the old regime may become beneficial.
Learn more in our detailed guide on Tax Deductions for Salaried Employees.
Can You Switch Between Old and New Tax Regime?
Salaried employees without business income can switch between old and new regime every financial year while filing income tax return.
However, if you have business income, switching options are limited. Always declare your chosen regime to your employer at the beginning of the financial year.
Pros and Cons of Old vs New Tax Regime
| Factor | New Regime | Old Regime |
|---|---|---|
| Tax Rates | Lower slabs | Higher slabs |
| Deductions | Limited | Many allowed |
| Tax Filing | Simple | Complex |
Tax Planning Strategy for Salaried Employees
Choosing a tax regime should not be based on assumptions. Always calculate your taxable income under both regimes.
Avoid investing in products only to save tax if they do not align with your financial goals.
Read our guide on How to Save Tax on Salary for smarter planning strategies.
Common Mistakes When Choosing Tax Regime
- Assuming old regime is always better
- Ignoring Section 87A rebate
- Overestimating deductions
- Not recalculating tax every year
Avoid these errors by reviewing Common Salary Tax Mistakes.