Introduction
India has two personal income-tax regimes. The new regime is the default and offers lower slab rates with few deductions; the old regime keeps deductions such as 80C, 80D and HRA. This article compares them for FY 2025-26 (AY 2026-27, under the Income-tax Act, 1961) and Tax Year 2026-27 (under the Income-tax Act, 2025).
Detailed explanation
New regime slabs (FY 2025-26 and Tax Year 2026-27): up to Rs 4 lakh nil; Rs 4-8 lakh 5%; Rs 8-12 lakh 10%; Rs 12-16 lakh 15%; Rs 16-20 lakh 20%; Rs 20-24 lakh 25%; above Rs 24 lakh 30%. Resident individuals with total income up to Rs 12 lakh get a rebate of up to Rs 60,000. The standard deduction for salaried taxpayers is Rs 75,000.
Old regime slabs (individuals below 60): up to Rs 2.5 lakh nil; Rs 2.5-5 lakh 5%; Rs 5-10 lakh 20%; above Rs 10 lakh 30%. Senior citizens (60+) and super senior citizens (80+) have higher exemption limits. The standard deduction is Rs 50,000 and the rebate applies up to Rs 5 lakh of income.
Applicability
Individuals and HUFs. The rebate applies only to resident individuals. Tax Year 2026-27 rates were not changed by the Finance Act, 2026, but the governing Act changed from 1 April 2026.
Relevant statutory provisions
- Section 115BAC (1961 Act) / section 202 (2025 Act): new regime
- Section 87A (1961 Act) / section 156 (2025 Act): rebate
- Section 16(ia) (1961 Act): standard deduction
Practical example
A salaried employee earns Rs 15,00,000 with HRA exemption of Rs 2,10,000, 80C of Rs 1,50,000 and 80D of Rs 25,000. Under the old regime taxable income is about Rs 10,65,000; under the new regime it is Rs 14,25,000. In this example the new regime gives lower tax. Use ArthaKara's Income Tax Calculator to compare with your own figures.
Step-by-step: how to decide
- Add up all income for the year.
- List deductions you can actually claim under the old regime (HRA, 80C, 80D, home loan interest).
- Compute tax under both regimes, including cess.
- Check whether you have business income, which restricts switching.
- Choose the regime when filing (or by the prescribed form for business cases).
Important conditions and exceptions
- Individuals with business or professional income can switch back to the old regime generally only once.
- The rebate does not reduce tax on special-rate income such as capital gains under sections 111A and 112A (from FY 2025-26).
- Employer NPS contribution under section 80CCD(2) is deductible in both regimes.
Common mistakes
- Comparing only slab rates and ignoring the standard deduction and rebate
- Declaring the old regime to the employer but not having enough deductions
- Forgetting that HRA and home loan interest on a self-occupied house are not allowed in the new regime
Frequently asked questions
Is the new regime always better? No. It depends on your deductions. Taxpayers with large HRA and home loan claims may still save under the old regime.
Can I change my regime after telling my employer? Yes, salaried taxpayers without business income can choose in the return.