New vs Old Tax Regime (FY 2026-27): Which Saves You More?

Quick answer: for most salaried people, the new regime wins. If your salary is up to ₹12.75 lakh, you pay zero tax under it. Above that, the old regime only makes sense if you claim genuinely large deductions — roughly ₹6 lakh in total at a ₹16 lakh income, and about ₹8.5 lakh once you cross ₹24 lakh. In practice that means heavy HRA plus a home loan; 80C alone is nowhere near enough.

How the two regimes work in FY 2026-27

Budget 2026 kept the slabs unchanged from FY 2025-26. The new regime — the default since FY 2023-24 — has lower rates but almost no deductions:

Salaried taxpayers get a ₹75,000 standard deduction, and the Section 87A rebate wipes out tax on taxable income up to ₹12 lakh. The old regime keeps the older, steeper slabs — nil to ₹2.5 lakh, 5% to ₹5 lakh, 20% to ₹10 lakh, 30% beyond — but lets you claim the full menu: ₹50,000 standard deduction, 80C (₹1.5 lakh), 80D health premiums, HRA, LTA, and home-loan interest. Both add 4% cess on the final tax.

The zero-tax zone

Under the new regime, a salary of ₹12.75 lakh means taxable income of exactly ₹12 lakh after the standard deduction. Tax on that would be ₹60,000 — and the 87A rebate cancels all of it. No investment proofs, no rent receipts, nothing to plan. If your CTC is under ₹13 lakh, the comparison is usually over before it starts. (Just above the line, marginal relief ensures earning ₹12.1 lakh can't leave you worse off than earning ₹12 lakh.)

The break-even: what the old regime actually requires

The honest way to compare is to ask: how much would I need to deduct under the old regime to pay the same tax as the new one? Working the slabs, the break-even total deductions (including the ₹50,000 standard deduction) come to:

Look at those numbers against what deductions can realistically add up to: standard deduction ₹50,000, 80C maxed at ₹1.5 lakh, 80D health insurance ₹25,000–₹75,000. That's about ₹2.3–2.75 lakh — not even half the break-even at any income level. The gap can only be closed by the two big-ticket items: HRA (for high rent in a metro) and home-loan interest (up to ₹2 lakh on a self-occupied house).

A worked example at ₹16 lakh

New regime: taxable income ₹15.25 lakh after standard deduction, tax works out to ₹1,08,750 plus cess — about ₹1.13 lakh. Old regime with a typical deduction stack (₹50,000 standard + ₹1.5 lakh 80C + ₹25,000 80D = ₹2.25 lakh): taxable income ₹13.75 lakh, tax about ₹2.25 lakh plus cess — roughly double. Even adding ₹2 lakh of home-loan interest leaves the old regime slightly behind. You can reproduce this in our income tax calculator — it shows both regimes side by side with your own numbers.

Who should still pick the old regime

• High-rent metro tenants with high basic pay. HRA exemption can alone exceed ₹3–4 lakh, and stacked with 80C and a home loan it can cross the break-even.
• Home-loan borrowers with rented-out property, where interest set-offs are larger than the self-occupied cap.
• People with employer NPS contributions plus the full stack — run the numbers annually; the answer can flip with a rent change or loan closure.

Switching rules

If you're salaried with no business income, you can choose the regime fresh every year when filing your return — tell your employer one thing for TDS and still switch at filing time if the math changes. Taxpayers with business or professional income get only one switch back to the old regime, so they should decide more carefully.

The bottom line

Don't choose a regime by habit or hearsay. Add up your actual deductions once a year, compare them against the break-even for your income, and file accordingly. For most salaried taxpayers in FY 2026-27, that comparison ends with the new regime — and the hours saved on collecting proofs are their own kind of return.