Since the Finance Act 2023, the new tax regime under Section 115BAC has been the default for individuals – meaning if you do nothing, your employer deducts TDS under the new regime slabs. The old regime is still available, but you must opt in. For FY 2026-27, picking the wrong regime can cost you anywhere from Rs. 20,000 to Rs. 1,50,000 in extra tax depending on your salary and deductions. This guide walks you through the slabs, what’s allowed in each regime, and the break-even salary at which one starts to beat the other.
Slab rates side-by-side – FY 2026-27
| Income Range | Old Regime | New Regime (Sec 115BAC) |
|---|---|---|
| Up to Rs. 2.5 lakh | Nil | Nil (up to Rs. 3 lakh) |
| Rs. 2.5 – 3 lakh | 5% | Nil |
| Rs. 3 – 5 lakh | 5% | 5% |
| Rs. 5 – 6 lakh | 20% | 5% |
| Rs. 6 – 7 lakh | 20% | 10% |
| Rs. 7 – 9 lakh | 20% | 10% |
| Rs. 9 – 10 lakh | 20% | 15% |
| Rs. 10 – 12 lakh | 30% | 15% |
| Rs. 12 – 15 lakh | 30% | 20% |
| Above Rs. 15 lakh | 30% | 30% |
Both regimes also have 4% Health and Education Cess on tax payable, plus surcharge at higher income brackets. Senior citizens (60-79) and super-senior citizens (80+) get higher basic exemption thresholds in the old regime (Rs. 3 lakh and Rs. 5 lakh respectively); the new regime treats all individuals identically.
Section 87A rebate – the under-Rs. 7 lakh sweet spot
Under the new regime, a tax rebate under Section 87A is available up to Rs. 25,000 if total income is up to Rs. 7 lakh – which makes the effective tax liability nil for incomes up to that limit. Under the old regime, the rebate is Rs. 12,500 with the threshold at Rs. 5 lakh. So for incomes between Rs. 5 lakh and Rs. 7 lakh, the new regime almost always wins on the rebate alone.
What’s allowed and what’s not – regime feature matrix
| Item | Old Regime | New Regime |
|---|---|---|
| Standard deduction (salary) | Rs. 50,000 | Rs. 75,000 |
| Section 80C (PPF, ELSS, LIC, etc.) | Up to Rs. 1.5 lakh | Not allowed |
| Section 80D (medical insurance) | Up to Rs. 75,000 | Not allowed |
| Section 80CCD(1B) NPS extra | Up to Rs. 50,000 | Not allowed |
| Section 80CCD(2) employer NPS | Up to 10% of basic+DA | Up to 14% of basic+DA |
| HRA exemption (Sec 10(13A)) | Allowed | Not allowed |
| LTA exemption | Allowed | Not allowed |
| Home loan interest (let-out) | Allowed (no cap) | Allowed (no cap) |
| Home loan interest (self-occupied) | Up to Rs. 2 lakh | Not allowed |
| Section 80E (education loan) | Allowed | Not allowed |
| Section 80EEA / 80EE | Allowed | Not allowed |
| Section 80G (donations) | Allowed | Not allowed |
The new regime essentially trades all Chapter VI-A deductions for a lower set of slab rates plus a higher standard deduction (Rs. 75,000 vs Rs. 50,000). The break-even point depends on how much the employee can genuinely claim under the old regime.
Worked examples – which regime wins at different salary levels
Example 1: Salary Rs. 8,00,000 with no deductions
| Particulars | Old Regime (Rs.) | New Regime (Rs.) |
|---|---|---|
| Gross salary | 8,00,000 | 8,00,000 |
| Standard deduction | 50,000 | 75,000 |
| Net taxable income | 7,50,000 | 7,25,000 |
| Tax before rebate | 62,500 | 27,500 |
| Section 87A rebate | Nil | Nil (above Rs. 7L) |
| Tax + 4% cess | 65,000 | 28,600 |
| Total tax | 65,000 | 28,600 |
Winner: New regime saves Rs. 36,400.
Example 2: Salary Rs. 12,00,000 with Rs. 1,50,000 (80C) + Rs. 50,000 (80D) + Rs. 2,00,000 home loan interest = Rs. 4,00,000 deductions
| Particulars | Old Regime (Rs.) | New Regime (Rs.) |
|---|---|---|
| Gross salary | 12,00,000 | 12,00,000 |
| Standard deduction | 50,000 | 75,000 |
| Chapter VI-A + home loan | 4,00,000 | Nil |
| Net taxable income | 7,50,000 | 11,25,000 |
| Tax before cess | 62,500 | 78,750 |
| Tax + 4% cess | 65,000 | 81,900 |
| Total tax | 65,000 | 81,900 |
Winner: Old regime saves Rs. 16,900. When deductions exceed roughly Rs. 3.5 – 4 lakh, the old regime starts to dominate.
Example 3: Salary Rs. 18,00,000 with HRA exemption Rs. 2,40,000 + 80C Rs. 1,50,000 + 80CCD(1B) Rs. 50,000 + 80D Rs. 25,000 = Rs. 4,65,000
| Particulars | Old Regime (Rs.) | New Regime (Rs.) |
|---|---|---|
| Gross salary | 18,00,000 | 18,00,000 |
| Standard deduction | 50,000 | 75,000 |
| HRA exempt + Chapter VI-A | 4,65,000 | Nil |
| Net taxable income | 12,85,000 | 17,25,000 |
| Tax + 4% cess | ~2,07,480 | ~2,69,100 |
| Total tax | ~2,07,480 | ~2,69,100 |
Winner: Old regime saves about Rs. 61,620. At higher salaries, the old regime is generally better only when HRA + 80C + 80D + home loan interest collectively cross Rs. 4 lakh.
The break-even rule of thumb
The exact break-even varies with income level and the precise mix of deductions. The only way to know for sure is to compute both – which is what our Income Tax Calculator does in one click.
Switching between regimes – the salaried-vs-business distinction
For salaried employees with no business or professional income, you can switch between regimes every year by simply choosing the appropriate option while filing your return.
For individuals with business or professional income, the rules are stricter: once you opt out of the new regime (i.e. choose the old regime), you can switch back only once in your lifetime, and after that you are locked into the new regime. This is governed by Section 115BAC(6).
See your exact tax under both regimes – free
Plug in your salary and deductions, and our calculator shows old vs new tax side-by-side with the recommended pick.
Open Income Tax CalculatorFrequently Asked Questions
Is the new regime mandatory?
No. It is the default from FY 2023-24 onwards, but you can opt for the old regime by filing Form 10-IEA before the due date of return filing (for individuals with business income) or simply ticking the option in your ITR form (for pure salaried).
Can my employer compute TDS under the old regime?
Yes. At the start of the financial year, you can declare to your employer which regime you intend to use, and they will deduct TDS accordingly. You can revise this at the time of return filing.
Does the new regime allow employer NPS contribution deduction?
Yes – Section 80CCD(2) is one of the very few Chapter VI-A deductions allowed under the new regime. Effective from FY 2024-25, the cap was raised to 14% of basic salary plus DA (vs 10% under the old regime).
Are surcharge and cess different between the two regimes?
The 4% Health and Education Cess applies to both. Surcharge applies in both, but the new regime has a capped surcharge of 25% even at the highest income (Rs. 5 crore+), whereas the old regime can go up to 37%. This is a significant benefit of the new regime for very high earners.
Should I structure my salary differently if I plan to use the new regime?
Yes. Under the new regime, components like HRA, LTA, leave encashment exemption etc. lose their tax shelter value. Many employers now offer simpler salary structures (largely basic + retirement benefits + standard allowances) for employees on the new regime. Discuss with your HR.