How to Calculate Income Tax for FY 2026-27 — New vs Old Regime Explained

Every salaried employee and self-employed individual in India must calculate their income tax liability before the end of each financial year. With two tax regimes now running in parallel, getting the calculation right for FY 2026-27 (Assessment Year 2027-28) requires understanding which regime applies to you, what deductions you can claim, and how the final tax is arrived at.

This guide walks through the complete process — slabs, deductions, surcharge, cess, and a worked example — so you can arrive at your exact liability without confusion.

New Tax Regime vs Old Tax Regime — Key Difference

As of FY 2026-27, the new tax regime is the default. If you do not opt out, your income will automatically be taxed under it. The old regime remains available but requires you to actively choose it when filing your return.

The core trade-off is straightforward: the new regime offers lower slab rates but strips away most deductions. The old regime has higher rates but allows deductions under 80C, 80D, HRA, home loan interest, and several others. Whether the old regime is worth choosing depends entirely on how much you can claim in deductions.

Income Tax Slabs for FY 2026-27 — New Regime

The Budget 2026 retained the slab structure announced in Budget 2025. The new regime slabs for FY 2026-27 are:

Important: A tax rebate of up to ₹60,000 under Section 87A effectively makes income up to ₹12 lakh tax-free under the new regime. Salaried individuals also get a standard deduction of ₹75,000, which means those earning up to ₹12.75 lakh pay zero tax.

Income Tax Slabs for FY 2026-27 — Old Regime

For individuals below 60 years of age choosing the old regime:

The old regime offers a standard deduction of ₹50,000 and a Section 87A rebate of ₹12,500 (making income up to ₹5 lakh tax-free). Senior citizens (60–79 years) have a basic exemption of ₹3 lakh; super seniors (80+) have ₹5 lakh.

Key Deductions Available Under the Old Regime

The value of the old regime lies in its deductions. The most commonly used ones are:

• Section 80C — Up to ₹1.5 lakh for EPF, PPF, ELSS, life insurance premiums, home loan principal, tuition fees
• Section 80CCD(1B) — Additional ₹50,000 for NPS contributions
• Section 80D — Health insurance premiums (up to ₹25,000 for self/family; ₹50,000 if parents are senior citizens)
• HRA exemption — Based on actual HRA received, rent paid, and city of residence (metro or non-metro)
• Section 24(b) — Home loan interest up to ₹2 lakh for self-occupied property
• Section 80TTA/80TTB — Interest on savings accounts (₹10,000 limit for non-seniors; ₹50,000 for seniors)

Surcharge and Health & Education Cess

After computing the base tax, two additional charges apply:

• Surcharge — Applicable on total income above ₹50 lakh. Rates: 10% (₹50L–₹1Cr), 15% (₹1Cr–₹2Cr), 25% (₹2Cr–₹5Cr), 37% (above ₹5Cr in old regime; capped at 25% in new regime)
• Health & Education Cess — 4% on (income tax + surcharge), applicable to all taxpayers

Step-by-Step Worked Example (New Regime)

Assume a salaried individual with gross salary of ₹14,00,000 for FY 2026-27 under the new regime:

1. Gross salary: ₹14,00,000
2. Less standard deduction: ₹75,000 → Net taxable income: ₹13,25,000
3. Tax on ₹13,25,000 (new regime slabs):
   • ₹0–₹4L: Nil
   • ₹4L–₹8L: 5% × ₹4L = ₹20,000
   • ₹8L–₹12L: 10% × ₹4L = ₹40,000
   • ₹12L–₹13.25L: 15% × ₹1.25L = ₹18,750
   • Total tax: ₹78,750
4. Less Section 87A rebate: Nil (income exceeds ₹12L)
5. Add 4% cess: ₹78,750 × 4% = ₹3,150
6. Total tax payable: ₹81,900

How to Decide — New Regime or Old Regime?

The break-even point depends on your deductions. As a general rule:

• If your total deductions (80C + 80D + HRA + home loan interest etc.) exceed roughly ₹3.75 lakh for higher income brackets, the old regime is likely better
• For most salaried individuals with simple tax profiles and moderate deductions, the new regime is simpler and often results in equal or lower tax
• Self-employed individuals and business owners should calculate both regimes carefully, as they cannot switch back to the old regime easily once opted out

The fastest way to compare is to run your numbers through a calculator. Our free Income Tax Calculator lets you enter your income, deductions, and HRA details and instantly shows your liability under both regimes side by side.

Frequently Asked Questions

Is it mandatory to choose the new tax regime for FY 2026-27?

No, it is the default but not mandatory. Salaried individuals can inform their employer of their regime choice at the start of the year. Self-employed individuals choose at the time of filing. You can switch between regimes each year (salaried), subject to certain conditions for business income.

What is the income tax filing deadline for FY 2026-27?

The due date for non-audit cases is typically 31st July of the following year (i.e., 31 July 2027 for FY 2026-27 returns), though the government may extend it. Tax audit cases have a different deadline.

Is income up to ₹12 lakh really tax-free under the new regime?

Yes, for salaried individuals. The standard deduction of ₹75,000 reduces gross salary of ₹12.75 lakh to ₹12 lakh, and the Section 87A rebate of up to ₹60,000 covers the tax on ₹12 lakh. Net tax payable = zero.

Can I claim 80C deductions under the new regime?

No. Deductions under 80C, 80D, HRA exemption, home loan interest under Section 24(b), and most others are not available under the new tax regime. Only the standard deduction of ₹75,000 applies.