Old or New Tax Regime in 2026-27? Three Salaries Worked Out
In Tax Year 2026-27, the new regime gives zero tax up to ₹12.75 lakh of salary and usually wins. The old regime is worth comparing only with large combined deductions, such as HRA on high rent, a home loan, full 80C and health insurance. At ₹18 lakh with all of these, the old regime saved about ₹7,300 in our example.
Every year employees ask HR which tax regime to choose. The answer depends on salary and on how much they claim in deductions. Here are the numbers for Tax Year 2026-27. To compare both regimes for your salary, use the free calculator.
The two regimes at a glance
| New regime (default) | Old regime | |
|---|---|---|
| Standard deduction | ₹75,000 | ₹50,000 |
| Tax-free income | Up to ₹12 lakh (₹12.75 lakh of salary) after rebate | Up to ₹5 lakh after rebate |
| HRA, LTA, education allowance | Not available | Available |
| 80C (₹1.5 lakh), 80D, home loan interest | Not available | Available |
| Employer NPS contribution | Deductible up to 14% of salary | Deductible up to 10% of salary |
New regime slabs: up to ₹4 lakh nil; ₹4 to 8 lakh 5%; ₹8 to 12 lakh 10%; ₹12 to 16 lakh 15%; ₹16 to 20 lakh 20%; ₹20 to 24 lakh 25%; above ₹24 lakh 30%.
Old regime slabs: up to ₹2.5 lakh nil; ₹2.5 to 5 lakh 5%; ₹5 to 10 lakh 20%; above ₹10 lakh 30%.
A 4% cess is added to tax in both.
Example 1: ₹12 lakh salary, normal deductions
Deductions in the old regime: ₹1.5 lakh under 80C and ₹25,000 under 80D.
| New regime | Old regime | |
|---|---|---|
| Taxable income | ₹11,25,000 | ₹9,75,000 |
| Tax with cess | Nil (rebate) | ₹1,11,800 |
New regime wins clearly.
Example 2: ₹18 lakh salary, heavy deductions
Deductions in the old regime: HRA exemption ₹2.4 lakh, 80C ₹1.5 lakh, 80D ₹25,000, NPS ₹50,000, home loan interest ₹2 lakh.
| New regime | Old regime | |
|---|---|---|
| Taxable income | ₹17,25,000 | ₹10,85,000 |
| Tax with cess | ₹1,50,800 | ₹1,43,520 |
Old regime wins, by about ₹7,300. Remove the home loan and the new regime wins.
Example 3: ₹25 lakh salary, normal deductions
Deductions in the old regime: 80C ₹1.5 lakh and 80D ₹25,000.
| New regime | Old regime | |
|---|---|---|
| Taxable income | ₹24,25,000 | ₹22,75,000 |
| Tax with cess | ₹3,19,800 | ₹5,14,800 |
New regime wins by nearly ₹2 lakh.
A rule of thumb
The old regime is worth comparing only if an employee claims large deductions together: HRA on high rent, a home loan, the full 80C limit and health insurance. Without a home loan or high rent, the new regime usually wins at every salary level.
What payroll should do
- Ask each employee to choose at the start of the year. Without a choice, TDS is worked out under the new regime.
- Let employees change their choice at the investment proof stage, if your policy allows, and recompute TDS.
- Remember the final choice is made in the return. A salaried employee without business income can pick either regime when filing, whatever they told the employer.
- Give a calculator, not advice. Employees should check with their own numbers.
Frequently asked questions
Can an employee switch regimes every year?
Yes, if they have no business income.
Is the rebate available to everyone?
Only to resident individuals, and only up to the income limit in each regime.
Does the employer's PF contribution affect the choice?
Not directly. It is outside salary up to the limits in both regimes.
Sources
- ✓Income tax slabs for 2026-27, Axis Max Life
- ✓New vs old regime for FY 2026-27, Basunivesh
- ✓Final Income-tax Rules 2026 notified, Upstox
Figures are illustrations for resident individuals below 60, without surcharge. This is not tax advice.
Written by
HR Manager, Airwix Technologies (Sleet)
Nihit Dobariya is the HR Manager at Airwix Technologies in Ahmedabad, where he runs HR and payroll for the team behind Sleet. He writes about payroll, PF and ESIC, professional tax, the labour codes and everyday HR practice for Indian employers, and checks each rule against the official notification before it is published.
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