Income Tax for a Salaried Person, FY 2026-27: Old Regime or New?
The new regime is the default and taxes nothing up to ₹12 lakh. The old regime charges more at every slab but still allows HRA, 80C, 80D and home loan interest. Which one costs you less is an arithmetic question, not a matter of opinion, and it turns on a single number: how much you can actually claim. Work it out below.
The slabs, both regimes
Neither set changed in Budget 2026. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026 and renumbered the provisions, so the new regime is now Section 202 rather than Section 115BAC, but the rates are exactly as they were.
New regime, the default
| Total income | Rate | Tax in that band |
|---|---|---|
| Up to ₹4,00,000 | Nil | — |
| ₹4,00,001 to ₹8,00,000 | 5% | ₹20,000 |
| ₹8,00,001 to ₹12,00,000 | 10% | ₹40,000 |
| ₹12,00,001 to ₹16,00,000 | 15% | ₹60,000 |
| ₹16,00,001 to ₹20,00,000 | 20% | ₹80,000 |
| ₹20,00,001 to ₹24,00,000 | 25% | ₹1,00,000 |
| Above ₹24,00,000 | 30% | On the excess |
Add 4% cess to the tax. A rebate of up to ₹60,000 wipes out the tax where total income is ₹12 lakh or less. Surcharge starts at 10% above ₹50 lakh and is capped at 25%.
Old regime
| Total income | Below 60 | 60 to 80 | 80 and above |
|---|---|---|---|
| Basic exemption | ₹2,50,000 | ₹3,00,000 | ₹5,00,000 |
| Up to ₹5,00,000 | 5% above the exemption | 5% above ₹3 lakh | Nil |
| ₹5,00,001 to ₹10,00,000 | 20% | 20% | 20% |
| Above ₹10,00,000 | 30% | 30% | 30% |
Add 4% cess. The rebate here is only ₹12,500 and stops at ₹5 lakh of total income. Surcharge runs to 37% above ₹5 crore, where the new regime stops at 25%.
What each regime lets you claim
| Claim | New regime | Old regime |
|---|---|---|
| Standard deduction on salary | ₹75,000 | ₹50,000 |
| Employer's contribution to NPS | Up to 14% of basic pay | Up to 10% of basic pay for a non-government employee |
| Employer's provident fund contribution | Exempt within limits | Exempt within limits |
| Gratuity, leave encashment, retrenchment compensation | Exempt within limits | Exempt within limits |
| Family pension | ₹25,000 | ₹15,000 |
| House rent allowance | Not available | Exempt on the usual three-way test |
| 80C: provident fund, life insurance, ELSS, school fees, principal on a home loan | Not available | ₹1,50,000 |
| 80CCD(1B): your own NPS contribution | Not available | ₹50,000 |
| 80D: health insurance | Not available | ₹25,000, or ₹50,000 for a senior citizen, plus the same again for parents |
| Interest on a home loan for a self-occupied house | Not available | ₹2,00,000 |
| 80TTA or 80TTB: interest on deposits | Not available | ₹10,000, or ₹50,000 from age 60 |
| 80E education loan interest, 80G donations, 80DD, 80U, 80DDB | Not available | Available on their own terms |
| Professional tax | Not available | Deductible, ₹2,400 a year in Gujarat |
| Leave travel allowance | Not available | Exempt, twice in a block of four years |
The short version: the new regime gives you one large deduction and low rates. The old regime gives you many small deductions and high rates. Which wins depends on whether your deductions add up to more than the gap between the two rate structures.
Calculator
Your Tax, Both Ways
Fill in what applies to you. Anything you leave at zero is simply not claimed. Both regimes are computed side by side, and the full working is underneath.
What you earn
What you can claim, old regime only
New regime
—Old regime
—Tax under each regime, as deductions rise
The full working, side by side
For a resident individual with salary income. It assumes the HRA exemption on the standard three-way test, treats home loan interest as a set-off against salary, and applies surcharge without marginal relief at the surcharge thresholds. It does not handle capital gains, business income, arrears relief under Section 89, or income taxed at special rates. Figures are for FY 2026-27, assessment year 2027-28.
The break-even table below shows, for common salary levels, how much you need to claim before the old regime wins.
The break-even, at every salary
This is the whole question in one table. For a salary with no other income, it shows the tax under the new regime and how much you would have to claim in the old regime, on top of its ₹50,000 standard deduction, just to draw level.
| Gross salary | Tax, new regime | Old regime claiming nothing beyond the standard deduction and professional tax | Deductions needed to match |
|---|---|---|---|
| ₹8,00,000 | ₹0 | ₹64,501 | ₹2,50,000 |
| ₹10,00,000 | ₹0 | ₹1,06,101 | ₹4,50,000 |
| ₹12,75,000 | ₹0 | ₹1,86,451 | ₹7,25,000 |
| ₹15,00,000 | ₹97,500 | ₹2,56,651 | ₹5,45,000 |
| ₹20,00,000 | ₹1,92,400 | ₹4,12,651 | ₹7,10,000 |
| ₹25,00,000 | ₹3,19,800 | ₹5,68,651 | ₹8,00,000 |
| ₹30,00,000 | ₹4,75,800 | ₹7,24,651 | ₹8,00,000 |
| ₹50,00,000 | ₹10,99,800 | ₹13,48,651 | ₹8,00,000 |
The ₹12.75 lakh row looks out of order, and it is the most revealing one. At that salary the new regime charges nothing at all, so for the old regime to draw level it has to reach nil too, which means getting total income below ₹5 lakh. That takes ₹7.25 lakh of claims. Above that salary the new regime starts charging tax, so the bar the old regime has to clear comes down again before rising with income.
Read the last column against what you actually claim. A salaried person with ₹1.5 lakh of 80C, ₹25,000 of health insurance and no rent or home loan has about ₹1.75 lakh. That is short of the break-even at most salary levels, which is why the new regime suits the majority. It is HRA and home loan interest that change the answer, because they are large.
Rent in a metro on a salary with a healthy basic component can be worth ₹3 lakh or more of exemption on its own. Add ₹2 lakh of home loan interest and ₹1.5 lakh of 80C and you are past the break-even at almost any salary. Without either, the old regime rarely wins.
The rebate, and the trap just above it
In the new regime a resident whose total income is ₹12 lakh or less pays nothing, because the rebate cancels the tax. After the ₹75,000 standard deduction that means a salary of ₹12.75 lakh is tax-free.
It is a rebate, not an exemption limit, and it disappears the moment income crosses ₹12 lakh. Without protection, one extra rupee of income would cost ₹60,000 of tax. Marginal relief prevents that by limiting the tax to the amount by which income exceeds ₹12 lakh, until the ordinary slab tax becomes the smaller of the two at roughly ₹12.71 lakh of total income.
| Total income | Tax before rebate | What you actually pay |
|---|---|---|
| ₹12,00,000 | ₹60,000 | Nil, the rebate covers it |
| ₹12,10,000 | ₹61,500 | ₹10,400, because of marginal relief |
| ₹12,50,000 | ₹67,500 | ₹52,000 |
| ₹12,71,000 | ₹70,650 | ₹73,476, normal tax takes over |
The practical consequence: a raise that lifts you from ₹12.75 lakh to ₹13.25 lakh of salary is worth far less than it looks. If you have any say in the timing of a bonus, this is the band to look at.
Switching, TDS and what to tell your employer
- The new regime applies by default. Say nothing and that is what your employer will use for TDS.
- A salaried person can choose afresh every year at the time of filing, regardless of what was declared to the employer during the year. Someone with business or professional income gets one exit from the new regime, and cannot return.
- What you declare only sets your monthly TDS. Declare the old regime and claim nothing, and you will have overpaid, recovering it as a refund months later. Declare deductions you never make, and you will face a large deduction in February and March.
- Proofs are asked for in January. Rent receipts, and the landlord's PAN where rent exceeds ₹1 lakh a year. Without them the exemption is dropped from the TDS computation even if you can still claim it in the return.
- Two employers in one year means each computes TDS on its own, and both apply the exemption limit. The shortfall lands on you at filing, so give the new employer details of the earlier salary.
Where people lose money
- Choosing a regime once and forgetting it. The answer changes when you take a home loan, move to a rented house in a metro, or get a large raise. It is a fresh decision each year.
- Claiming HRA with no rent actually paid. Payments to a family member are allowed in principle, but they must be real, banked, and declared by the recipient.
- Forgetting the employer's NPS contribution. It is the only significant deduction left in the new regime, worth up to 14% of basic pay, and many employers will add it within the same cost to company if asked.
- Ignoring interest income. Bank interest is taxable in both regimes and is reported to the department. The deduction for it, 80TTA or 80TTB, exists only in the old regime.
- Missing the Annual Information Statement. Check it before filing. Mismatches are what turn a simple return into a notice.
- Assuming the tax-free limit is an exemption. Above ₹12 lakh the rebate is gone entirely, not tapered away, and only marginal relief softens the edge.
Who usually lands where
Four Situations, Four Answers
Broad patterns, not a substitute for running your own numbers.
Early career, living at home
Little rent, no home loan, modest 80C. The new regime almost always wins, and the first ₹12.75 lakh costs nothing.
Renting in a metro on a high basic
HRA exemption alone can run to several lakh. This is the clearest case for staying in the old regime.
Paying a home loan on your own house
₹2 lakh of interest and the principal inside 80C together shift the break-even decisively.
Senior management above ₹50 lakh
Surcharge enters, and the old regime's 37% band above ₹5 crore against the new regime's 25% cap starts to matter.
Frequently asked questions
Questions on Old Versus New
Which regime is better for a salaried person in FY 2026-27?
It depends entirely on how much you can actually claim. The new regime gives a ₹75,000 standard deduction and charges nothing up to ₹12 lakh of total income because of the rebate. The old regime charges more at every slab but lets you subtract HRA, 80C, 80D, home loan interest and the rest. There is a break-even level of deductions at each salary: below it the new regime wins, above it the old one does. The calculator on this page finds that number for your own figures.
Is income up to ₹12.75 lakh really tax-free?
For a resident salaried individual under the new regime, yes. The ₹75,000 standard deduction brings ₹12.75 lakh of salary down to ₹12 lakh of total income, and the rebate wipes out the tax on that. It is not an exemption limit, though. Earn a rupee more and the rebate goes, which is why marginal relief exists.
What is marginal relief and when does it apply?
Just above ₹12 lakh of total income the rebate is withdrawn, which would otherwise mean one extra rupee of income costs ₹60,000 of tax. Marginal relief caps the tax at the amount by which your income exceeds ₹12 lakh, so the extra income is effectively taxed at 100% until the normal slab tax becomes the lower figure, at about ₹12.71 lakh. In that band, an increment in salary leaves you barely better off.
Can I still claim HRA in the new regime?
No. House rent allowance exemption, 80C, 80D, home loan interest on a self-occupied house, LTA, 80TTA and most other deductions are only available in the old regime. What survives in the new regime is the standard deduction, the employer's NPS contribution, the ₹25,000 family pension deduction, and the usual exemptions for gratuity, leave encashment and the employer's provident fund contribution.
How much is the employer's NPS contribution worth?
Up to 14% of basic pay in the new regime, and 10% in the old regime for a non-government employee. It is the one meaningful deduction that survives in the new regime, and it is the reason a restructured salary can beat an unrestructured one. It has to come from the employer; your own contribution under 80CCD(1B) only works in the old regime.
Can I switch between the regimes every year?
A salaried person with no business income can choose afresh each year when filing, whatever they told their employer during the year. Someone with business or professional income can move out of the new regime only once, and going back is final. What you declare to the employer decides your monthly TDS, not your final liability, so a wrong declaration costs you cash flow rather than tax.
Do senior citizens get a different basic exemption?
In the old regime, yes: ₹3 lakh from age 60 and ₹5 lakh from 80. The new regime has one ₹4 lakh threshold for everyone regardless of age. Seniors also get 80TTB in the old regime, which exempts ₹50,000 of interest income against ₹10,000 under 80TTA for everyone else.
What is the surcharge and when does it bite?
It is an additional charge on the tax itself, not the income. It starts at 10% once total income crosses ₹50 lakh, rises to 15% above ₹1 crore and 25% above ₹2 crore. The old regime has a further 37% band above ₹5 crore; the new regime caps it at 25%, which is one reason very high earners often prefer it.
My employer is deducting too much TDS. What should I do?
Give the employer a declaration of the deductions you intend to claim, along with proofs when they ask in January or February. If the year is nearly over, the shortfall corrects itself when you file the return and claim the refund. You cannot ask the employer to ignore the default regime without telling them; silence means the new regime applies to your TDS.
Does the Income-tax Act, 2025 change any of this?
The Act replaced the 1961 Act from 1 April 2026, but it did not change the rates. The new regime is now Section 202, where it used to be Section 115BAC, and the familiar deduction and rebate provisions have been renumbered too. Budget 2026 left the slabs, the standard deduction, the rebate, surcharge and cess untouched, so FY 2026-27 runs on the same numbers as the year before.
Want It Checked Against Your Actual Payslip? Send It Across.
We file returns for salaried individuals across Vadodara. Send your Form 16, rent details and investment proofs, and we will tell you which regime costs less, what you can still claim, and whether your employer has deducted correctly.
C M Patel & Company, Chartered Accountants
204, Pavan Complex, Jetalpur Road, Jetalpur, Vadodara, Gujarat 390007
Phone +91 99740 37318 · Email info.cmpatelandcompany@gmail.com
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