Income tax in India currently offers taxpayers two tax regimes: the old tax regime and the new tax regime. The two regimes have different tax slabs, deductions and exemptions.
For Assessment Year (AY) 2026–27, the new tax regime is the default regime for eligible individual taxpayers, but eligible taxpayers can opt for the old regime. The Income Tax Department also recommends comparing tax liability under both regimes before making a choice.
Understanding the difference between the old and new tax regimes can help taxpayers evaluate which calculation results in a lower tax liability based on their income, deductions and investments.
What Is the Old Tax Regime?
The old tax regime is the traditional income-tax system in India. It has comparatively higher slab rates but allows taxpayers to claim a wider range of deductions and exemptions, subject to applicable conditions.
Some commonly used provisions include:
- Section 80C
- Section 80D
- Section 80G
- HRA exemption
- Certain home-loan interest deductions
- Other eligible deductions and exemptions
For example, eligible investments such as certain provident fund contributions, life insurance premiums and specified investments may qualify for deductions under Section 80C, subject to the applicable rules and limits.
What Is the New Tax Regime?
The new tax regime under Section 115BAC provides different tax slabs with lower rates across several income levels, but significantly fewer deductions and exemptions are available compared with the old regime.
The new regime became the default tax regime from AY 2024–25 for eligible taxpayers. Taxpayers can still opt out and choose the old regime if they are eligible.
For AY 2026–27, the new regime has tax slabs beginning with a nil rate up to ₹4 lakh and progressively increasing to 30% for income above ₹24 lakh.
Old Tax Regime vs New Tax Regime
| Feature | Old Tax Regime | New Tax Regime |
| Default regime | No | Yes, for eligible taxpayers |
| Tax rates | Higher at several income levels | Lower rates across more slabs |
| Basic exemption for individuals below 60 | ₹2.5 lakh | ₹4 lakh |
| Standard deduction for salary | ₹50,000 | ₹75,000 for AY 2026–27 |
| Section 80C | Generally available | Generally not available |
| Section 80D | Generally available | Generally not available |
| HRA exemption | Available subject to conditions | Not available |
| Home-loan interest deduction | Certain deductions available | Restricted, subject to conditions |
| Number of tax slabs | Fewer | More |
| Tax calculation | Higher rates with more deductions | Lower rates with fewer deductions |
The standard deduction is available under both regimes; for AY 2026–27, the applicable amount for salaried taxpayers under the new regime is ₹75,000, while the old regime continues with ₹50,000.
New Tax Regime Slabs for AY 2026–27
For an individual below 60 years of age, the new-regime slabs are:
| Taxable Income | Tax Rate |
| Up to ₹4 lakh | Nil |
| ₹4 lakh–₹8 lakh | 5% |
| ₹8 lakh–₹12 lakh | 10% |
| ₹12 lakh–₹16 lakh | 15% |
| ₹16 lakh–₹20 lakh | 20% |
| ₹20 lakh–₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
These are slab rates, meaning each rate applies to the relevant portion of taxable income rather than the entire income.
Old Tax Regime Slabs for Individuals Below 60
For individuals below 60 years, the basic old-regime slabs are:
| Taxable Income | Tax Rate |
| Up to ₹2.5 lakh | Nil |
| ₹2.5 lakh–₹5 lakh | 5% |
| ₹5 lakh–₹10 lakh | 20% |
| Above ₹10 lakh | 30% |
These rates apply before considering applicable rebates, surcharge and health and education cess.
Senior citizens have different basic exemption thresholds under the old regime, while the new regime uses the same slab structure regardless of age for individual taxpayers, subject to the applicable rules.
Deductions: The Major Difference
One of the biggest differences between the two regimes is the availability of deductions.
Under the old regime, eligible taxpayers can claim several deductions and exemptions.
Common examples include:
Section 80C
Eligible investments and payments can qualify for deductions under Section 80C, subject to the applicable conditions and overall limit.
Section 80D
Eligible health-insurance premiums and certain medical expenses can qualify for deductions under Section 80D, subject to the rules.
HRA Exemption
Eligible salaried individuals receiving House Rent Allowance may claim an HRA exemption under the old regime subject to the prescribed conditions.
The Income Tax Department specifically states that HRA exemption under Section 10(13A) is not available under the new regime.
Home Loan Interest
Eligible taxpayers can claim certain deductions for home-loan interest under the old regime. The availability and amount depend on factors such as the type of property and purpose of the loan.
Which Deductions Are Available Under the New Regime?
The new regime does not allow most of the common Chapter VI-A deductions available under the old regime.
The Income Tax Department states that deductions such as those under Sections 80C, 80D and 80G are generally not available under the new regime, although specified exceptions exist, including certain employer contributions under Section 80CCD(2), Section 80CCH and Section 80JJAA where applicable.
Therefore, taxpayers should not assume that investments or insurance premiums automatically reduce taxable income under the new regime.
Section 87A Rebate Under the New Regime
For AY 2026–27, the Section 87A rebate under the new regime has been increased to up to ₹60,000 for eligible resident individuals with total income up to ₹12 lakh, subject to the applicable conditions.
This is an important factor when comparing the two regimes, particularly for taxpayers with income around the ₹12 lakh level.
The rebate is different from a deduction. A deduction reduces taxable income, while a rebate reduces tax payable after the applicable tax calculation.
Example of Old vs New Tax Regime
Suppose a salaried taxpayer has annual income of ₹15 lakh.
Under the new regime, the taxpayer receives the applicable standard deduction and calculates tax using the new slabs.
Under the old regime, the taxpayer may be able to reduce taxable income further through eligible deductions such as:
- Section 80C
- Section 80D
- HRA
- Eligible home-loan interest
The final tax liability therefore depends not only on salary but also on the deductions and exemptions actually available to the taxpayer.
This is why simply comparing the headline tax rates may not be sufficient.
Who May Consider the Old Tax Regime?
The old regime can be relevant for taxpayers who have substantial eligible deductions and exemptions.
For example, a taxpayer may have:
- Significant Section 80C investments
- Eligible health-insurance deductions
- HRA exemption
- Eligible home-loan interest
- Other deductions permitted under the old regime
Such taxpayers may want to calculate their liability under both systems before selecting a regime.
Who May Consider the New Tax Regime?
The new regime can be easier to calculate because it provides lower slab rates and fewer deductions to track.
It may be relevant for taxpayers who:
- Have relatively few deductions
- Do not claim HRA
- Have limited eligible investments
- Prefer a simpler tax calculation
- Have taxable income that benefits from the new slab structure
However, the actual result depends on individual circumstances.
Can You Change the Tax Regime?
For taxpayers without business or professional income, the Income Tax Department states that the choice can generally be changed each year through the income-tax return, subject to the applicable rules.
Taxpayers with business or professional income have additional requirements. An eligible taxpayer who wants to opt out of the default new regime generally needs to furnish Form 10-IEA within the applicable deadline. Rules regarding switching back also apply.
Old Tax Regime vs New Tax Regime: How to Compare
A practical comparison should follow these steps:
- Calculate total income.
- Identify all eligible deductions and exemptions.
- Calculate taxable income under the old regime.
- Calculate tax under the old-regime slabs.
- Calculate taxable income under the new regime.
- Apply the new-regime slabs.
- Consider applicable rebate, surcharge and cess.
- Compare the final tax liabilities.
The Income Tax Department provides an income-tax calculator to help taxpayers compare the two regimes.
Frequently Asked Questions
Which is better, old tax regime or new tax regime?
There is no single answer for every taxpayer. The result depends on income, deductions, exemptions, investments and other applicable factors. The Income Tax Department recommends comparing tax liability under both regimes.
Is the new tax regime the default regime?
Yes. For eligible taxpayers, the new tax regime is the default regime. Eligible taxpayers can opt for the old regime subject to the applicable rules.
Is 80C available in the new tax regime?
Generally, no. Most Chapter VI-A deductions, including Section 80C, are not available under the new regime, subject to specified exceptions.
Is HRA exempt under the new tax regime?
No. The HRA exemption under Section 10(13A) is not available under the new regime.
Is standard deduction available in both regimes?
Yes. Salaried taxpayers can claim the applicable standard deduction under both regimes. For AY 2026–27, the new-regime standard deduction is ₹75,000, while the old regime provides ₹50,000.
Can salaried employees change their tax regime?
Eligible taxpayers can generally choose the regime in their income-tax return. Intimating an employer about the preferred regime for TDS purposes does not itself constitute the final exercise of the statutory option; the applicable option must be exercised according to the income-tax rules.
Conclusion
The old tax regime offers more deductions and exemptions, while the new tax regime offers lower slab rates with fewer deductions. For AY 2026–27, the new regime is the default for eligible taxpayers, but the old regime remains available to those who meet the applicable conditions.
The most practical approach is to calculate tax under both regimes using your actual income, investments, exemptions and deductions rather than choosing a regime based only on the headline tax rates.