New regime or old regime: which one leaves you more
Last updated: 2026-08-14
The new regime is the default and wins for most salaried people. It has wider slabs, a larger standard deduction of Rs 75,000, and a Section 87A rebate that takes tax to nil at a taxable income of Rs 12,00,000. The old regime wins only when your deductions are large enough to overcome that head start, and the crossover is higher than most people assume.
The two slab schedules, FY 2026-27
| Taxable income | New regime | Old regime |
|---|---|---|
| Up to Rs 2,50,000 | Nil | Nil |
| Rs 2,50,001 to Rs 4,00,000 | Nil | 5% |
| Rs 4,00,001 to Rs 5,00,000 | 5% | 5% |
| Rs 5,00,001 to Rs 8,00,000 | 5% | 20% |
| Rs 8,00,001 to Rs 10,00,000 | 10% | 20% |
| Rs 10,00,001 to Rs 12,00,000 | 10% | 30% |
| Rs 12,00,001 to Rs 16,00,000 | 15% | 30% |
| Rs 16,00,001 to Rs 20,00,000 | 20% | 30% |
| Rs 20,00,001 to Rs 24,00,000 | 25% | 30% |
| Above Rs 24,00,000 | 30% | 30% |
Both regimes add a health and education cess of 4 per cent on income tax plus surcharge. Surcharge starts above Rs 50 lakh at 10 per cent and steps to 15 and 25 per cent; the old regime alone goes to 37 per cent above Rs 5 crore.
The Rs 12 lakh rebate, and the cliff that is not there
Under the new regime a taxable income up to Rs 12,00,000 attracts a Section 87A rebate of Rs 60,000, which cancels the tax entirely. With the standard deduction that means a gross salary of roughly Rs 12.75 lakh pays nothing.
Just above the threshold, marginal relief applies: your tax cannot exceed the amount by which your income crossed Rs 12,00,000. This is where most published calculators go wrong.
| Step | Amount |
|---|---|
| Tax on slabs | Rs 61,500 |
| Section 87A rebate | Not available above Rs 12,00,000 |
| Marginal relief | −Rs 51,500 |
| Tax after relief | Rs 10,000 |
| Cess at 4% | Rs 400 |
| Total tax | Rs 10,400 |
Plain slab arithmetic gives Rs 63,960 here. The correct figure is Rs 10,400. Earning Rs 10,000 more than the threshold costs Rs 10,400, not Rs 63,960, which is the whole purpose of the relief.
The old regime works differently and this is the trap: its Rs 5,00,000 rebate threshold has no marginal relief. Cross it by one rupee and the entire Rs 12,500 rebate disappears at once. At a taxable income of Rs 5,01,000 the tax is Rs 13,208.
Where the old regime overtakes
The old regime buys back ground through the house rent allowance exemption, Chapter VI-A deductions and the Section 16(iii) professional tax deduction that Section 115BAC withdraws. Whether that is enough depends on how much you genuinely claim.
| Deduction | Annual limit | Realistic for most people? |
|---|---|---|
| HRA exemption | No fixed cap | Only if you actually pay rent |
| Section 80C | Rs 1,50,000 | Often, once PF is counted |
| Section 80D | Rs 25,000 | If you buy your own cover |
| Section 80CCD(1B) | Rs 50,000 | Only with an NPS account |
| Section 24(b) home loan interest | Rs 2,00,000 | Only with a home loan |
A common rule of thumb puts the crossover around Rs 4 to 4.5 lakh of total deductions. That is a starting point rather than an answer, because it moves with your salary and with how much rent you pay. The new versus old regime calculator walks the whole deduction range on your own numbers and marks the point where the decision flips.
Common questions
Can I switch regimes every year?
A salaried person without business income can choose afresh each financial year when filing. Your employer applies whichever regime you have declared to them for TDS, which is why a mismatch between your declaration and your intention shows up as over or under deduction on the payslip.
Does professional tax reduce my taxable income?
Only under the old regime. Professional tax comes out of your cash pay under both regimes, but the Section 16(iii) deduction that makes it reduce taxable salary is withdrawn by Section 115BAC.
Is employer NPS available under the new regime?
Yes. Section 80CCD(2) survives in the new regime at 14 per cent of salary. Under the old regime it is 10 per cent unless your employer is a central or state government body, where it is 14 per cent.
What if I picked the wrong regime with my employer?
The tax finally payable is settled when you file, so a wrong declaration changes your monthly cash flow rather than your final liability. You either get a refund or pay the balance at filing.
Next: how the HRA exemption is actually calculated, which is usually the largest single deduction on the old-regime side.
Related reading
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