Every March and every July, the same question lands in my inbox and in my classroom. “Sir, old regime or new regime?” There is no opinion to offer here. The answer sits in about forty minutes of arithmetic, and once you have seen that arithmetic at your own salary level, it stops being a debate.
So this article does the arithmetic the way a planner would do it on paper. Four salary levels, both regimes, every step on the page, and then the one number that settles the question: how much deduction the old regime needs before it wins.
All slab rates and deduction limits here come from the Income Tax Department’s e-filing portal, cross-checked against ClearTax and CAclubindia in October 2026, and the links are at the end.
What applies in FY 2026-27
Budget 2026 did not touch personal income tax. The slab structure announced in Budget 2025 continues unchanged for FY 2026-27 (assessment year 2027-28).
One thing did change, though, and it is worth knowing even if it changes no number on your Form 16. From 1 April 2026, the Income-tax Act, 2025 replaces the Income-tax Act, 1961. The rates, the standard deduction and the rebate all carry over with identical mechanics, but the section numbers move. The familiar Section 87A rebate, for instance, now lives in Section 156 of the new Act. So if a bank or an article quotes the old section numbers this year, the substance behind them has not changed.
The new regime remains the default. A salaried person can still choose the old regime each year at the time of filing the return, and can switch back and forth year to year. People with business income get only one switch back to the new regime, so they should decide more carefully.
The two slab structures
For a resident individual below 60, salary income only, income under ₹50 lakh (so no surcharge):
| Slab (taxable income) | New regime rate | Slab (taxable income) | Old regime rate |
|---|---|---|---|
| Up to ₹4,00,000 | Nil | Up to ₹2,50,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5% | ₹2,50,001 to ₹5,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% | ₹5,00,001 to ₹10,00,000 | 20% |
| ₹12,00,001 to ₹16,00,000 | 15% | Above ₹10,00,000 | 30% |
| ₹16,00,001 to ₹20,00,000 | 20% | ||
| ₹20,00,001 to ₹24,00,000 | 25% | ||
| Above ₹24,00,000 | 30% |
Around the slabs sit the rules that actually decide the comparison. The standard deduction on salary is ₹75,000 in the new regime and ₹50,000 in the old. The rebate is where the two part company: in the new regime, if taxable income does not exceed ₹12,00,000, tax up to ₹60,000 is wiped out, while the old regime’s rebate is only ₹12,500 and applies only if taxable income stays within ₹5,00,000.
The old regime is the one that allows the familiar deductions. Section 80C up to ₹1,50,000, NPS under 80CCD(1B) up to ₹50,000, health insurance under 80D (₹25,000 for self and family below 60, and separately again for parents), interest on a self-occupied house up to ₹2,00,000 under Section 24(b), and HRA exemption if you pay rent. The new regime drops almost all of that, but it keeps the employer’s NPS contribution under 80CCD(2) up to 14% of basic pay. Health and education cess of 4% applies on the tax in both regimes.
For the four workings below, I assume a resident below 60 whose entire income is salary. In the old regime I use the deduction set I see most often in practice: standard deduction ₹50,000, 80C full at ₹1,50,000, 80CCD(1B) full at ₹50,000, and 80D at ₹25,000. That is ₹2,75,000 of deductions in total, a realistic figure for a salaried person who saves diligently but pays neither rent nor a home loan EMI.
Tax on a ₹8,00,000 salary
New regime:
Taxable income is ₹8,00,000 minus ₹75,000, so ₹7,25,000.
Tax is nil on the first ₹4,00,000, then 5% on ₹3,25,000, which is ₹16,250.
Taxable income is within ₹12,00,000, so the rebate cancels the full ₹16,250.
Tax payable: ₹0.
Old regime, with the example deductions of ₹2,75,000:
Taxable income is ₹8,00,000 minus ₹2,75,000, so ₹5,25,000.
Tax is 5% on ₹2,50,000, which is ₹12,500, plus 20% on ₹25,000, which is ₹5,000. Total ₹17,500.
No rebate, because taxable income has crossed ₹5,00,000. Add 4% cess of ₹700.
Tax payable: ₹18,200.
There is a small trap sitting in that second working. The old rebate dies exactly at ₹5,00,000 with no cushion, so the last ₹25,000 of taxable income costs ₹18,200. For the old regime to also reach zero at this salary it needs ₹3,00,000 of deductions: taxable income then comes to ₹5,00,000, the tax is ₹12,500, and the ₹12,500 rebate finishes the job. Most people drawing ₹8 lakh do not have that extra ₹25,000 of claims lying around.
Tax on a ₹12,00,000 salary
New regime:
Taxable income is ₹12,00,000 minus ₹75,000, so ₹11,25,000.
Tax is 5% on ₹4,00,000, which is ₹20,000, plus 10% on ₹3,25,000, which is ₹32,500. Total ₹52,500.
Taxable income is within ₹12,00,000 and the tax is within the ₹60,000 rebate.
Tax payable: ₹0.
Old regime, with the example deductions of ₹2,75,000:
Taxable income is ₹12,00,000 minus ₹2,75,000, so ₹9,25,000.
Tax is ₹12,500 on the first ₹5,00,000, plus 20% on ₹4,25,000, which is ₹85,000. Total ₹97,500, and cess of ₹3,900.
Tax payable: ₹1,01,400.
The gap is ₹1,01,400 and no realistic deduction level closes it. To get to zero, the old regime would have to pull taxable income down to ₹5,00,000, which means ₹7,00,000 of deductions on a ₹12,00,000 salary.
The rebate design has two more consequences worth carrying with you. A salary up to ₹12,75,000 pays zero tax in the new regime, since the ₹75,000 standard deduction brings taxable income exactly to the ₹12,00,000 line. And unlike the old rebate, this one does not fall off a cliff, because marginal relief caps the tax at the amount by which taxable income exceeds ₹12,00,000. Say the salary is ₹12,80,000. Taxable income is ₹12,05,000 and the slab tax works out to ₹60,750, but relief caps the tax at ₹5,000, so with cess the bill is ₹5,200. That relief zone runs until taxable income of about ₹12,70,588, and beyond it full slab tax applies.
Tax on an ₹18,00,000 salary
New regime:
Taxable income is ₹18,00,000 minus ₹75,000, so ₹17,25,000.
Tax is ₹20,000 in the 5% band, ₹40,000 in the 10% band, ₹60,000 in the 15% band, and 20% on ₹1,25,000, which is ₹25,000. Total ₹1,45,000, and cess of ₹5,800.
Tax payable: ₹1,50,800.
Old regime, with the example deductions of ₹2,75,000:
Taxable income is ₹18,00,000 minus ₹2,75,000, so ₹15,25,000.
Tax is ₹12,500, plus ₹1,00,000 for the full 20% band, plus 30% on ₹5,25,000, which is ₹1,57,500. Total ₹2,70,000, and cess of ₹10,800.
Tax payable: ₹2,80,800, so the new regime wins by ₹1,30,000.
Now stretch the old regime as far as a typical file will stretch. Add a self-occupied home loan with ₹2,00,000 of interest under 24(b), which takes total deductions to ₹4,75,000. Taxable income becomes ₹13,25,000 and the tax is ₹12,500 plus ₹1,00,000 plus 30% on ₹3,25,000, so ₹2,10,000, and with cess ₹2,18,400. Even a full 80C, the full extra NPS, a health premium and a maxed-out home loan together still lose by ₹67,600 at this salary.
Drawing level here takes roughly ₹6,91,667 of total deductions. You can check that: taxable income of ₹11,08,333 gives ₹12,500 plus ₹1,00,000 plus 30% on ₹1,08,333, which is ₹32,500, so ₹1,45,000 of tax and ₹5,800 of cess, the same ₹1,50,800. In practice, a figure like that means a large HRA claim sitting on top of everything else.
Tax on a ₹25,00,000 salary
New regime:
Taxable income is ₹25,00,000 minus ₹75,000, so ₹24,25,000.
Tax up to the ₹24,00,000 mark is ₹3,00,000, being ₹20,000 plus ₹40,000 plus ₹60,000 plus ₹80,000 plus ₹1,00,000 across the bands, and then 30% on ₹25,000, which is ₹7,500. Total ₹3,07,500, and cess of ₹12,300.
Tax payable: ₹3,19,800.
Old regime, with the example deductions of ₹2,75,000:
Taxable income is ₹25,00,000 minus ₹2,75,000, so ₹22,25,000.
Tax is ₹12,500, plus ₹1,00,000, plus 30% on ₹12,25,000, which is ₹3,67,500. Total ₹4,80,000, and cess of ₹19,200.
Tax payable: ₹4,99,200, so the new regime wins by ₹1,79,400.
How much deduction the old regime needs to win
The whole debate reduces to one table. The breakeven figure is the total deduction, including the old regime’s ₹50,000 standard deduction, at which both regimes produce the same tax. Below that level the new regime wins, above it the old one does.
| Gross salary | New regime tax | Old regime breakeven deductions | Realistic? |
|---|---|---|---|
| ₹8,00,000 | ₹0 | ₹3,00,000 | Only with rent plus full 80C and NPS |
| ₹12,00,000 | ₹0 | ₹7,00,000 | No |
| ₹18,00,000 | ₹1,50,800 | ₹6,91,667 | Only with a large HRA claim plus home loan |
| ₹25,00,000 | ₹3,19,800 | ₹8,50,000 | Rarely |
The ₹8,50,000 figure in the last row is the one worth remembering, because it is a ceiling. Work it through at the ₹25,00,000 salary: deductions of ₹8,50,000 leave taxable income of ₹16,50,000, so the tax is ₹12,500 plus ₹1,00,000 plus 30% on ₹6,50,000, which is ₹1,95,000. That totals ₹3,07,500 with ₹12,300 of cess, giving exactly the ₹3,19,800 the new regime charges. Once salary crosses about ₹24,75,000, both regimes tax the margin at 30%, so the breakeven stops moving. At any salary above that, the old regime wins only if total deductions exceed ₹8,50,000. (ClearTax publishes similar breakevens that look ₹50,000 lower, because they count deductions excluding the standard deduction. The underlying maths is the same.)
In my experience only one profile crosses these lines: a person in a metro paying substantial rent and claiming a large HRA exemption, who also has a home loan in the family and maxes out both 80C and NPS. For almost everyone else drawing a salary, FY 2026-27 belongs to the new regime.
How I would decide
Reproduce this working in a spreadsheet with your own Form 16 numbers: gross salary, your actual deductions, then both slab tables. It takes about ten minutes. You do not need a planner for this decision, and you certainly do not need a course, because the breakeven table above settles it for most salaried people.
What I would caution against is the reverse logic I still see every January, where someone buys a ₹50,000-a-year endowment policy to “save tax under 80C” while sitting in a salary band where the new regime was winning anyway. That is not a tax saving. It is money locked into a weak product to chase a deduction the person was never going to use. If you want to see what those policies actually return, I have worked it out in the piece on term insurance and needs analysis.
Remember also that this entire comparison covers salary taxed at slab rates. Capital gains sit outside it and follow their own rates and exemptions in both regimes. The levers there, like harvesting the annual LTCG exemption, are covered in the tax alpha guide.
One caveat before you close the spreadsheet. The choice looks clean at the four salaries above, and it gets considerably more involved at the edges: around the ₹12,75,000 marginal relief zone, for people with both salary and business income who get only one switch back, and for employers structuring CTC around the 14% NPS deduction that survives in the new regime. This slab-and-rebate machinery, and how a planner optimises around it, is the ground the Retirement and Tax Planning module of the CFP curriculum covers in depth.
Frequently asked questions
Which regime is better for a ₹12 lakh salary in FY 2026-27?
The new regime, and it is not close. A ₹12,00,000 salary pays zero tax in the new regime because the ₹75,000 standard deduction brings taxable income to ₹11,25,000 and the Section 87A rebate (Section 156 of the new Act) wipes out the ₹52,500 slab tax. The old regime would need ₹7,00,000 of deductions to match that, which is not realistic on this salary.
Up to what salary is tax zero in the new regime for FY 2026-27?
A salary of ₹12,75,000 pays zero tax, since the ₹75,000 standard deduction brings taxable income exactly to the ₹12,00,000 rebate limit. Slightly above that, marginal relief caps the tax at the amount by which taxable income exceeds ₹12,00,000, so a ₹12,80,000 salary pays only ₹5,200 including cess. The relief runs out at taxable income of about ₹12,70,588.
Did Budget 2026 change the income tax slabs?
No. The slabs, the ₹75,000 standard deduction and the ₹60,000 rebate introduced in Budget 2025 continue unchanged for FY 2026-27. The one structural change is that the Income-tax Act, 2025 replaces the 1961 Act from 1 April 2026, which renumbers sections without changing the rates or mechanics.
How much deduction do I need for the old regime to beat the new one?
It depends on salary, but as a rule the old regime needs total deductions of roughly ₹6,90,000 to ₹8,50,000 before it wins, and the requirement never exceeds ₹8,50,000 at any salary. Full 80C, the extra ₹50,000 NPS and a ₹25,000 health premium together reach only ₹2,75,000 including the standard deduction. In practice, only people combining a large HRA exemption with a home loan and full 80C cross the line.
Can I switch between the old and new regime every year?
A salaried person can, at the time of filing the return each year. The new regime is the default and the old one is opted into. People with business or professional income are restricted: they can move to the old regime, but get only one chance to return to the new regime. Run the comparison on your own numbers each year rather than carrying last year’s choice forward out of habit.
Are any deductions allowed in the new regime at all?
Yes, a few. The ₹75,000 standard deduction on salary, the employer’s NPS contribution under Section 80CCD(2) up to 14% of basic pay, interest on a loan for a let-out property, and exemptions on retirement benefits like gratuity and leave encashment all survive. What the new regime drops are the self-driven claims: 80C, 80D, 80CCD(1B), HRA and self-occupied home loan interest.
Sources
- Income Tax Department, e-filing portal: tax slab rates, rebate and old-regime deduction limits for individuals (AY 2026-27 structure, unchanged for FY 2026-27): https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-1
- ClearTax, Income Tax Slabs FY 2025-26 and FY 2026-27 (Budget 2026 made no change for salaried individuals): https://cleartax.in/s/income-tax-slabs
- ClearTax, Old vs New Tax Regime (deductions available in the new regime, breakeven levels, regime switching rules): https://cleartax.in/s/old-tax-regime-vs-new-tax-regime
- CAclubindia, New Tax Regime FY 2026-27: slabs, rebate and marginal relief under the Income-tax Act, 2025: https://www.caclubindia.com/articles/new-tax-regime-fy-202627-complete-slab-rebate-marginal-relief-reference-56353.asp
