Which Tax Regime Saves More Money in FY 2025-26 & FY 2026-27?
Indian income tax calculation requires comparing the New Tax Regime (Section 115BAC) against the Old Tax Regime. Under the statutory 2026 New Tax Regime slabs, the basic tax-exemption threshold is ₹4,00,000 with an enhanced ₹75,000 standard deduction and a Section 87A tax rebate of up to ₹60,000 on taxable income up to ₹12 lakh. This makes salaried gross annual income up to ₹12.75 lakh 100% tax-free.
For a salaried professional earning ₹15,00,000 gross CTC: under the New Regime (taxable income ₹14,25,000 after ₹75k standard deduction), total tax is ₹97,500 (plus 4% cess = ₹1,01,400). Under the Old Tax Regime without deductions, tax liability is ₹2,67,500. The New Regime saves ₹1,66,100 in cash unless you claim over ₹4.25 lakh in combined 80C, 80D, and HRA exemptions.
New vs. Old Tax Regime Slabs & Tax Rates (FY 2025-26 / AY 2026-27)
| Income Slab (₹) | New Regime Rate (Sec 115BAC) | Old Regime Rate | Key Benefit |
|---|---|---|---|
| ₹0 to ₹2,50,000 | Nil (0%) | Nil (0%) | Exempt in both regimes |
| ₹2,50,001 to ₹4,00,000 | Nil (0%) | 5% | Higher basic exemption in New |
| ₹4,00,001 to ₹8,00,000 | 5% (Full 87A rebate) | ₹4-5L (5%), ₹5-8L (20%) | ₹0 tax with 87A rebate |
| ₹8,00,001 to ₹12,00,000 | 10% (Full 87A rebate) | ₹8-10L (20%), ₹10-12L (30%) | 100% tax-free up to ₹12L taxable |
| ₹12,00,001 to ₹16,00,000 | 15% | 30% | Half the Old Regime 30% rate |
| ₹16,00,001 to ₹20,00,000 | 20% | 30% | 10% lower tax slab |
| ₹20,00,001 to ₹24,00,000 | 25% | 30% | 5% lower tax slab |
| Above ₹24,00,000 | 30% | 30% | Surcharge applies at ₹50L+ |
Major Tax Deductions Allowed in Old Regime
Section 80C (Up to ₹1,50,000)
Covers your mandatory retirement corpus via our EPF Calculator, voluntary tax-free savings with our PPF Calculator, ELSS mutual funds, and principal loan repayment computed through our EMI Calculator.
Section 80D (Up to ₹1,00,000)
Health insurance premiums: ₹25,000 for self/family (₹50,000 for senior citizens) + up to ₹50,000 additional deduction for dependent senior citizen parents.
Section 24(b) (Up to ₹2,00,000)
Interest paid on housing finance for self-occupied residential property. Calculate exact interest vs principal breakdown on your property via our Mortgage Loan Calculator.
HRA Exemption (Section 10(13A))
Exemption calculated on basic pay, actual allowance, and rent paid. Determine your tax-free allowance instantly using our specialized HRA Exemption Calculator.
Retirement & Gratuity Exemptions (Section 10(10))
Gratuity received upon retirement or job separation after 5+ years of continuous service is exempt up to ₹20,00,000 under the Payment of Gratuity Act. Estimate your eligible payout with our Gratuity Calculator.
The Breakeven Deduction Rule: How to Choose
As a rule of thumb for salaried taxpayers in India:
- If your total eligible deductions under Old Regime (80C + 80D + HRA + Home Loan Interest) are under ₹3,75,000 per year: The New Tax Regime will almost always result in lower total tax liability due to widened 2026 tax slabs and the ₹75,000 standard deduction.
- If your eligible deductions exceed ₹3,75,000 to ₹4,00,000 per year: The Old Tax Regime can provide greater tax savings due to aggressive exemptions offsetting the higher 20% and 30% slab rates. Cross-verify your total tax with our Income Tax Calculator and optimize your monthly salary structure.
Frequently Asked Questions (FAQs)
What is the standard deduction in the New Tax Regime for salaried employees?
The standard deduction for salaried employees and pensioners under the New Tax Regime is ₹75,000 for FY 2025-26 (AY 2026-27), up from ₹50,000 previously.
Up to what income is tax zero under the New Tax Regime?
Under Section 87A rebate, salaried individuals with a taxable income up to ₹7,00,000 pay zero tax. Factoring in the ₹75,000 standard deduction, gross salary up to ₹7.75 lakh incurs ₹0 income tax under the New Regime.
Which tax regime is better: New or Old?
The New Regime is better for most employees claiming deductions under ₹3.75 lakh due to lower slab rates. The Old Regime benefits individuals with substantial combined deductions (₹1.5L under 80C, ₹50k NPS, ₹2L home loan interest under Sec 24b, and significant HRA exemptions).
Can I switch between New and Old Tax Regimes every year?
Salaried individuals with no business income can switch between the New and Old Tax Regimes every year at the time of filing their ITR. Individuals with business or professional income can switch to the Old Regime only once in a lifetime.
What deductions are allowed under the New Tax Regime?
The New Tax Regime allows the ₹75,000 standard deduction, employer NPS contribution under Section 80CCD(2) up to 14% of salary, and transport allowance for persons with disabilities. Chapter VI-A deductions (80C, 80D, 80TTA) and HRA are not available.
What is the maximum deduction allowed under Section 80C in the Old Regime?
The maximum deduction under Section 80C is capped at ₹1,50,000 per financial year across EPF, PPF, ELSS mutual funds, life insurance premiums, 5-year tax saver FDs, and principal loan repayments.
How much health insurance deduction is allowed under Section 80D?
Under the Old Regime, Section 80D allows up to ₹25,000 for self/family (₹50,000 if senior citizen) and an additional ₹25,000 for parents (₹50,000 for senior citizen parents), totaling up to ₹1,00,000 for eligible families.
What is Health and Education Cess?
A mandatory 4% Health and Education Cess is levied on the total amount of income tax plus applicable surcharge across both New and Old regimes.
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