Old vs New Tax Regime: Which One Should You Choose

For the return you are filing now (AY 2026-27, FY 2025-26), the new tax regime is the default and usually wins for salaried people who claim few deductions, while the old regime wins only if your deductions like 80C, 80D, HRA and home-loan interest are large enough to outweigh its higher rates. The right answer depends on your own numbers, so compute tax both ways before you file.

This guide compares the two regimes under the Income-tax Act 1961, shows both slab tables, gives worked examples at Rs 12 lakh and Rs 18 lakh income, and explains exactly how to pick one when you file.

Every resident individual filing an income tax return for AY 2026-27 chooses between two ways of being taxed. The new regime under section 115BAC is the default. The old regime is optional and you must actively select it. Salaried people, pensioners, freelancers and business owners all face this choice, but the rules for switching differ depending on whether you have business or professional income (covered below).

The single biggest difference is the rates. The new regime spreads income across more bands at lower rates but allows almost no deductions. The old regime has fewer, steeper bands but lets you reduce taxable income with a long list of deductions.

New regime (section 115BAC) - the default

Standard deduction for salaried: Rs 75,000. Section 87A rebate of up to Rs 60,000 makes taxable income up to Rs 12,00,000 fully tax-free. For a salaried person, the Rs 75,000 standard deduction pushes the zero-tax point to about Rs 12.75 lakh of salary.

Old regime (optional)

Standard deduction for salaried: Rs 50,000. Section 87A rebate of up to Rs 12,500 makes taxable income up to Rs 5,00,000 tax-free. In return for the steeper rates, the old regime lets you claim deductions the new regime denies, including section 80C (up to Rs 1.5 lakh for PF, life insurance, ELSS, tuition and more), section 80D (health insurance), house rent allowance (HRA), and home-loan interest under section 24(b).

A 4% Health and Education cess applies on top of the tax in both regimes.

Think of it as a simple bargain. The new regime gives you lower rates but takes away your deductions. The old regime gives you your deductions back but charges higher rates. Whichever leaves you with the smaller final tax is the one to pick.

So the question becomes: are your deductions large enough to make the old regime's higher rates worth it? If you barely invest in 80C, do not pay rent or a home loan, and have modest insurance, you have little to claim and the new regime almost always wins. If you have a home loan, a full Rs 1.5 lakh of 80C, HRA, and health insurance, the old regime can pull ahead.

These illustrative examples assume a salaried person with no business income. Cess is added at 4%.

Salaried employee earning Rs 12,00,000

1. New regime: subtract the Rs 75,000 standard deduction, leaving taxable income of Rs 11,25,000. Tax before rebate works out to Rs 52,500, but because taxable income is under Rs 12,00,000 the section 87A rebate wipes it out. Final tax: Rs 0.
2. Old regime, claiming Rs 50,000 standard deduction plus Rs 1.5 lakh under 80C plus Rs 25,000 under 80D (total Rs 2,25,000): taxable income is Rs 9,75,000. Tax is Rs 1,07,500, plus 4% cess = about Rs 1,11,800.

At Rs 12 lakh the new regime wins decisively because the rebate makes it tax-free.

Salaried employee earning Rs 18,00,000

1. New regime: subtract Rs 75,000, leaving Rs 17,25,000 taxable. Tax is Rs 1,45,000, plus 4% cess = about Rs 1,50,800.
2. Old regime, claiming Rs 50,000 standard deduction, Rs 1.5 lakh under 80C, Rs 25,000 under 80D and Rs 2 lakh of home-loan interest (total Rs 4,25,000): taxable income is Rs 13,75,000. Tax is Rs 2,25,000, plus 4% cess = about Rs 2,34,000.

Here the new regime still wins by a wide margin even with a healthy set of deductions.

The pattern above holds for many salaried filers: at these income levels the old regime catches up only when your deductions are unusually large. Working from the Rs 18 lakh example, the old regime would need roughly Rs 6.4 lakh of deductions beyond the standard deduction (on the order of Rs 6.9 lakh including it) just to match the new regime. That typically means a sizeable home-loan interest claim plus full 80C plus substantial HRA, all at once.

Treat this only as a rule of thumb. The exact break-even shifts with your income and the precise mix of deductions, so the honest answer is to run both calculations on the official tax calculator at incometax.gov.in using your own figures before you decide.

The mechanics depend on the kind of income you earn.

1. Salaried or pensioner with no business or professional income: You simply pick the regime when you file your ITR. You can choose freely every single year. Filing under the old regime is a matter of selecting it in the return filed by the due date. No separate form is needed.
2. Business or professional income: The new regime is your default. To opt out and use the old regime you must file Form 10-IEA before the due date for filing your return. Once you opt out, you can switch back to the new regime only once, after which the choice becomes effectively locked.
3. Mind the due date: The option to choose the old regime (or to file Form 10-IEA) is tied to filing on time. Miss the due date and you can lose the ability to use the old regime for that year.

Looking ahead, the new Income Tax Act 2025 takes effect from FY 2026-27 onward. It does not change the choice you are making for the return being filed now, which remains governed by the Income-tax Act 1961.

For a plain-language walk-through of citizen rights and filings, see The RTI Playbook.

The new regime under section 115BAC is the default. If you do nothing, your tax is computed under the new regime. To use the old regime you must actively choose it, and if you have business income you must file Form 10-IEA to opt out.

Yes. For FY 2025-26 the section 87A rebate of up to Rs 60,000 makes taxable income up to Rs 12,00,000 fully tax-free under the new regime. For a salaried person, the Rs 75,000 standard deduction lifts the zero-tax point to roughly Rs 12.75 lakh of salary. There is no equivalent for income above these limits.

Marginal relief applies. If your taxable income only slightly crosses Rs 12,00,000 under the new regime, the extra tax you pay is capped at the amount by which your income exceeds Rs 12 lakh. This stops a small rise in income from triggering a large jump in tax, and it is relevant for taxable incomes a little above Rs 12 lakh.

Yes. A salaried individual with no business or professional income can choose old or new afresh each year, simply by selecting it in the ITR filed by the due date. People with business or professional income do not have this freedom: they file Form 10-IEA to opt out and can switch back to the new regime only once.

When your deductions are large enough that the tax saved by claiming them outweighs the old regime's higher rates. This usually means a combination of full section 80C, section 80D health insurance, HRA, and home-loan interest under section 24(b). If you claim little or nothing, the new regime almost always costs less.

No. The new Income Tax Act 2025 applies from FY 2026-27 onward. The return you are filing now is for AY 2026-27 (FY 2025-26) and is governed by the Income-tax Act 1961. The slabs and rules in this guide are the ones that apply to your current filing.

Before you file, compute your tax both ways using your actual salary and deductions. Add up everything you can legitimately claim under the old regime (80C, 80D, HRA, home-loan interest and others), then compare the final tax against the new regime's lower-rate, no-deduction result. Use the official calculator at incometax.gov.in to check the numbers. If you are salaried with no business income, lock in your choice when you file the ITR by the due date. If you have business or professional income and want the old regime, file Form 10-IEA before the due date, and remember you can return to the new regime only once.