Comparison Between New Tax Regime and Old Tax Regime
Taxpayers have an option to choose either the New Tax Regime or the Old Tax Regime according to the relevant provisions. The New Tax Regime is the default tax regime for eligible taxpayers, whereas taxpayers can select the Old Tax Regime if the relevant provisions are fulfilled.
For Financial Year 2025-26 / Assessment Year 2026-27, the return filing will be based on the Income-tax Act, 1961. The Income-tax Act, 2025 is applicable for Tax Years commencing from 1 April 2026 onwards.
What is the New Tax Regime?
The New Tax Regime offers revised tax slabs with low tax rates within different tax brackets. However, several deductions and exemptions available under the Old Tax Regime are not available under the New Tax Regime.
The New Tax Regime is the default tax regime for eligible taxpayers.
Under the Income-tax Act, 2025, the New Tax Regime will continue under Section 202.
What is the Old Tax Regime?
The Old Tax Regime is based on the traditional income tax slab system along with several deductions and exemptions available to taxpayers under relevant provisions.
Commonly used deductions and exemptions are as follows:
- Standard deduction
- Section 80C deductions
- Section 80D
- Section 80G
- Home Loan Interest deduction, depending on the relevant provisions
- House Rent Allowance (HRA), depending on the relevant provisions
- And other deductions and exemptions
New Tax Regime vs. Old Tax Regime
| Details | Old Tax Regime | New Tax Regime |
| Tax Rates | Higher slab rates | Lower slab rates |
| Tax Slabs | Conventional tax slabs | Revised tax slabs |
| Deductions | More deductions | Less deductions |
| Exemptions | Various exemptions | Most exemptions unavailable |
| Standard Deduction | Available based on the applicable provisions | Available based on the applicable provisions |
| Section 80C | Available based on the conditions | Generally unavailable |
| Section 80D | Available based on the conditions | Generally unavailable |
| HRA Exemption | Available based on the conditions | Generally unavailable |
| Interest on Home Loan | Some benefits available based on the conditions | Some restrictions, based on the applicable provisions |
| Default Regime | No | Yes |
| Tax Planning | More scope for deduction-based planning | More scope for slab rates based planning |
New Tax Regime Tax Slabs – AY 2026-27
The New Tax Regime slabs for AY 2026-27 are:
| Total Income | Tax Rate |
| Upto ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24 |
Old Tax Regime Tax Slabs – AY 2026-27
For an individual taxpayer below the senior-citizen age eligibility limit, the old tax regime slabs are:
| Income | Tax Rate |
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
The Income Tax Department keeps showing the old tax regime separately from the new tax regime for AY 2026-27.
Rebate under Section 87A
One of the important factors in the comparison of the two tax regimes is the rebate under Section 87A.
In AY 2026-27, the new tax regime offers the rebate in case of an eligible resident individual if the total income does not exceed the prescribed limit. The applicable criteria and amount of rebate for that particular year need to be considered.
Deductions Under the Old Tax Regime
One of the big benefits of the old tax regime is the availability of various types of deductions and exemptions.
Some common deductions are listed below:
Section 80C
Certain investments and payments may be eligible for a deduction under Section 80C based on prescribed criteria and limits.
The examples could be:
- Payment of life insurance premium
- Provident Fund
- Public Provident Fund
- Eligible tuition fees
- Certain housing loan principal repayments
- Others
Section 80D
A deduction may be claimed based on payment of eligible medical insurance premiums and other expenses based on prescribed criteria.
Section 80G
Eligible donations to eligible funds and institutions may be eligible for deduction under Section 80G based on the prescribed criteria.
HRA Exemption
An eligible salaried taxpayer receiving HRA may claim the exemption subject to prescribed criteria.
Home Loan Interest Deduction
An eligible taxpayer may claim a deduction for repayment of home loan interest subject to the applicable provisions and criteria.
Deductions Under the New Tax Regime
Under the New Tax Regime, most of the deductions and exemptions offered under the Old Tax Regime are not available.
However, some deductions and benefits remain available depending on the provisions under the relevant tax regime.
Thus, taxpayers should not assume that all deductions that were available under the Old Tax Regime are also available under the New Tax Regime.
Which Tax Regime is Better?
There is no tax regime that will be best for all taxpayers.
The regime suitable for a taxpayer depends on the following factors:
- Total Income
- Salary Income
- Income from business
- Amount of Deductions
- House Rent Allowance
- Interest paid on housing loan
- Investments
- Premiums for insurance
- Other eligible deductions
- Taxable income
- Slab rates of taxes
The taxpayer should evaluate his/her tax liability under both the regimes before taking a final call if there is any choice.
Example of Tax Regime Comparison
Assuming a taxpayer’s:
Gross Total Income = ₹12,00,000
Wherein, if a taxpayer has many eligible deductions and exemptions under the Old Tax Regime, then the Old Tax Regime could offer him/her a lesser taxable income.
Alternatively, where a taxpayer has little or no deduction and exemptions, then the New Tax Regime might prove to be a good choice due to the revised slabs rates.
Thus, while comparing, the calculations should take into consideration the actual income and deductions of a taxpayer rather than just comparing the slab rates.
Advantages of New Tax Regime
The new tax regime might be beneficial because:
- Low slab rates
- Easy calculation of tax
- Less number of deductions and exemptions
- Less paperwork
- Default tax regime
- Suitable for those with lesser deductions and investments
Old Tax Regime – Benefits
The Old Tax Regime could prove favorable to taxpayers having large deductions and exemptions.
Some of the benefits of Old Tax Regime include:
- Deductions under section 80C
- Deductions under section 80D
- HRA exemption
- Benefits related to home loans
- Deductions under section 80G
- Other deductions
- More opportunities for deductions-based tax planning
An Important Consideration for Salaried Persons
A salaried person needs to compare both regimes before making investment claims and completing the tax computation process.
The considerations of the salaried person will be:
Salary Income → Exemptions → Deductions → Taxable Income → Tax Liability
Finally, the tax liability is to be calculated considering both the regimes.
Tax Regime Applicable to Business or Profession Income
In case of taxpayers having income from business or profession, the provisions applicable to opting-out and regime change are different.
It is because the rules for opting out and regime change differ for such taxpayers having business and profession income than for taxpayers having only salary income.
Thus, the taxpayers having business or profession income should see the relevant provisions while choosing or changing their tax regime.
New Tax Regime Under Income-tax Act, 2025
Under the provisions of Income-tax Act, 2025, the New Tax Regime is continued under Section 202.
The Income Tax Department has made it clear that the New Tax Regime under the new Act continues and remains the default tax regime for eligible taxpayers with the provision to opt out.
Simple Comparison of the Two Regimes
New Tax Regime
Lower tax rates + fewer deductions and exemptions + easier computation.
Old Tax Regime
Higher slab rates + more deductions and exemptions + more tax planning.
Choosing the Correct Tax Regime?
Calculations prior to selecting the tax regime:
Step 1: Total Income
↓
Step 2: Eligible Exemptions
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Step 3: Eligible Deductions
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Step 4: Taxable Income
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Step 5: Tax Liability under Old Tax Regime
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Step 6: Tax Liability under New Tax Regime
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Step 7: Comparing the Two
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Step 8: Choosing the Appropriate Tax Regime
Conclusion
Selection between the two tax regimes is dependent upon various factors including the income, deductions and exemptions of the taxpayer.
The New Tax Regime will suit those taxpayers who do not have many deductions while the Old Tax Regime will be appropriate for those taxpayers who have higher eligible deductions and exemptions.
Hence, before making any decisions, taxpayers must calculate the tax liability under both tax regimes.
Note: The rates of taxation, rebates, deductions, exemptions and other provisions may be changed through various ways such as amendments, Finance Act and other notifications and rules. Taxpayers should check all the provisions for that particular financial year/Tax Year.
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