Old Tax Regime vs New Tax Regime for AY 2026-27: Deductions, Exemptions and Who Benefits

For AY 2026-27, the new tax regime is the default and usually offers lower rates with fewer deductions. The old regime remains available and can produce a lower bill when you have substantial eligible claims such as HRA, 80C investments, health-insurance premiums, NPS contributions or self-occupied home-loan interest. There is no universal winner: calculate both regimes with the same income, age, eligible claims, rebate, surcharge and cess assumptions.

The figures below are Income Tax Department rules for AY 2026-27. They are general guidance for Indian individual taxpayers, not an individual tax computation or professional opinion.

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What changes between the old and new regimes

The regimes tax the same income under different slab structures and deduction rules. The new regime applies by default to eligible taxpayers unless they validly choose the old regime. In exchange for lower rates and a higher starting threshold, it removes most exemptions and Chapter VIA deductions. The old regime has higher headline rates but preserves a wider set of deductions and exemptions.

Your choice should be based on your taxable income after only the claims you are legally entitled to make. A tax-saving investment should not be made solely to force the old regime to look better; assess the investment separately from its tax effect.

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A quick comparison

AY 2026-27 slab rates

Old regime: individual below 60

These old-regime slabs apply to an individual who is under 60 during the previous year. Age changes the basic exemption: it is ₹3 lakh for someone aged 60 to under 80 and ₹5 lakh for someone aged 80 or more. The age-based basic exemption is an old-regime feature; apply the correct age band rather than automatically using the under-60 table.

New regime: AY 2026-27

The department’s AY 2026-27 table uses a ₹4 lakh basic exemption in the new regime for the age groups covered above. Do not substitute an older year’s bands when preparing this year’s comparison. The wider bands do not mean that every taxpayer will pay less: deductions removed from the calculation can outweigh the lower rates for some households.

How to read the tables

Each row is a marginal calculation. For example, the amount shown in a row includes tax accumulated in the preceding bands plus the stated percentage on income in the current band. The table is applied to taxable income under that regime, not automatically to gross salary. Apply permitted deductions and exemptions first, then calculate slab tax, rebate, surcharge and cess in the relevant order.

Rebate, cess and surcharge

Section 87A rebate

For AY 2026-27, a resident individual whose taxable income does not exceed ₹12 lakh can receive a section 87A rebate of up to ₹60,000 in the new regime. Under the old regime, the maximum rebate is ₹12,500 when taxable income does not exceed ₹5 lakh. These are conditional rebates, not blanket exemptions: residency, taxable-income limits and the applicable regime must all be checked.

As a simple illustration, a resident individual with ₹12 lakh of eligible taxable income under the new regime may have slab tax of ₹60,000 before the rebate, so the rebate can remove that amount. This illustration assumes the income is eligible for the ordinary slab calculation and does not replace a return computation. Crossing the stated threshold, or failing the residency condition, changes the result.

Health and education cess

A 4% health and education cess applies to income tax plus surcharge, if any, in both regimes. Apply the rebate and any relief under the return computation before adding the cess. A rebate that reduces tax to nil does not create a general cash refund by itself; other credits and withholding still have to be reconciled in the return.

Surcharge at high income

The AY 2026-27 salaried-individual guidance shows a surcharge above ₹5 crore of 25% in the new regime and 37% in the old regime. High-income taxpayers must also consider marginal relief and the detailed surcharge rules; a simple slab comparison is not sufficient. Include these additions in both scenarios rather than comparing only the nominal 30% top slab.

Old-regime deductions and exemptions

The old regime is valuable only when you can substantiate eligible claims. Keep policy certificates, investment receipts, rent evidence, loan certificates and medical documents that support each section. A deduction is not available merely because an amount appears in a payroll declaration; the payment, recipient, timing and statutory conditions must match the relevant section.

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Sections 80C, 80CCC and 80CCD(1)

The combined limit for sections 80C, 80CCC and 80CCD(1) is ₹1.5 lakh for AY 2026-27. The department’s examples include eligible life-insurance premiums, provident-fund contributions, qualifying equity subscriptions, tuition fees, National Savings Certificates and housing-loan principal. The ₹1.5 lakh is a combined ceiling, not a separate allowance under each section.

For a household using several products, total the qualifying amounts before entering the deduction. An investment that is not one of the qualifying items, or a payment that misses the section’s conditions, cannot simply be substituted for an eligible item because the overall limit has not been filled.

Additional NPS contribution: section 80CCD(1B)

An old-regime taxpayer can claim up to ₹50,000 for qualifying section 80CCD(1B) contributions, subject to the section’s conditions. This is separate from the combined 80C/80CCC/80CCD(1) limit, so show it on its own line in the comparison. Do not count the same contribution twice under both provisions.

Health insurance: section 80D

The AY 2026-27 guidance lists a ₹25,000 limit for health-insurance premiums and preventive health check-ups, rising to ₹50,000 where the relevant insured person is a senior citizen. Separate limits apply for parents, so identify whose policy and age qualify before calculating the claim. Keep premium receipts and evidence of the insured relationship; a payment for a non-qualifying person or purpose may not fit the deduction.

Disability-related deductions

• Section 80DD: a flat ₹75,000 deduction, or ₹1.25 lakh for severe disability, subject to the statutory conditions.
• Section 80DDB: specified-disease treatment expenses up to ₹40,000, or ₹1 lakh where the patient is a senior citizen, subject to eligibility and documentation.

These are section-specific amounts, not interchangeable medical deductions. Check the required certificates, patient relationship and treatment conditions before relying on them.

House-rent allowance under section 10(13A)

Eligible salaried employees can claim HRA exemption in the old regime when the statutory conditions are met. The claim depends on the salary, HRA received, rent paid and the applicable city and period rules, so retain rent receipts and landlord details where required. The Income Tax Department FAQ states that section 10(13A) HRA exemption is unavailable in the new regime.

Do not treat every rent payment as an HRA exemption. The benefit is connected to HRA received from employment and the statutory computation; a person paying rent without qualifying HRA should not insert an HRA figure merely to reduce taxable income.

Home-loan interest under section 24(b)

The old regime permits up to ₹2 lakh of interest for a qualifying self-occupied property. The AY 2026-27 table distinguishes lower limits for certain repair or older-loan situations, so do not assume every loan qualifies for the full amount. Let-out-property treatment follows different set-off and carry-forward rules.

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Obtain the lender’s interest certificate and identify whether the property is self-occupied or let out before entering the amount. Principal repayment belongs to the relevant 80C limit when eligible; interest is a separate section 24(b) issue.

What the new regime still allows

Choosing the new regime does not eliminate every tax benefit. The AY 2026-27 department guidance specifically lists the following.

Employer NPS contribution: section 80CCD(2)

Eligible employer contributions under section 80CCD(2) remain deductible. The new-regime page states a 14% of salary limit for all employer categories. The old-regime table differentiates 10% for public-sector or other employers and 14% for Central or State Government employers. Confirm the employer category, salary definition and contribution details before using the percentage. The employee’s own contribution is a different question from the employer contribution and should not be merged into this limit.

Agnipath corpus contributions: section 80CCH

Eligible contributions to the Agniveer Corpus Fund under section 80CCH are listed as available in the new regime, subject to the statutory requirements. Keep the relevant contribution record and use the provision only if the taxpayer and payment qualify.

Interest on a let-out property

The new-regime guidance permits section 24(b) interest for a let-out property, but a resulting house-property loss cannot be set off against other heads of income or carried forward. The self-occupied-property interest deduction available in the old regime is not available in the new regime. This restriction can materially change a landlord’s comparison even where the headline slab tax looks lower.

Chapter VIA restrictions

The department FAQ says Chapter VIA deductions generally cannot be claimed under section 115BAC, except specified provisions such as 80CCD(2), 80CCH and 80JJAA. The FAQ’s question text is framed around AY 2024-25, so use the current AY 2026-27 return instructions to verify any claimed exception. In practical terms, ordinary 80C, 80D, 80DD, 80G and similar claims should not be entered in a new-regime computation unless a current provision expressly permits them.

Standard deduction and salary benefits

The Income Tax Department FAQ states that a ₹50,000 standard deduction, or the salary amount if lower, is available in both regimes from AY 2024-25 onward. Because that FAQ wording is anchored to an earlier assessment year, confirm the amount in the AY 2026-27 return instructions or salary-tax worksheet before filing. Do not confuse the standard deduction with HRA: the former is a salary deduction stated for both regimes in the FAQ, while HRA exemption under section 10(13A) is an old-regime benefit.

Apply the standard deduction consistently when comparing the regimes. Using it in one calculation but not the other, or treating it as an additional ₹50,000 cash allowance, will distort the result. If salary is lower than ₹50,000, the department FAQ’s “salary, whichever is lower” wording limits the deduction accordingly.

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Who is more likely to benefit from each regime

Situations that warrant a careful old-regime calculation

• You receive HRA and pay qualifying rent.
• You can substantiate significant 80C investments or housing-loan principal.
• You pay eligible health-insurance premiums under section 80D.
• You make qualifying NPS contributions, including the additional ₹50,000 section 80CCD(1B) amount.
• You have eligible self-occupied home-loan interest under section 24(b).
• You qualify for disability or specified-disease deductions.
• You have several moderate deductions that together materially reduce taxable income, even if no single claim is large.

These claims reduce taxable income only when their section-specific conditions are satisfied. A nominal investment or an unsupported declaration does not create a lawful deduction. Compare the actual eligible total, not the maximum advertised limit for every section.

Situations that often make the new regime attractive

• You have few deductions or exemptions to claim.
• Your income falls into the new regime’s wider bands and higher basic exemption.
• Your employer makes a qualifying section 80CCD(2) contribution.
• You prefer simpler record-keeping and do not want to maintain multiple deduction proofs.
• You are affected by the lower new-regime surcharge shown above ₹5 crore.
• Your taxable income is close to the new-regime section 87A threshold and you satisfy the resident-individual condition.

These are decision signals, not guarantees. The department does not publish a universal break-even income or a typical taxpayer saving, and the result changes with salary composition, age, property income, deductions and rebate eligibility.

How to compare both regimes for AY 2026-27

1. Collect the same income data for both calculations. Use salary, interest, rental income, capital gains and other income for the relevant previous year. Separate exempt receipts from taxable income and do not change assumptions between regimes.
2. Apply the correct age category. For the old regime, use the ₹2.5 lakh, ₹3 lakh or ₹5 lakh basic exemption that matches your age during the previous year. Use the AY 2026-27 new-regime bands separately.
3. Identify income that may not follow ordinary slab treatment. Preserve the character of each income item in the return and do not force every receipt into a salary-style slab calculation.
4. Calculate old-regime deductions. Enter only documented 80C/80CCC/80CCD(1), 80CCD(1B), 80D, 80DD, 80DDB, HRA and qualifying section 24(b) claims. Respect each cap and eligibility rule.
5. Calculate new-regime deductions. Remove ordinary Chapter VIA claims and include only currently permitted items such as 80CCD(2), 80CCH and qualifying let-out-property interest, with the loss restrictions applied.
6. Apply the standard deduction only after checking current instructions. The department FAQ states ₹50,000 or salary if lower in both regimes, but its wording is tied to AY 2024-25.
7. Apply section 87A. Check resident status and the ₹12 lakh new-regime or ₹5 lakh old-regime taxable-income threshold before applying the applicable rebate.
8. Add surcharge, marginal relief and 4% cess where applicable. High-income calculations need the detailed statutory rules, not just the headline slab rate.
9. Compare the final tax payable and cash-flow effect. Include tax already withheld and any advance-tax obligations. The lower computed liability is the starting point, but documentation and filing eligibility control the final choice.
10. Save the working papers. Keep the salary statement, deduction proofs, loan certificate, rent evidence, insurance receipts and regime comparison so the figures in the return can be explained later.

The Income Tax Department recommends its Income and Tax Calculator for a broad comparison. Treat the calculator as a starting point and verify unusual income, property, deduction or surcharge cases against the applicable return instructions. A calculator result is only as reliable as the income categories and eligible claims entered into it.

Choosing and switching regimes when you file

Non-business and non-professional income

For an individual without business or professional income, the new regime is the default. You can generally opt for the old regime each year in the income-tax return, provided the choice is made by the section 139(1) due date. The annual choice means a salaried taxpayer can reassess the regime for each assessment year rather than being permanently locked into one system.

Check the due date applicable to your return and retain confirmation of the option selected. A payroll declaration made early in the year is not a substitute for making the valid election in the return.

Business or professional income

A taxpayer with business or professional income who wants the old regime must submit Form 10-IEA by the section 139(1) due date. The AY 2026-27 guidance describes a more restricted path back to the new regime: the return is available only in a subsequent assessment year, and the option is available only once in a lifetime for eligible business or professional taxpayers. Check the current form instructions before filing because an invalid or late form can leave the default regime in place.

This restriction makes the decision more consequential for proprietors and professionals. Project the year’s eligible deductions and expected income before filing Form 10-IEA instead of relying only on an employer’s tax worksheet.

What telling your employer does

Your declaration to an employer influences monthly tax deducted at source. It does not by itself complete the formal regime election in your income-tax return. Reconcile the employer’s withholding with the regime and claims actually used when you file. If the employer used one regime for TDS and you validly select another in the return, the final computation is based on the return election and eligible claims, with withholding credited separately.

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Common mistakes to avoid

• Using an old slab table. AY 2026-27 has a ₹4 lakh starting band and seven new-regime bands; older examples can produce the wrong answer.
• Comparing gross salary instead of taxable income. Apply only the deductions and exemptions permitted under the regime being tested.
• Claiming HRA in the new regime. The department FAQ says section 10(13A) HRA exemption is unavailable there.
• Entering 80C or 80D in a new-regime computation. Ordinary Chapter VIA deductions are generally blocked under section 115BAC.
• Treating the ₹60,000 rebate as an exemption for everyone. It is limited to resident individuals within the specified taxable-income threshold.
• Ignoring age. Old-regime basic exemption changes at 60 and 80; do not use the under-60 table for a senior citizen.
• Assuming every home-loan interest claim is ₹2 lakh. The cap and property-use conditions matter, and the new regime treats self-occupied and let-out property differently.
• Counting one payment twice. Check whether an NPS, insurance or housing payment has already been included under another section or in the employer’s computation.
• Relying on payroll selection alone. Employer TDS instructions and the formal return election are separate steps.
• Forgetting surcharge and cess. The headline slab result is not the final liability when these additions apply.
• Assuming a deduction limit is an entitlement. ₹1.5 lakh under the combined 80C group, ₹50,000 under 80CCD(1B), and medical limits are ceilings subject to qualifying expenditure and documentation.
• Transferring an AY 2024-25 FAQ example unchanged. Some FAQ questions retain earlier-year wording; confirm every current figure and exception against AY 2026-27 instructions.

Practical decision rule

Start with the new regime because it is the default, then build an old-regime calculation using only claims you can prove. If the old regime’s deductions and exemptions reduce taxable income enough to offset its higher rates, choose it through the permitted filing process. If your claims are small or uncertain, the new regime may produce a lower or simpler result. The correct answer is the lower legally computed liability for your facts, not a rule based solely on salary level or a single deduction.

The Income Tax Department’s FAQ answers the question “Which is better between the old tax regime and the new tax regime?” by advising a comparative evaluation and analysis under both regimes and a choice according to the taxpayer’s requirement. That is the sound approach for AY 2026-27: use the current slabs, apply only eligible provisions, and document the assumptions behind the result.

Frequently Asked Questions

Which is better between the old tax regime and the new tax regime for AY 2026-27?

Neither is universally better. The Income Tax Department advises comparing both calculations using the same income, age, eligible deductions, rebate, surcharge and cess assumptions. The new regime may suit taxpayers with few claims; the old regime may suit taxpayers with substantial eligible HRA, 80C, 80D, NPS or qualifying home-loan benefits.

Can a salaried taxpayer claim HRA exemption in the new regime?

No. The Income Tax Department FAQ states that section 10(13A) HRA exemption is available in the old regime and unavailable in the new regime, subject to the old regime’s eligibility conditions.

Is the ₹50,000 standard deduction available in the new regime?

The department FAQ states that a ₹50,000 standard deduction, or salary if lower, is available in both regimes from AY 2024-25 onward. Confirm the amount in the AY 2026-27 return instructions or salary worksheet before filing.

Can I claim 80C, 80D or 80G in the new regime?

Ordinary Chapter VIA deductions are generally not available under section 115BAC. The current AY 2026-27 guidance specifically preserves provisions such as eligible employer contributions under 80CCD(2), Agnipath contributions under 80CCH and 80JJAA. Verify any claimed exception in the current return instructions.

What is the section 87A rebate for AY 2026-27?

For a resident individual, the new-regime rebate is up to ₹60,000 where taxable income does not exceed ₹12 lakh. Under the old regime, the maximum is ₹12,500 where taxable income does not exceed ₹5 lakh. These are conditional rebates, not universal exemptions.

Can I change regimes every year?

An individual without business or professional income can generally choose the old regime annually in the return by the section 139(1) due date. A taxpayer with business or professional income must use Form 10-IEA to opt out and faces a more restricted path back to the new regime, including the conditions described in the AY 2026-27 guidance.

Does choosing a regime with my employer settle the tax election?

No. The employer’s declaration guides TDS withholding. The formal regime choice is made through the income-tax return under the applicable election rules, so reconcile payroll withholding with the final return.

The Bottom Line

Bottom line: For AY 2026-27, begin with the default new regime, then test the old regime with documented, legally eligible deductions and exemptions. Use the ₹4 lakh new-regime bands, age-specific old-regime exemption, section 87A limits, 4% cess, surcharge and switching rules that apply to your facts. Choose the regime that produces the lower final liability after all conditions—not the regime promoted by a single deduction or a generic salary rule.

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