Old vs New Tax Regime for FY 2026-27: Which Should Salaried Employees Choose?
The new regime is the default and wins for most salaried people — but not all. Here's the deduction level where the old regime starts to pay, with worked examples including the new 50% HRA cities.
By BizToolsIndia Editorial Team · Published · 5 min read
Key takeaways
- Slabs, the ₹75,000 standard deduction and the ₹12 lakh rebate limit are unchanged for FY 2026-27.
- At ₹15 lakh salary the old regime needs about ₹5.94 lakh of deductions just to match the new regime; from about ₹25 lakh upwards, about ₹8.5 lakh.
- Tax-saving investments, health insurance and NPS alone rarely get there. The old regime usually wins only with a large HRA exemption plus home-loan interest.
- From FY 2026-27, Bengaluru, Hyderabad, Pune, Ahmedabad get the 50% HRA limit — which helps renters there, but doesn't always tip the balance.
- Salaried people without business income can choose afresh every year.
What's the same and what changed this year
Budget 2026 left both regimes' slabs untouched. The new regime still charges nothing on taxable income up to ₹12 lakh (with marginal relief just above it), and salaried people get a ₹75,000 standard deduction — so salary up to ₹12.75 lakh is effectively tax-free. The old regime keeps its ₹50,000 standard deduction and its long list of exemptions and deductions.
Two things did change. The Income-tax Act, 2025 came into force on 1 April 2026, renumbering most sections (the deductions themselves work the same way). And the 50% HRA limit, earlier only for the four metros, now covers Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad.
The two regimes at a glance
| New regime (default) | Old regime | |
|---|---|---|
| Slab rates | 0% up to ₹4 lakh, then 5–30% in ₹4 lakh steps | 0% up to ₹2.5 lakh, 5%, 20%, then 30% above ₹10 lakh |
| Standard deduction | ₹75,000 | ₹50,000 |
| Zero tax up to (taxable income) | ₹12 lakh | ₹5 lakh |
| HRA, investments, health insurance, home-loan interest | Not allowed | Allowed, with limits |
| Highest surcharge | 25% | 37% |
How much do you need to deduct for the old regime to win?
For each salary, the table shows the total old-regime deductions — including the ₹50,000 standard deduction, HRA exemption, investments and everything else — at which both regimes cost the same. Below that figure, the new regime is cheaper.
| Gross salary | New regime tax | Old regime matches it at deductions of about |
|---|---|---|
| ₹10 lakh | ₹0 | ₹5,00,000 |
| ₹12.75 lakh | ₹0 | ₹7,75,000 |
| ₹15 lakh | ₹97,500 | ₹5,94,000 |
| ₹20 lakh | ₹1,92,400 | ₹7,59,000 |
| ₹25 lakh and above | ₹3,19,800 at ₹25 lakh | ₹8,50,000 |
Up to ₹12.75 lakh, the new regime charges no tax at all, so the old regime can only tie — by bringing taxable income down to ₹5 lakh. For most people that means the new regime wins outright at these salaries. Above about ₹25 lakh, the break-even settles at around ₹8.5 lakh of deductions.
Note
Worked example 1: renting in Bengaluru on ₹18 lakh
Basic salary ₹7.2 lakh a year (40% of CTC), HRA ₹3.6 lakh, rent ₹35,000 a month. Full ₹1.5 lakh of tax-saving investments, ₹25,000 health insurance, ₹50,000 extra NPS and ₹2,400 professional tax.
| New regime | Old regime | |
|---|---|---|
| HRA exemption | — | ₹3,48,000 |
| Total deductions | ₹75,000 | ₹6,25,400 |
| Taxable income | ₹17,25,000 | ₹11,74,600 |
| Tax incl. cess | ₹1,50,800 | ₹1,71,475 |
The new regime is still ₹20,675 cheaper. The new 50% HRA rule does help: when Bengaluru counted as a 40% city, the exemption here was ₹2.88 lakh and old-regime tax ₹1,90,195 — so the change is worth ₹18,720 to someone who stays in the old regime. It just isn't enough on its own.
Worked example 2: the same person with a home loan
Now add ₹2 lakh of home-loan interest (for example, on a house owned in another city, which can allow claiming HRA and home-loan interest together) and ₹50,000 of health insurance including parents.
| New regime | Old regime | |
|---|---|---|
| Total deductions | ₹75,000 | ₹8,50,400 |
| Taxable income | ₹17,25,000 | ₹9,49,600 |
| Tax incl. cess | ₹1,50,800 | ₹1,06,517 |
With ₹8.5 lakh of deductions, the old regime wins by ₹44,283. This is the typical profile where the old regime still makes sense: high rent in a 50% city plus a home loan plus full investments.
Worked example 3: ₹10 lakh salary with investments
Someone earning ₹10 lakh who invests the full ₹1.5 lakh and pays ₹2,400 professional tax would pay ₹74,901 under the old regime — and nothing under the new one. At this level, investing only to save tax doesn't work any more; invest for the goal itself.
How to choose — and when
- Add up what you can actually claim this year — HRA exemption (use the HRA Calculator), investments, health insurance, home-loan interest, NPS.
- Enter it in the Income Tax Calculator to see both totals.
- Tell your employer which regime to use for TDS, usually at the start of the year. If you pick the old regime, submit investment proofs on time.
- Make the final choice when you file your return. Salaried people without business income can choose either regime each year, even if the employer deducted TDS under the other.
Important
Frequently asked questions
Is the new tax regime better for everyone?
No, but for most salaried people it is. The old regime wins only when total deductions are large — roughly ₹6 lakh or more at ₹15 lakh salary, and about ₹8.5 lakh from ₹25 lakh upwards.
Can I claim HRA in the new regime?
No. HRA exemption, tax-saving investments, health insurance and home-loan interest on a self-occupied house are available only under the old regime.
Which cities get the 50% HRA limit from FY 2026-27?
Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad. Elsewhere the limit is 40% of basic salary plus DA.
If I chose the new regime for TDS, can I file under the old regime?
Salaried individuals without business income generally can choose the regime when filing the return, but you'll need the deduction proofs and may have to pay the difference in tax.