Choosing between the old and new tax regimes is not simply a comparison of tax rates. The new tax regime offers wider slabs and lower rates but restricts many commonly used deductions and exemptions. The old tax regime has higher rates but allows eligible taxpayers to reduce taxable income through HRA, home-loan interest, tax-saving investments, medical insurance and other deductions.

The better regime depends on your income, age, salary structure, investments, home loan, deductions and income taxable at special rates.

Tax Slabs Under the Old Tax Regime

The following old-regime slabs apply to an individual below 60 years of age. They also apply to a non-resident individual irrespective of age.

Higher Basic Exemption for Resident Senior Citizens

• A resident senior citizen aged 60 years or more but below 80 years has an old-regime basic exemption limit of ₹3,00,000.
• A resident super senior citizen aged 80 years or more has an old-regime basic exemption limit of ₹5,00,000.
• These age-based higher exemption limits are not available to non-residents.

Tax Slabs Under the New Tax Regime

The following slabs apply under the new tax regime for Assessment Year 2026-27:

Old Tax Regime vs New Tax Regime

Deductions Generally Not Available Under the New Tax Regime

The following commonly claimed exemptions and deductions are generally not available when the new tax regime is selected:

• House Rent Allowance exemption.
• Leave Travel Allowance exemption.
• Most special allowances under section 10(14).
• Professional tax and entertainment-allowance deductions.
• Section 80C benefits for PPF, EPF, ELSS, life-insurance premium, tuition fees, NSC and eligible home-loan principal.
• Personal NPS contributions under sections 80CCD(1) and 80CCD(1B).
• Medical-insurance deduction under section 80D.
• Disability and specified-disease deductions.
• Interest on an education loan under section 80E.
• Additional home-loan deductions under sections 80EE and 80EEA.
• Donations under sections 80G and 80GGA.
• Savings-account interest deduction under section 80TTA.
• Deposit-interest deduction for senior citizens under section 80TTB.
• Interest on a home loan for a self-occupied property.

Benefits Still Available Under the New Tax Regime

The statement that no deduction is available under the new regime is incorrect. Important benefits that may still be available include:

• Standard deduction of up to ₹75,000 from salary or pension.
• Deduction for an employer’s NPS contribution under section 80CCD(2), subject to the applicable conditions and limits.
• Eligible deductions relating to the Agniveer Corpus Fund.
• Deduction under section 80JJAA for eligible additional employment.
• Family-pension deduction of one-third of the pension or ₹25,000, whichever is lower.
• Interest on borrowed capital for a let-out property, subject to the restrictions applicable under the new regime.
• Certain prescribed allowances relating to official duties.

Who May Benefit From the New Tax Regime?

The new tax regime may be suitable where:

• You do not claim substantial deductions or exemptions.
• You do not receive a large HRA or LTA benefit.
• You do not have a self-occupied home-loan interest deduction.
• You prefer lower rates without making tax-saving investments.
• Your normal taxable income is within the section 87A rebate limit.
• Your employer contributes to NPS and you can claim section 80CCD(2).

Who May Benefit From the Old Tax Regime?

The old tax regime may be suitable where you can claim substantial benefits such as:

• HRA exemption for rent paid.
• LTA exemption.
• Section 80C investments of up to ₹1,50,000.
• Additional NPS deduction under section 80CCD(1B).
• Medical-insurance deduction under section 80D.
• Interest on a self-occupied home loan.
• Education-loan interest under section 80E.
• Eligible donations under section 80G.
• Age-based higher exemption as a resident senior citizen.

Example: Why the Lower Tax Rate May Not Always Win

Assume a salaried taxpayer below 60 years has a gross salary of ₹15,00,000 and is eligible for the following old-regime benefits:

• HRA exemption: ₹2,40,000
• Self-occupied home-loan interest: ₹2,00,000
• Section 80C deduction: ₹1,50,000
• Section 80D deduction: ₹25,000

In this illustration, the old regime results in lower tax because the taxpayer has substantial eligible deductions. The result can reverse where deductions are low.

Actual tax depends on the taxpayer’s salary structure, eligibility conditions, special-rate income, surcharge and other relevant factors.

How to Select the Old Tax Regime

Taxpayers Without Business or Professional Income

A taxpayer who does not have business or professional income may generally choose between the regimes every year while filing the return. The old-regime option should be exercised in the return filed within the applicable due date.

Taxpayers With Business or Professional Income

A taxpayer with business or professional income who wants to opt out of the default new regime for Assessment Year 2026-27 must generally submit Form 10-IEA on or before the due date for filing the return under section 139(1).

Such taxpayers do not have unrestricted freedom to switch regimes every year. The rules governing withdrawal and re-entry into the new regime must be considered before making the selection.

Income-tax Act, 2025 Transition

Returns for Financial Year 2025-26 and Assessment Year 2026-27 continue to be governed by the Income-tax Act, 1961.

For Tax Year 2026-27 beginning on 1 April 2026, the new tax regime continues as the default regime under section 202 of the Income-tax Act, 2025. The option to choose the old regime also continues, subject to the prescribed procedure.

How to Choose the Correct Tax Regime

1. Calculate your gross income under all applicable heads.
2. Identify exemptions and deductions available only under the old regime.
3. Calculate taxable income separately under both regimes.
4. Apply the correct slab rates and special tax rates.
5. Consider the section 87A rebate, surcharge and 4% cess.
6. Compare the final tax payable—not merely the taxable income.
7. Complete the required regime-selection procedure before the due date.

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