Quick Answer: Which Tax Regime Is Better for You?
For many salaried taxpayers without an active home loan or massive rent payments, the New Tax Regime is simpler and requires zero investment proof submissions. Under the New Regime, salaried individuals benefit from the ₹75000 standard deduction and Section 87A tax rebate on eligible taxable income up to ₹700000. Check the current slabs on the Income Tax Department website. For the Old Tax Regime to be advantageous, your total eligible deductions—including Section 80C, Section 80D health insurance, House Rent Allowance (Section 10(13A)), and Section 24(b) home loan interest—must exceed the breakeven threshold for your salary bracket.
Tax Slabs Comparison for FY 2026-27
Here is how the baseline income tax slabs compare for FY 2026-27. Check current slabs on the Income Tax Department website before filing: New Tax Regime Slabs (Default): • Income up to ₹3,00,000: Nil (0%) • ₹3,00,001 to ₹7,00,000: 5% • ₹7,00,001 to ₹10,00,000: 10% • ₹10,00,001 to ₹12,00,000: 15% • ₹12,00,001 to ₹15,00,000: 20% • Income above ₹15,00,000: 30% Standard Deduction: ₹75000 for salaried employees and pensioners. Section 87A Full Rebate: Net taxable income up to ₹700000 pays zero tax. Old Tax Regime Slabs: • Income up to ₹2,50,000: Nil (0%) • ₹2,50,001 to ₹5,00,000: 5% • ₹5,00,001 to ₹10,00,000: 20% • Income above ₹10,00,000: 30% Standard Deduction: ₹50000 for salaried employees. Section 87A Full Rebate: Taxable income up to ₹500000 pays zero tax.
Worked Example: Salaried Employee Earning ₹12,00,000
Let us calculate the exact tax liability for an employee earning a gross annual salary of ₹12,00,000 under both options for FY 2026-27: Under New Tax Regime: • Gross Salary: ₹12,00,000 • Less Standard Deduction: ₹75000 • Net Taxable Income: ₹11,25,000 • ₹0 to ₹3,00,000: Nil • ₹3,00,001 to ₹7,00,000 (₹4,00,000 @ 5%): ₹20,000 • ₹7,00,001 to ₹10,00,000 (₹3,00,000 @ 10%): ₹30,000 • ₹10,00,001 to ₹11,25,000 (₹1,25,000 @ 15%): ₹18,750 • Total Base Tax: ₹68,750 • Plus 4% Health & Education Cess: ₹2,750 • Final Tax Payable under New Regime: ₹71,500. Under Old Tax Regime: Suppose this employee claims: • Standard Deduction: ₹50000 • Section 80C (EPF + ELSS): ₹1,50,000 • Section 80D (Mediclaim): ₹25,000 • Total Deductions: ₹2,25,000 • Net Taxable Income: ₹12,00,000 - ₹2,25,000 = ₹9,75,000 • Base Tax: ₹12,500 (5% on ₹2.5L) + ₹95,000 (20% on ₹4.75L) = ₹1,07,500 • Plus 4% Cess: ₹4,300 • Final Tax Payable under Old Regime: ₹1,11,800. Result: The New Regime saves this employee ₹40,300, without forcing them to lock away money into long-term lock-ins.
When Does the Old Regime Still Win?
The Old Regime remains advantageous for homeowners with active mortgages and renters claiming heavy HRA exemptions. Consider an executive earning ₹15,00,000 with substantial deductions: • Standard Deduction: ₹50000 • Section 80C: ₹1,50,000 • Section 24(b) Home Loan Interest: ₹2,00,000 • Section 80D Health Insurance: ₹35,000 • Section 80CCD(1B) NPS: ₹50,000 • Total Deductions: ₹4,85,000 • Net Taxable under Old Regime: ₹10,15,000. Total Tax with Cess: ₹1,21,680. • Net Taxable under New Regime: ₹14,25,000. Total Tax with Cess: ₹1,30,000. In this scenario, because total deductions reached ₹4,85,000, the Old Regime saves ₹8,320. Check the current slabs on the Income Tax Department website for your income band.
What Deductions Are Allowed in the New Tax Regime?
Many taxpayers assume that the New Tax Regime disallows all deductions without exception. While personal deductions under Section 80C, Section 80D, and HRA are removed, the following exemptions remain valid under the New Regime: 1. Standard Deduction: ₹75000 for salaried employees and pensioners (Section 16(ia)). 2. Employer NPS Contribution: Section 80CCD(2) deduction up to 14% of basic salary for government employees, and up to 10% for private sector corporate employees. 3. Family Pension Deduction: Under Section 57(iia), deduction of ₹25,000 or one-third of pension (whichever is lower). 4. Travel Reimbursements: Conveyance allowance and daily allowance paid exclusively to meet expenses incurred on work duties. 5. Gratuity and Leave Encashment: Statutory exemptions on retirement benefits remain intact (gratuity exemption up to ₹2000000 under Section 10(10)).
Marginal Relief Mechanics and Section 87A Explained
One area where taxpayers get caught off guard is when their gross income slightly crosses the Section 87A rebate boundary. Under the New Regime, if your taxable income is ₹700000, your tax after Section 87A rebate is ₹0. If taxable income slightly exceeds this threshold, the Income Tax Department provides Marginal Relief so that tax on excess income does not exceed the incremental income earned above the threshold. Check the current slabs on the Income Tax Department website to verify marginal relief provisions for your assessment year.
How to Check Your Personal Breakeven in Seconds
Rather than manually calculating tax slabs on scratch paper, enter your salary, expected HRA, and home loan interest into our QuickCalcNook Income Tax Calculator. The tool generates an instant side-by-side comparison showing exactly which regime leaves you with more in-hand income.