Old vs new tax regime — which should you pick?

The new regime is now the default and wins for most people — but the old regime still pays off if you claim big deductions.

For FY 2026-27 the new regime is the default, and for most salaried people it's also the cheaper option — a genuine reversal from a few years ago. Income up to ₹12 lakh is effectively tax-free thanks to the enhanced Section 87A rebate, and salaried taxpayers get a ₹75,000 standard deduction on top, so up to about ₹12.75 lakh can attract zero tax without claiming a single deduction or making a single tax-saving investment. The new regime's slabs are also wider and gentler than they used to be.

The catch is that the new regime strips away almost every deduction and exemption in exchange for those lower slabs. No HRA exemption, no 80C, no 80D, no LTA — the standard deduction is essentially all you get. So the whole decision reduces to one question: are the deductions you would actually claim worth more than the rate cut the new regime hands you for free?

The old regime only wins when those deductions are genuinely large. It lets you claim HRA exemption on rent you pay, the full ₹1.5 lakh under Section 80C, ₹25,000–₹50,000 under 80D for health insurance, home-loan interest of up to ₹2 lakh, NPS, education-loan interest and more. Two situations tip most people toward it: paying substantial rent in a metro (a big HRA exemption), or carrying a home-loan EMI whose interest is deductible.

The break-even is really about total deductions. As a rough guide, if everything you can legitimately claim adds up to more than roughly ₹3.5–4 lakh, the old regime often comes out cheaper; below that, the new regime usually wins. The trap to avoid is investing purely to save tax — locking money into a low-return product just to fill your ₹1.5 lakh 80C limit can cost you more in poor returns than it saves in tax. Claim deductions you'd have anyway; don't manufacture them.

One practical point: you can switch regimes each year if you're salaried, so this isn't a life sentence. Your rent, your home loan and your investments change over time, and the better regime can flip with them — it's worth re-checking every filing season rather than setting it once and forgetting.

There's no need to guess at any of this. Run your exact salary and deductions through the income tax calculator — it computes your tax under both regimes side by side and tells you which one saves you more, in rupees, for your specific numbers.