Old vs New Tax Regime for FY 2026-27: Which Is Better for Salaried Employees? (With Exact Numbers)
Zero tax up to ₹12.75 lakh in the new regime — so when does the old regime still win? Exact tax at common salaries, the break-even deductions, a worked example and what employers must get right in TDS.
Every April, the same question lands on every salaried employee in India — and on every HR team that has to deduct their tax: old regime or new regime? Pick wrong and an employee either pays thousands more in tax than they needed to, or discovers in March that too little TDS was deducted all year and their last three payslips are nearly empty.
This guide gives you the numbers for FY 2026-27: the slabs, what each regime allows, exact tax at common salary levels, and the break-even point — how much you'd need to claim in deductions before the old regime wins. There's also a section for employers on running TDS correctly when half your team is on each regime.
Figures are as of 30 September 2026. Budget 2026 made no change to the slabs, so the FY 2025-26 structure continues for FY 2026-27. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026 and renumbered many sections; this guide uses the familiar names (80C, 80D, 87A) that most people still search for. Confirm your own situation with a tax adviser.
The short answer
- For most salaried people earning up to about ₹12.75 lakh a year, the new regime means zero tax — thanks to the ₹75,000 standard deduction and the rebate up to ₹12 lakh of taxable income.
- The old regime only wins if your deductions are large — roughly ₹4.5 lakh or more at ₹10 lakh salary, and ₹5.5–8 lakh at ₹15–30 lakh salary. That's HRA exemption, 80C, 80D, home-loan interest and NPS combined.
- Most people with only 80C and a health policy are better off in the new regime. People paying high rent in a metro and a home loan and maxing 80C are the ones who should run the numbers.
- Salaried employees can switch every year when filing their return. The choice you give your employer in April decides your TDS; the final choice is made in your ITR.
FY 2026-27 slabs side by side
New regime (the default)
| Taxable income | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Standard deduction: ₹75,000. Rebate: tax is nil if taxable income is up to ₹12,00,000 (rebate up to ₹60,000), with marginal relief just above it.
Old regime (you must opt in)
| Taxable income (below 60) | Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Standard deduction: ₹50,000. Rebate: tax is nil if taxable income is up to ₹5,00,000. Senior citizens have a higher exemption limit (₹3 lakh; ₹5 lakh for 80+).
Both regimes add 4% health and education cess on the tax. Surcharge applies above ₹50 lakh.
What each regime allows
| Deduction / exemption | Old regime | New regime |
|---|---|---|
| Standard deduction | ₹50,000 | ₹75,000 |
| HRA exemption | Yes | No |
| 80C (PF, PPF, ELSS, life insurance, tuition, home-loan principal) | Up to ₹1.5 lakh | No |
| 80D (health insurance) | ₹25,000 (₹50,000 for seniors) | No |
| 80CCD(1B) — own NPS contribution | ₹50,000 | No |
| Employer's NPS contribution — 80CCD(2) | Up to 10% of salary | Up to 14% of salary |
| Home-loan interest on self-occupied house | Up to ₹2 lakh | No |
| Professional tax deduction | Yes | No |
| Leave travel allowance (LTA) | Yes | No |
The pattern is simple: the new regime has lower rates and a bigger standard deduction; the old regime has higher rates but lets you subtract a lot more.
Tax at common salary levels
Here's the total tax (including cess) for a salaried person below 60, with no other income. "Deductions" in the old-regime columns means everything you claim on top of the standard deduction — HRA exemption, 80C, 80D, home-loan interest, NPS.
| Gross salary | New regime | Old: no deductions | Old: ₹1.5L | Old: ₹2.25L | Old: ₹4L |
|---|---|---|---|---|---|
| ₹7,00,000 | ₹0 | ₹44,200 | ₹0 | ₹0 | ₹0 |
| ₹10,00,000 | ₹0 | ₹1,06,600 | ₹75,400 | ₹59,800 | ₹23,400 |
| ₹12,75,000 | ₹0 | ₹1,87,200 | ₹1,40,400 | ₹1,17,000 | ₹80,600 |
| ₹15,00,000 | ₹97,500 | ₹2,57,400 | ₹2,10,600 | ₹1,87,200 | ₹1,32,600 |
| ₹18,00,000 | ₹1,50,800 | ₹3,51,000 | ₹3,04,200 | ₹2,80,800 | ₹2,26,200 |
| ₹20,00,000 | ₹1,92,400 | ₹4,13,400 | ₹3,66,600 | ₹3,43,200 | ₹2,88,600 |
| ₹25,00,000 | ₹3,19,800 | ₹5,69,400 | ₹5,22,600 | ₹4,99,200 | ₹4,44,600 |
| ₹30,00,000 | ₹4,75,800 | ₹7,25,400 | ₹6,78,600 | ₹6,55,200 | ₹6,00,600 |
Even with ₹4 lakh of deductions — more than most people actually have — the new regime is cheaper at every salary level in this table except ₹7 lakh, where both come to zero.
The break-even point
How much would you need to claim before the old regime wins? Roughly:
| Gross salary | Deductions needed for the old regime to win |
|---|---|
| ₹7,00,000 | ₹1.5 lakh (both are zero from there) |
| ₹10,00,000 | about ₹4.5 lakh |
| ₹12,75,000 | about ₹7.25 lakh (new regime tax is zero) |
| ₹15,00,000 | about ₹5.45 lakh |
| ₹18,00,000 | about ₹6.45 lakh |
| ₹20,00,000 | about ₹7.1 lakh |
| ₹25,00,000 and above | about ₹8 lakh |
To reach ₹5–8 lakh, you typically need all of: a large HRA exemption (high rent in a metro), ₹1.5 lakh of 80C, 80D, ₹50,000 of NPS under 80CCD(1B), and ₹2 lakh of home-loan interest. If that's you, run your exact numbers. If not, the new regime is almost certainly cheaper.
The ₹12.75 lakh cliff, and marginal relief
At ₹12,75,000 gross, taxable income is exactly ₹12,00,000 and tax is zero. Just above it, marginal relief stops your tax from exceeding the income above ₹12 lakh:
- ₹13,00,000 salary → taxable ₹12,25,000 → tax ₹26,000 (not ₹66,300)
- ₹13,25,000 salary → taxable ₹12,50,000 → tax ₹52,000
So a raise that takes someone just past ₹12.75 lakh never leaves them worse off overall — but their TDS changes, and payroll needs to handle that.
Worked example: a Bengaluru employee earning ₹18 lakh
Priya earns ₹18,00,000 a year, pays ₹30,000 a month rent in Bengaluru, and has:
- Employee PF of ₹36,000, ELSS of ₹50,000 and PPF of ₹64,000 → 80C: ₹1,50,000
- Health insurance for her parents and herself → 80D: ₹25,000
- No home loan, no NPS
Her HRA exemption depends on her HRA, basic and rent. Assume it works out to ₹2,16,000 a year. Total deductions beyond the standard deduction: ₹1,50,000 + ₹25,000 + ₹2,16,000 = ₹3,91,000.
- Old regime: ₹2,29,008 (taxable income ₹13,59,000)
- New regime: ₹1,50,800
The new regime saves Priya roughly ₹78,000, even with her rent and full 80C. She would need about ₹6.45 lakh of deductions — for example, adding a home loan — before the old regime came out ahead.
Which regime suits whom
The new regime usually wins if you:
- earn up to ₹12.75 lakh (tax is zero)
- live in your own house or pay modest rent
- don't have a home loan
- would otherwise buy tax-saving products only for the deduction
The old regime can win if you:
- pay high rent in a metro and get a large HRA exemption
- and pay significant home-loan interest
- and already max 80C, 80D and NPS for their own sake
A useful rule of thumb: if you have to think hard about what you could claim, you're in the new regime.
Decide in five minutes
If you don't want to work through the tables, answer these in order:
- Is your gross salary ₹12.75 lakh or less? Choose the new regime. Your tax is zero, and nothing in the old regime can beat zero.
- Do you pay a home loan on a house you live in? If not, the new regime almost certainly wins — without home-loan interest, very few people reach the break-even deductions.
- Do you pay high rent in a metro and already max out 80C, 80D and NPS? Add up your HRA exemption, 80C (₹1.5 lakh), 80D, NPS (₹50,000) and home-loan interest (up to ₹2 lakh). Compare the total with the break-even figure for your salary in the table above.
- Is the difference small? Choose the new regime anyway. It needs no proofs, no investment lock-ins and no year-end scramble for receipts.
Other income changes the answer
The tables assume salary is your only income. If you also have interest, rent from a let-out property, or capital gains, the calculation shifts:
- Interest income is taxed at your slab rate in both regimes, so it pushes you further up the slabs.
- Rental income from a let-out property allows a 30% standard deduction and interest on its home loan in both regimes, with set-off rules that differ.
- Capital gains are mostly taxed at special rates and don't change the regime choice much.
If your non-salary income is significant, treat these tables as a starting point and run your full numbers before filing.
For employers: getting TDS right
The regime question isn't only the employee's problem. Your payroll deducts TDS every month based on what each employee chose, and mistakes show up in March.
1. Collect the choice in April. Employees tell you which regime to use for TDS. If they don't choose, deduct under the new regime (the default).
2. Collect declarations — for the old regime only. Rent, 80C investments, 80D premiums, home-loan interest. Under the new regime, most of these don't matter.
3. Spread tax evenly, and correct as you go. Monthly TDS should be the year's projected tax, minus what's already been deducted, divided by the months left. That way a raise, a joining in mid-year, or a declaration change corrects itself over the remaining months instead of hitting one payslip.
4. Count PF under 80C for old-regime employees. The employee's own PF and VPF deducted in payroll are 80C investments. Many payrolls forget them, and over-deduct tax as a result.
5. Collect proofs in January–February. Declarations are estimates; proofs make them real. Adjust the last months' TDS for anything not proved.
6. Issue Form 16 by 15 June. It should match the TDS returns you filed.
Common mistakes
- Using an old-regime default for everyone
- Recomputing TDS as a flat 1/12 without accounting for tax already deducted
- Forgetting marginal relief just above ₹12 lakh taxable income
- Ignoring the employee's PF in 80C for old-regime employees
- Letting employees change regime mid-year without recalculating the rest of the year's TDS
How PeopleVio handles the regime choice and TDS
PeopleVio calculates TDS inside the monthly payroll run, once an admin turns TDS on:
- Employees pick their regime and submit declarations (rent, 80C, 80D, NPS, other deductions) in the app; admins approve them.
- Both regimes are built in, with the FY 2026-27 slabs, standard deductions, the 87A rebate with marginal relief, and the higher old-regime exemption for senior citizens.
- TDS is spread correctly: projected tax for the year, minus TDS already deducted, over the months remaining — so changes self-correct.
- Employee PF and VPF count towards 80C for old-regime employees, within the ₹1.5 lakh limit.
- Payslips show TDS alongside PF, VPF and ESI, and Form 16 is generated from the year's payroll.
What PeopleVio doesn't do
- It doesn't calculate surcharge (income above ₹50 lakh).
- It doesn't add income from a previous employer for mid-year joiners — you'd enter that adjustment separately.
- It doesn't file TDS returns (Form 24Q) or deposit TDS; your accountant does that from the payroll figures.
Frequently asked questions
Which is better for FY 2026-27, the old or the new tax regime? For most salaried people, the new regime — it's zero tax up to ₹12.75 lakh salary and cheaper at higher salaries unless you have roughly ₹5–8 lakh of deductions.
Is income up to ₹12 lakh tax-free in the new regime? Taxable income up to ₹12 lakh is effectively tax-free because of the 87A rebate. With the ₹75,000 standard deduction, that means salary up to ₹12.75 lakh.
Did Budget 2026 change the tax slabs? No. The slabs, standard deduction and rebate from Budget 2025 continue for FY 2026-27.
Can I switch between regimes every year? Salaried employees without business income can choose each year when filing their return.
Can I tell my employer one regime and file under the other? Yes. Your employer deducts TDS based on what you declare; your ITR decides your actual tax. Choosing the wrong regime for TDS just means a refund or a tax payment when you file.
Is HRA exemption available in the new regime? No. HRA exemption, 80C, 80D and home-loan interest on a self-occupied house are only available in the old regime.
Is employer NPS contribution allowed in the new regime? Yes, under 80CCD(2), up to 14% of salary in the new regime.
Does PF count under 80C? Yes, in the old regime. The employee's own PF and VPF contributions count towards the ₹1.5 lakh 80C limit.
The bottom line
For FY 2026-27, the new regime is the better choice for most salaried employees — zero tax up to ₹12.75 lakh, and lower tax above that unless your deductions run into several lakh. The old regime still makes sense for a specific group: high rent, a home loan and maxed-out investments, all together.
For employers, the regime choice turns into twelve months of TDS that must be right. If you're still calculating it in a spreadsheet, see PeopleVio's pricing or talk to us — TDS, regime choice, declarations, PF, ESI and Form 16 all run in the same payroll.
Related reading: Payroll software with TDS · Payroll software with Form 16 · How to file PF ECR online in 2026
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