As we enter the first full assessment cycle under the Income Tax Act 2025, the landscape of Indian taxation has shifted significantly. For Assessment Year (AY) 2026-27, the “New Tax Regime” is no longer just an alternative; it is the firm default.
Whether you are a salaried professional or a business owner, choosing between the two regimes requires more than just a cursory glance at the slabs. It requires a strategic calculation of your “Break-even Point.”
1. The Comparison Matrix: Tax Slabs for AY 2026-27
The most notable change for 2026 is the Basic Exemption Limit increase in the New Regime to ₹4,00,000, while the Old Regime remains stagnant with its age-based exemptions.
| Net Taxable Income (₹) | New Regime (Default) | Old Regime (Opt-out) |
|---|---|---|
| Up to 2,50,000 | Nil | Nil |
| 2,50,001 to 4,00,000 | Nil | 5% |
| 4,00,001 to 5,00,000 | 5% | 5% |
| 5,00,001 to 8,00,000 | 5% | 20% |
| 8,00,001 to 10,00,000 | 10% | 20% |
| 10,00,001 to 12,00,000 | 10% | 30% |
| 12,00,001 to 16,00,000 | 15% | 30% |
| 16,00,001 to 20,00,000 | 20% | 30% |
| 20,00,001 to 24,00,000 | 25% | 30% |
| Above 24,00,000 | 30% | 30% |
2. Why ₹12.75 Lakh is the Magic Number for 2026
Under the New Tax Regime, the Section 87A Rebate has been aggressively enhanced.
- For Residents: If your total income does not exceed ₹12,00,000, your tax liability is zero.
- For Salaried Employees: After adding the Standard Deduction of ₹75,000, individuals earning up to ₹12.75 Lakh pay Zero Tax.
3. Key Differences at a Glance
| Feature | New Tax Regime (AY 26-27) | Old Tax Regime (AY 26-27) |
|---|---|---|
| Standard Deduction | ₹75,000 | ₹50,000 |
| 80C (PPF/LIC/ELSS) | Not Allowed | Allowed up to ₹1.5 Lakh |
| HRA/LTA | Not Allowed | Allowed |
| Home Loan Interest (SOP) | Not Allowed | Allowed up to ₹2 Lakh |
| Surcharge (Max Rate) | 25% | 37% |
4. The Decision Logic: Which One to Choose?
Choose the NEW Regime if:
- You do not have significant investments in 80C or 80D.
- You live in your own house (no HRA) or have a fully repaid home loan.
- You prefer higher “take-home” pay rather than forced savings.
- Your total income is below ₹12.75 Lakh (Salaried).
Choose the OLD Regime if:
- You are paying high rent in a metro city (HRA benefit).
- You have a large Home Loan Interest (u/s 24b).
- Your total deductions (80C, 80D, HRA, Interest) exceed ₹3.75 Lakh to ₹4.25 Lakh (depending on your income bracket).
5. Frequently Asked Questions (FAQs)
Q1: What happens if I forget to choose a regime during filing?
By default, the Income Tax Portal will process your return under the New Tax Regime. To use the Old Regime, you must actively “Opt-out” before the deadline.
By default, the Income Tax Portal will process your return under the New Tax Regime. To use the Old Regime, you must actively “Opt-out” before the deadline.
Q2: Is the Standard Deduction different for both regimes?
Yes. For AY 2026-27, the New Regime offers a higher Standard Deduction of ₹75,000, while the Old Regime stays at ₹50,000.
Yes. For AY 2026-27, the New Regime offers a higher Standard Deduction of ₹75,000, while the Old Regime stays at ₹50,000.
Q3: Can I switch from New to Old every year?
If you are a Salaried Individual, yes. If you have Business or Professional Income, you can only switch back to the Old Regime once in a lifetime.
If you are a Salaried Individual, yes. If you have Business or Professional Income, you can only switch back to the Old Regime once in a lifetime.
Q4: Does the New Regime offer Marginal Relief?
Yes. If your income slightly exceeds ₹12 Lakh, you receive Marginal Relief to ensure that the tax you pay is not more than the income earned above the threshold.
Yes. If your income slightly exceeds ₹12 Lakh, you receive Marginal Relief to ensure that the tax you pay is not more than the income earned above the threshold.
Q5: Which form is required for Business owners to opt-out?
You must file Form 10-IEA before the due date of the return to claim the benefits of the Old Tax Regime.
You must file Form 10-IEA before the due date of the return to claim the benefits of the Old Tax Regime.
Expert Note: The “Best” regime is highly subjective. As a Chartered Accountancy firm, we recommend a “Simulation Analysis” of your previous year’s data before making the switch. For a personalized tax-saving roadmap, contact our office.
CA. Pankaj Agrrawal
7999028234
