Old vs New Tax Regime: Which is Better for FY 2026-27?

The new tax regime was introduced on 1st April 2020. However, in April 2023, it became the default tax option for taxpayers. For many households, the old vs new tax regime question is still worth checking.

The July 2024 Budget initiated and applied major revisions, including raising the standard deduction and revising tax slabs. Later updates made the rebate more generous for FY 2026 – 27 planning.
Before filing your returns for the current tax year, it is necessary to understand the difference between the old vs new tax regimes.

The new tax regime slabs are easier to read because rates rise in broader income bands. That helps taxpayers estimate tax quickly before checking deductions and exemptions.

Every new regime tax slab should be read before cess and surcharge.

The Latest Revised Tax Slabs under New Tax Regime applicable for TY 2026-27 are as follows:

For Tax Year 2026-27, the slab pattern continues with no change in rates

Standard Deduction Update: Increased to ₹75,000

Salaried taxpayers and pensioners get a higher standard deduction under the default regime i.e. the new regime. The standard deduction is up to ₹75,000, or salary income, whichever is lower. Under the old regime, it remains ₹50,000. This matter because a ₹12.75 lakhs salary can become ₹12 lakhs taxable income after standard deduction. The income tax new regime then gives a smoother result for many salaried people, especially those without large claims.

Tax Rebate under Section 87A now Sec 156 under Income Tax Act, 2025: Nil tax up to ₹12 Lakhs income

The old ₹7 lakhs line is now outdated for current tax planning. Under the new regime, resident individuals can get a rebate up to ₹60,000 when taxable income does not exceed ₹12 lakhs. For a salaried person, the ₹75,000 standard deduction means gross salary can go up to ₹12.75 lakhs in simple salary cases. These new tax regime tax slabs look generous, but special-rate income may need separate checking.

The old regime keeps familiar slabs, but its real strength is not rates. Its value comes from deductions, rent benefits, home-loan interest, and planned savings.

Old Regime Tax Rates for Individuals

As per the Union Budget 2026, no changes have been made for individual taxpayers under the Old Regime. The Basis Exemption limit under old regime is Rs. 2,50,000 i.e. no tax for an individual up to the income of Rs 2,50,000. Further the employed individual can also avail standard deduction of Rs. 50,000 under old regime.

Below are the income tax slab rates for FY 2026-27 (AY 2027-28) as per the old regime for Individuals aged up to 60 years:

Further the Basic Exemption Limit for Senior Citizen those aged between 60 to 80 years is Rs 3 Lakhs, whereas for Super Senior Citizen those aged above 80 years is Rs 5 Lakhs.

Why the Old Regime is preferred by "Savers"

The old regime suits people who already save, insure, pay rent, or repay a home loan. Section 80C of the Income-tax Act, 1961 allows eligible investments and life insurance premiums within the overall ₹1.5 lakh basket. Under the Income-tax Act, 2025, this is referenced through Section 123 read with Schedule XV. That updated reference matters from April 2026, especially for employer declarations and payroll checks.

A clean old vs new tax regime comparison starts here. Do not only compare slab rates. Check what you are giving up, then check what you actually claim.

Under the new Income Tax Act 2025, many of the old sections have been renumbered or consolidated. It is better to check before filing any returns.

Deductions under New Tax Regime

A deduction under the new tax regime is limited, but not absent. Salary standard deduction is available. Family pension deduction is also higher under the new regime, at one-third of family pension, capped at ₹25,000. Employer NPS contribution can also be considered under specified rules. Most exemptions in the new tax regime are not available, including HRA and many Chapter VI-A claims. That is the trade-off. Fewer claims, lower rates, simpler paperwork.

Deductions under Old Tax Regime

The old regime allows a wider set of claims. The standard deduction in the old tax regime stays at ₹50,000. Section 80C, now Section 123 with Schedule XV under the 2025 Act, can cover eligible life insurance premiums and other specified payments. Section 80D, now Section 126 in the new Act, covers health insurance premiums subject to limits. HRA and self-occupied home-loan interest can also matter for many salaried families.

The old vs new tax regime decision becomes clearer when you run numbers. A lower rate may beat deductions. But very high deductions can still change the answer.

At what investment level does the Old Regime become better?

There is no single break-even number for everyone. At lower incomes, the new regime rebate can make tax nil. That is hard for the old regime to beat. At higher incomes, the old regime starts competing only when deductions and exemptions become large. Around ₹15 lakh salary, the old regime may need roughly ₹5 lakh plus in total claims beyond standard deduction. Around ₹20 lakh, it may need about ₹7 lakh plus. Run your own numbers before deciding.

Case Study 1: Salaried Professional with ₹10 Lakh Income

Take a salaried person with ₹10 lakh gross income. Under the new regime, ₹75,000 standard deduction brings taxable income to ₹9.25 lakh. The Section 156 rebate can reduce tax to nil, assuming no special-rate income issue. Under the old regime, even ₹1.5 lakh under Section 123 and ₹25,000 under health insurance may not bring tax to nil. Add HRA or home-loan interest, and it may improve. Still, the new regime looks stronger here.

Case Study 2: High-Income Earner with ₹20 Lakh Income

At ₹20 lakh salary, the new regime tax is no longer nil. After the ₹75,000 standard deduction, taxable income becomes ₹19.25 lakh. Tax before cess is about ₹1.85 lakh. In the old regime, after ₹50,000 standard deduction, the taxpayer may need around ₹7 lakh plus in combined deductions and exemptions to come close. That could happen for some people with HRA, home-loan interest, Section 123, Section 124 & Section 126 deductions.

The old vs new tax regime choice should not turn insurance into only a tax decision. Tax benefit is useful. Protection is the main job.

Role of Life Insurance in the Old Tax Regime

Life insurance premiums can support tax planning under the old regime when they qualify within the Section 123 basket. From Tax Year 2026-27, readers may also see the updated Section 123 and Schedule XV reference under the Income-tax Act, 2025. For SBI Life customers, the better way to look at it is simple. Buy life cover for family protection first. Treat tax benefit as a helpful extra, subject to policy terms and tax rules.

Why Life Insurance is essential even if you choose the New Tax Regime

Choosing the new regime may reduce the need for tax-saving investments. It does not reduce the need for financial protection. A family still needs income replacement if the earning member is not around. Children’s education, loans, rent, household costs and long-term goals do not disappear because tax rules changed. SBI Life plans can help families think beyond deductions and build a protection cushion. That cushion matters in both regimes.

Taking the right regime is not only a calculation. You also need to declare it properly, especially when your employer deducts TDS from salary.

For Salaried Employees: How to declare to your employer.

Salaried employees should tell their employer which regime they prefer for TDS. If they do not intimate the employer, TDS is usually computed under the default new regime. Employer intimation is mainly for payroll tax deduction. It is not the final ITR option by itself. From April 2026, form 124 replaces old Form 12BB for claim particulars under the Income-tax Rules, 2026. Keep proof ready, especially for HRA, interest, investment and insurance claims.

For Business Owners: The one-time switch rule.

Taxpayers with business or professional income have stricter switching rules. If they want to opt out of the default new regime, they generally need to file specified form within the due date. Once they later move back to the new regime, the return to the old regime is restricted. That is why business owners should be more careful. A casual switch can create trouble later. Salary-only taxpayers usually have more flexibility every year.

The old vs new tax regime answer is personal. The new regime is simpler and often better for taxpayers who do not claim many deductions. It can be especially useful for salaried taxpayers near the rebate zone. The old regime can still work well for disciplined savers, people paying rent, home-loan borrowers, and families using insurance and health cover as part of planning. Do the maths once. Not roughly, properly. Add HRA, Section 123, Section 126, home-loan interest and NPS deductions. Then compare tax under both regimes. Choose the lower tax route, but do not let tax alone decide your protection needs.

Our content given in this article is as per the existing provisions, laws and regulations as per the Income Tax Act, 2025 and Income Tax Rules, 2026 issued thereunder. Tax laws are subject to amendments made thereto from time to time. The benefits / guidance mentioned herewith should not be considered as opinion / view of the Company. We request to seek independent view from your personal tax advisor on applicable tax benefits / guidance under the said article.