Difference Between Old and New Tax Regime

For Tax Year 2026-27, taxpayers can choose between the new tax regime and the old tax regime. The new tax regime is the default option and offers revised tax slabs with comparatively fewer deductions and exemptions, while the old tax regime allows taxpayers to claim several deductions and exemptions that are not generally available under the new regime.

The better option depends on your income, eligible deductions and exemptions, investments, and housing-related tax benefits. For instance, under the old tax regime, eligible taxpayers can claim deductions such as those under Section 123 and, subject to applicable conditions, interest on a Home Loan for a self-occupied property under Section 22. This guide compares the old vs. new tax regime, including tax slabs, deductions, exemptions, and key considerations to help you assess which regime may be more suitable for you.

What is the New Tax Regime?

The new tax regime is the default income tax regime for eligible taxpayers in India under Section 202 of the Income Tax Act, 2025. It provides a different set of tax slabs and rates compared with the old tax regime. One of the key benefits of this regime is that it offers lower tax rates across several income slabs. 

What is the Old Tax Regime?

The old tax regime is the income tax system that existed before the introduction of the new tax regime. Under this regime, eligible taxpayers can claim deductions and exemptions relating to investments, insurance, House Rent Allowance (HRA), and certain Home Loan-related benefits, subject to applicable conditions. 

Comparison of Different Slabs: Old Tax Regime vs. New Tax Regime

Under the revised tax structure, individuals earning between Rs.5 Lakh and Rs.10 Lakh annually are taxed more gradually rather than at a flat higher rate. For instance, income between Rs. 4 lakh and Rs.8 Lakh is taxed at 5%, while income from Rs.8 Lakh to Rs.10 Lakh attracts a 10% tax rate. This results in a lower effective tax burden compared to the old regime, where income above Rs.5 Lakh was taxed at 20%.

Here is a tabulated comparison of the old and new tax slabs for persons below 60 years old:

Tax Calculation Under the New Tax Regime

Income tax is charged in incremental slabs. So, a person earning Rs.10 Lakh p.a. will not be charged a flat 15% rate on their income. Instead, their income up to Rs.4 Lakh will attract zero tax; while the income between Rs.4 Lakh to Rs.8 Lakh will be levied 5% (5% of Rs.4 Lakh = Rs.20,000). The next slab between Rs.8 Lakh to Rs.10 Lakh will incur 10% tax (Rs.20,000), bringing your total tax outgo to Rs.40,000. The taxpayer can enjoy the benefit of an increased rebate under Section 153, taking the tax on income of Rs.10 Lakh to zero.

Exemptions and Deductions in the New Tax Regime

Some key deductions available under the new regime include:

●    Standard deduction: Rs.75,000 or salary, whichever is lower, under Section 19(1).
●    Employer contribution to NPS/eligible pension scheme: Up to 14% of salary under the new regime, under Sections 124(1) and 124(2).
●    Family pension deduction: One-third of family pension or Rs.25,000, whichever is lower, under Section 93. 
●    Central Government contribution to the Agniveer Corpus Fund: The entire Government contribution is deductible under Section 125(2). (Note that the individual's own contribution under Section 125(1) is not one of the Chapter VIII deductions preserved by Section 202.) 
●    Interest on borrowed capital for a let-out property: Section 22 permits interest on borrowed capital when computing income from house property. The new regime specifically restricts this deduction for self-occupied properties, not let-out properties. 
●    30% deduction from annual value of house property: This continues under Section 22 when computing taxable income from house property.

Exemptions and Deductions in the Old Tax Regime

The exemptions listed below are not allowed in the new tax regime: 

• Leave Travel Allowance 
• House Rent Allowance 
• Standard deduction of Rs.50,000 for all salaried individuals 
• Relaxation on entertainment allowance and professional tax for government employees 
• Concessions available under Section 153 on interest from savings account deposits
• Tax saving investment deductions under Chapter VIII: Sections 123, 124, 126, 127, 128, 129, 130, 131, 132, 133, 134, 135, 137, 138, 140, 141, 142, etc.
• Rs.15,000 deduction from the family pension under Section 93(1)(d)(ii)
• Tax rebate on the interest amount for Home Loans in the case of both self-occupied and vacant properties under Section 22

This excludes deduction under Section 124(1) for employers’ contribution to the National Pension System (NPS), Section 146 for new employment and more. It must also be noted that if the employee’s contribution to EPF and NPS exceeds Rs.12.75 Lakh in a Tax Year, s/he is liable to pay tax.

Important Exemptions Retained in the New Tax Regime

Following are some of the exemptions one can still enjoy under the new tax structure: 

• Standard concession on rent 
• Income from Life Insurance 
• Funds received as scholarship for education  
• Income from agriculture 
• Voluntary Retirement Scheme proceeds up to Rs.5 Lakh 
• Retrenchment compensation 
• Leave encashment on retirement 
• Death cum retirement benefit, etc.  

Impact of Old vs. New Tax Regime Slabs: Calculation Examples

Both the old and new tax regime slabs can impact your taxes in disparate ways: 

For an annual salary of up to Rs.7.5 Lakh (without exemption) 

Annual income of Rs.7.5 Lakh (inclusive of exemptions)

Old Tax Regime or New Tax Regime: Which Is More Beneficial?

There is no single tax regime that is more beneficial for every taxpayer. The suitable option depends on factors such as income, eligible deductions and exemptions, investments, and Home Loan-related tax benefits. Taxpayers should calculate their tax liability under both regimes before making a choice. 

When the New Tax Regime May Be More Suitable

The new tax regime under Section 202 of the Income Tax Act, 2025 offers concessional tax rates and wider income slabs while allowing only specified deductions and exemptions. For Tax Year 2026-27, income up to Rs.4 Lakh falls within the nil-rate slab, followed by progressively higher rates across subsequent slabs. 
It may be suitable for taxpayers who do not claim substantial deductions or exemptions and prefer to compute their tax liability without relying extensively on tax-saving investments or eligible expenses.

When the Old Tax Regime May Be More Suitable

The old tax regime allows taxpayers to claim a wider range of deductions and exemptions, which can reduce taxable income. These include eligible deductions for specified investments and payments under Section 123, up to an overall limit of Rs.1.5 Lakh. 
For Home Loan borrowers, the old regime also provides certain housing-related tax benefits. For a self-occupied property, interest on borrowed capital can be deducted up to Rs.2 Lakh under Section 22, where the property is acquired or constructed with borrowed capital, and construction is completed within five years from the end of the tax year in which the capital was borrowed. The taxpayer must also obtain an interest certificate from the person to whom the interest is payable. In other cases covered by the provision, the limit is Rs.30,000. 

Summing Up

The new tax system attempts to simplify the taxation process extending more flexibility. On the other hand, those who claim a higher volume of exemptions may prefer continuing with the old tax structure. Choosing the right tax regime is primarily based on your income tax slab. 

Does the old regime suit you or should you file your taxes under the new one? This question can be answered best if you run your taxation specifics through an Income Tax Calculator to evaluate the payable taxes under both regimes. Since this is a fairly new system, it may be advisable to consult a tax expert who can help maximise tax savings in line with your financial goals.