Income Tax Slabs FY 2026-27: New Regime vs Old Regime Explained

From FY 2023-24 onwards, the new tax regime became the default for individual taxpayers. Budget 2025 revised the new regime slabs significantly, making it more attractive for most salaried taxpayers. This article explains both regimes for Financial Year 2026-27 (Assessment Year 2027-28).

New Tax Regime: Slabs for FY 2026-27 (Budget 2025)

Budget 2025 restructured the new regime slabs. These are the rates effective from FY 2026-27:

Standard deduction for salaried individuals: ₹75,000

Section 87A rebate: Up to ₹60,000 for individuals with taxable income up to ₹12,00,000 — making effective tax zero for this income band.

The ₹12 Lakh Zero-Tax Benefit

With the ₹75,000 standard deduction, a salaried employee with gross salary up to ₹12,75,000 has taxable income of ₹12 lakh. The Section 87A rebate of ₹60,000 offsets the tax computed on this ₹12 lakh, resulting in zero net tax payable.

Practical takeaway: Salaried individuals with gross income up to ₹12,75,000 pay no income tax under the new regime.

Note: The ₹12L rebate applies only to regular income at slab rates. Special-rate income (e.g., short-term capital gains on equity taxed at a flat rate) is excluded from the rebate calculation and taxed separately.

Old Tax Regime: Slabs for FY 2026-27

The old regime slabs remain unchanged:

• Standard deduction: ₹50,000 for salaried individuals
• Section 87A rebate: Up to ₹12,500 for individuals with income up to ₹5,00,000 — making income up to ₹5 lakh effectively zero-tax
• Full range of deductions available: 80C, 80D, HRA, home loan interest, NPS, LTA, and more

Deductions Available Only in the Old Regime

The old regime allows deductions that are not available in the new regime:

• Section 80C: Up to ₹1,50,000 — EPF, PPF, ELSS, life insurance premiums, home loan principal, NSC, children's tuition fees
• Section 80D: Health insurance premiums — up to ₹25,000 for self/family; ₹50,000 for senior citizen parents
• HRA exemption: For rent-paying salaried employees (formula-based, varies by city)
• Section 80CCD(1B): Additional ₹50,000 for NPS Tier I contributions
• Section 24(b): Home loan interest deduction up to ₹2,00,000 for self-occupied property
• Leave Travel Allowance (LTA)
• Professional tax paid

The new regime does not allow most of these deductions. A few exceptions remain under the new regime: employer NPS contribution under 80CCD(2), standard deduction of ₹75,000, and gratuity/leave encashment exemptions.

Surcharge

For incomes above certain thresholds, surcharge is added to the base tax:

The new regime caps surcharge at 25% for all income levels, making it more attractive for very high earners.

Health and Education Cess

4% cess is applied on the total tax + surcharge under both regimes. This applies to every taxpayer and is not deductible.

New Regime vs Old Regime: How to Choose

The choice depends on how much you can claim in deductions under the old regime.

New regime is typically better if:

• You have few deductions — no home loan on a self-occupied property, not maximising 80C
• Your gross income is ≤ ₹12.75 lakh (zero tax)
• You prefer simplicity and do not want to structure investments around tax saving

Old regime may be better if:

• You have a home loan and claim Section 24(b) interest deduction of ₹2 lakh
• You maximise 80C (₹1.5 lakh), 80D (₹25,000–₹50,000), and NPS (₹50,000 extra via 80CCD(1B))
• You claim HRA exemption on significant rent paid
• Your total deductions comfortably exceed ₹4–₹5 lakh

The cleanest approach: calculate your actual tax under both regimes using your exact income and deduction figures. Use the Income Tax Calculator to run both scenarios — the difference can be substantial in either direction.

Switching Between Regimes

• Salaried individuals: Can switch between regimes every year at the time of filing the return. Declare your regime to your employer at the start of the year for TDS purposes.
• Business owners or those with business income: Can switch from old to new regime once; switching back is generally not permitted.

Key Numbers at a Glance

• ₹75,000: Standard deduction under new regime
• ₹50,000: Standard deduction under old regime
• ₹12,00,000: Taxable income limit for zero tax under new regime (87A rebate)
• ₹60,000: Maximum Section 87A rebate under new regime
• ₹12,500: Maximum Section 87A rebate under old regime
• ₹5,00,000: Income limit for 87A rebate under old regime
• 4%: Health and education cess (all taxpayers)
• ₹1,50,000: Maximum Section 80C deduction (old regime only)

Always calculate both regimes before making your regime declaration to your employer at the start of each financial year.