Every salaried Indian employee and self-employed professional faces the same annual question: which tax regime — old or new — will save me more money? And for many people, the answer isn't obvious because it depends heavily on your specific income level and how much you invest in tax-saving instruments. This guide provides a complete, plain-English breakdown of India's income tax system for FY 2026-27, with the actual slabs, a comparison of both regimes, and examples you can replicate for your own calculation.
The New Tax Regime (Default from FY 2023-24 onwards)
The New Tax Regime was introduced in Budget 2020 and made the default regime from FY 2023-24. It offers lower tax rates but eliminates most deductions and exemptions. As per Union Budget 2025, the new regime slabs for FY 2026-27 are:
| Income Slab | Tax Rate (New Regime) |
|---|---|
| Up to ₹3,00,000 | Nil |
| ₹3,00,001 – ₹7,00,000 | 5% |
| ₹7,00,001 – ₹10,00,000 | 10% |
| ₹10,00,001 – ₹12,00,000 | 15% |
| ₹12,00,001 – ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
Key benefits in the New Regime:
- Standard deduction of ₹75,000 for salaried individuals (from FY 2024-25)
- Tax rebate under Section 87A: If net taxable income ≤ ₹7,00,000, total tax liability is NIL (rebate up to ₹25,000)
- No requirement to invest in tax-saving instruments to save tax
The Old Tax Regime
The Old Tax Regime offers higher tax rates but allows a wide array of deductions that can significantly reduce your taxable income:
| Income Slab | Tax Rate (Old Regime) |
|---|---|
| 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% |
Key deductions available in Old Regime:
- Standard Deduction: ₹50,000 for all salaried employees
- Section 80C: Up to ₹1,50,000 for EPF, PPF, ELSS, life insurance premiums, home loan principal, etc.
- Section 80D: Up to ₹25,000 for health insurance premiums (₹50,000 for senior citizens)
- Section 24(b): Up to ₹2,00,000 on home loan interest (self-occupied)
- HRA Exemption: House Rent Allowance, if applicable
- Section 80CCD(1B): Additional ₹50,000 for NPS contributions
New vs Old Regime: Which Saves More?
The answer depends on how much you can claim in deductions. The rule of thumb: if your total deductions exceed ~₹3.75 lakh, the old regime is likely better; otherwise, the new regime wins. Let's verify with an example:
Example: Annual CTC = ₹12 lakh
| Item | New Regime | Old Regime |
|---|---|---|
| Gross Salary | ₹12,00,000 | ₹12,00,000 |
| Less: Standard Deduction | −₹75,000 | −₹50,000 |
| Less: Section 80C | N/A | −₹1,50,000 |
| Less: Section 80D | N/A | −₹25,000 |
| Less: HRA Exemption | N/A | −₹60,000 |
| Net Taxable Income | ₹11,25,000 | ₹9,15,000 |
| Tax Before Cess | ₹93,750 | ₹1,13,000 |
| Tax + 4% Cess | ₹97,500 | ₹1,17,520 |
In this example with moderate deductions (~₹2.35 lakh), the New Regime saves ₹20,020. But if the taxpayer also had a home loan with ₹2 lakh interest deduction, the Old Regime would become competitive or better.
4 Steps to Calculate Your Income Tax in India
- Determine your Gross Total Income: Add all income sources — salary, freelance income, rental income, capital gains, interest income.
- Apply deductions: Under old regime, subtract standard deduction, 80C, 80D, HRA, etc. Under new regime, subtract only standard deduction (₹75K).
- Calculate tax on Net Taxable Income: Apply the applicable slab rates.
- Add Health & Education Cess: 4% on total tax liability.
Skip all this manual calculation with our Income Tax Calculator — it computes your tax liability under both regimes simultaneously so you can instantly see which is better.
Can I switch between Old and New tax regime every year?
Salaried individuals with only salary income (no business income) can switch between the old and new regimes every year. However, individuals with business or professional income can switch from old to new only once and cannot switch back. The choice must be made before filing your ITR for the financial year.
What is surcharge and when does it apply?
A surcharge is an additional tax levied on individuals with high income. It applies as follows (for both regimes): 10% surcharge if total income exceeds ₹50 lakh; 15% if income exceeds ₹1 crore; 25% if income exceeds ₹2 crore; 37% if income exceeds ₹5 crore (under old regime only; capped at 25% under new regime). The cess of 4% is applied on (tax + surcharge).
Disclaimer: Written by Hemant Parashar, B.Sc. graduate and founder of Pocket Calculator. Tax laws are subject to change; always verify with the latest Finance Act or consult a qualified CA for personalised tax advice. Use our Income Tax Calculator for estimates.