Old vs New Tax Regime: Slab Comparisons, Allowed Deductions & Calculations

This Old vs New Tax Regime Guide is designed to help you choose the best filing method. Starting in FY 2023-24, the government made the New Tax Regime the default, and in subsequent budgets (including FY 2026-27), further sweetened its slabs, standard deductions, and rebates to encourage transition. You can compare your specific package side-by-side using our Old vs New Tax Regime Calculator.

This guide provides a comprehensive comparison, featuring new regime slabs Budget 2025 data, a complete deduction comparison checklist, and a breakeven analysis for FY 2026-27. Additionally, understanding how HR calculates salary and processes TDS under both regimes is crucial for planning your annual declarations.

1. Side-by-Side Slabs Comparison (FY 2026-27)

The two regimes have completely different slab structures. The New Regime features narrower, progressive slabs with lower tax rates, while the Old Regime has wider slabs with steeper rate jumps.

Note: Surcharges are applicable under both regimes for high-income earners (exceeding ₹50 Lakhs), and a mandatory 4% Health and Education Cess is added to the final calculated tax.

2. Deductions Directory: What is Allowed Where?

The primary trade-off of the New Tax Regime is that it removes almost all deductions and exemptions in exchange for lower tax rates. When you file your ITR, your employer-issued Form 16 acts as the master record detailing which deductions have been applied. For a step-by-step guide to verifying your certificate, read our dedicated Form 16 Guide.

3. Section 87A Tax Rebate: The Game Changer

The Section 87A rebate makes taxable income zero up to a certain threshold.

• New Tax Regime: If your taxable income (Gross Salary minus standard deduction) is ₹12,00,000 or less, your tax is fully rebated under Section 87A. With the ₹75,000 standard deduction, a salaried employee earning a gross salary of ₹12,75,000 pays ₹0 income tax.
• Old Tax Regime: The Section 87A rebate is capped at a taxable income of ₹5,00,000. If your taxable income is even ₹5,00,100, you pay tax on the entire amount without rebate.

4. The Breakeven Deduction Analysis

To determine which regime is better for your salary bracket, calculate your Breakeven Deduction. This represents the minimum deductions you must declare under the Old Tax Regime to make it cheaper than the New Regime.

If your total deductions (80C + 80D + HRA + Home Loan + NPS) exceed the breakeven threshold, choose the Old Regime. Otherwise, choose the New Regime.

Tip
Under modern payroll structures, achieving more than ₹4.5 Lakhs in deductions requires high expenditures, such as substantial HRA (high rent) and significant home loan interest payments. For the majority of salaried employees who do not have home loans or high HRA exemptions, the New Tax Regime is the clear winner due to its lower baseline tax slabs and hassle-free, zero-proof filing.

Frequently Asked Questions (FAQ)