Short answer: For tax year 2026-27, most salaried employees pay the least tax under the default new regime, which gives a ₹75,000 standard deduction and a rebate that makes income up to ₹12 lakh tax-free. The old regime, with deductions such as Section 123 (formerly 80C), health insurance and home loan interest, wins only if your total deductions are large, roughly ₹5.4 lakh or more on a ₹15 lakh salary. Run both calculations every year before you tell your employer which regime you want.
Last updated: 13 October 2026.
What changed since this guide was first written in 2023
The original version of this article listed Section 80C items and assumed most people would use the old regime. Almost every part of that has moved on:
- New law: The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. The “previous year” and “assessment year” labels are gone; income earned from April 2026 to March 2027 is simply tax year 2026-27.
- New section numbers: The old 80C basket is now Section 123 (still capped at ₹1,50,000), the new-regime slabs sit in Section 202, and the rebate (old 87A) is in Section 156.
- New regime is the default: If you do nothing, your employer deducts TDS under the new regime. You must opt out to use the old one.
- Much bigger rebate: In the new regime, resident individuals with taxable income up to ₹12,00,000 get a rebate of up to ₹60,000, so they pay no income tax.
- Higher standard deduction: Salaried taxpayers get ₹75,000 in the new regime, against ₹50,000 in the old regime.
Returns for income earned up to 31 March 2026 are still filed under the old Act, so you may see both sets of section numbers for a while. Our income tax hub for salaried borrowers tracks these transition points.
Tax slabs for tax year 2026-27
| Taxable income | New regime (default) | Old regime (below 60 years) |
|---|---|---|
| Up to ₹2,50,000 | Nil | Nil |
| ₹2,50,001 – ₹4,00,000 | Nil | 5% |
| ₹4,00,001 – ₹5,00,000 | 5% | 5% |
| ₹5,00,001 – ₹8,00,000 | 5% | 20% |
| ₹8,00,001 – ₹10,00,000 | 10% | 20% |
| ₹10,00,001 – ₹12,00,000 | 10% | 30% |
| ₹12,00,001 – ₹16,00,000 | 15% | 30% |
| ₹16,00,001 – ₹20,00,000 | 20% | 30% |
| ₹20,00,001 – ₹24,00,000 | 25% | 30% |
| Above ₹24,00,000 | 30% | 30% |
A 4% health and education cess is added to the tax in both regimes. In the old regime, the rebate is smaller: up to ₹12,500 when taxable income does not exceed ₹5,00,000. The official slab text is in Section 202 of the Income-tax Act, 2025 and the rebate rules are in Section 156.
Worked example: which regime saves more?
Take Priya (an illustrative example), who earns a gross salary of ₹15,00,000 in tax year 2026-27.
Under the new regime
- Taxable income: ₹15,00,000 − ₹75,000 standard deduction = ₹14,25,000
- Tax: ₹0 on the first ₹4 lakh + ₹20,000 (5% of ₹4 lakh) + ₹40,000 (10% of ₹4 lakh) + ₹33,750 (15% of ₹2.25 lakh) = ₹93,750
- Add 4% cess: ₹97,500
Under the old regime
Priya claims ₹50,000 standard deduction, ₹1,50,000 under Section 123 (EPF plus PPF), ₹25,000 for her own health insurance and ₹2,00,000 interest on a home loan for the flat she lives in. Total deductions: ₹4,25,000.
- Taxable income: ₹15,00,000 − ₹4,25,000 = ₹10,75,000
- Tax: ₹12,500 + ₹1,00,000 + ₹22,500 (30% of ₹75,000) = ₹1,35,000
- Add 4% cess: ₹1,40,400
Even with a home loan, the new regime saves her about ₹42,900. On these numbers, the old regime only breaks even when deductions (on top of the ₹50,000 standard deduction) reach roughly ₹5.4 lakh. Very few employees get there without a large HRA claim plus a home loan.
Now take Arjun, who earns ₹12,00,000. Under the new regime his taxable income is ₹11,25,000, which is below ₹12 lakh, so the Section 156 rebate wipes out his tax completely. He has no reason to lock money into tax-saving products purely for tax.
Ways to save tax under the new regime
The new regime removes most deductions, but a few levers still work:
- Employer’s NPS contribution: If your employer contributes to your NPS account, that contribution stays deductible in the new regime, up to 14% of basic pay plus DA. Ask HR whether you can restructure part of your CTC this way. It is retirement money, so it is locked in.
- Standard deduction: ₹75,000 is automatic for salary and pension income.
- Stay below the rebate line where you can: If your taxable salary is a little above ₹12 lakh, marginal relief means the extra tax cannot exceed the income above ₹12 lakh. Check your payslip projection with HR rather than guessing.
- Tax-free receipts: Some receipts such as maturity of a PPF account or eligible life insurance proceeds remain exempt under conditions; these are not deductions but reduce what is taxable.
Ways to save tax under the old regime
If your deductions are genuinely large, the old regime can still win. The main items are:
| Deduction | What qualifies | Limit |
|---|---|---|
| Section 123 (formerly 80C) | EPF, PPF, ELSS, life insurance premium, NSC, Sukanya Samriddhi, tax-saver FD, home loan principal, children’s tuition fees | ₹1,50,000 combined |
| Health insurance (formerly 80D) | Premium for self, spouse, children and parents; preventive check-up | ₹25,000 for self/family; more for senior citizen parents |
| Home loan interest (self-occupied) | Interest on a loan to buy or build your home | ₹2,00,000 |
| NPS own contribution | Extra contribution beyond the ₹1.5 lakh basket | Additional ₹50,000 (confirm under the new Act) |
| Education loan interest | Interest on a loan for higher studies of self, spouse or children | No cap; up to 8 years |
| HRA exemption | Rent paid by employees who receive HRA | Formula-based |
Read the official wording of Section 123 before investing, because each item has its own conditions (lock-in periods, who the policy must cover, and so on). Our deeper guides explain the individual options: ELSS mutual funds, National Savings Certificates, life insurance premiums and home loan interest.
A simple yearly checklist for employees
- April: Estimate your total salary for the year and run both regimes. Tell your employer your choice so TDS is right from the first payslip.
- Collect proofs early: If you choose the old regime, keep rent receipts, premium receipts, home loan interest certificates and investment statements ready for the January–February proof window.
- Check your EPF: Your own 12% EPF contribution already counts toward Section 123. Many people overinvest because they forget this. Track it on the EPFO hub.
- Do not buy products just for tax: An insurance-cum-investment policy with a 15-year commitment is expensive if all you needed was a ₹10,000 tax saving. Buy cover you need; see term insurance explained.
- File your return: At filing time you can generally still choose a regime if you have no business income. Make sure your bank details are correct so refunds land; here is how to update bank details in an ITR.
Tax planning and borrowing
Two common mistakes connect tax and loans. First, people take a home loan mainly for the interest deduction, then switch to the new regime where that deduction (on a self-occupied home) is not available. Buy a house because it suits you; treat any tax benefit as a bonus. Second, people break tax-saving investments or skip insurance to cover a cash crunch, then borrow at high rates later.
A better order is: build an emergency fund first (our emergency fund calculator helps), then claim the tax benefits that fit your life, and only then invest extra for tax.
Need short-term funds without breaking your tax-saving investments? Compare offers from RBI-regulated lenders.
Frequently asked questions
Is the new tax regime better for all salaried employees?
Not always. It is better for most people because of lower slabs, the ₹75,000 standard deduction and the rebate up to ₹12 lakh taxable income. If your deductions under the old regime (HRA, Section 123, health insurance, home loan interest) are very large, the old regime can still cost less. Calculate both.
Can I claim Section 80C in 2026?
Section 80C belonged to the 1961 Act. For income earned from 1 April 2026, the same basket of investments is covered by Section 123 of the Income-tax Act, 2025, with the same ₹1,50,000 cap. It is available only if you opt for the old regime.
Is income up to ₹12.75 lakh tax-free for salaried people?
In the new regime, a salary of ₹12,75,000 minus the ₹75,000 standard deduction gives taxable income of ₹12,00,000, which is fully covered by the rebate. This applies to resident individuals and not to special-rate income such as certain capital gains.
Can I switch regimes every year?
Salaried taxpayers without business income can generally choose a regime each year when filing the return. People with business or professional income face restrictions on switching back and forth.
Does employer NPS contribution reduce tax in the new regime?
Yes. The employer’s contribution to your NPS account remains deductible in the new regime, up to 14% of basic salary plus DA. Your own NPS contributions do not get a deduction in the new regime.
Sources
- Income-tax Act, 2025: Section 202 (new regime rates)
- Income-tax Act, 2025: Section 156 (rebate)
- Income-tax Act, 2025: Section 123 (deduction for PF, insurance etc.)
- Income Tax Department: Objective and scope of the new Act
- Income Tax Department: Tax rates
Disclosure: FundsTiger (Gatimaan Finance Advisors Pvt. Ltd.) is a loan marketplace and lending service provider for RBI-regulated lenders. Aparampaar Finance Pvt. Ltd. (Omozing), one of those lenders, is a related party of FundsTiger. This article is general information, not financial advice. Read your loan agreement and KFS before you decide.