Taxation Masterclass

Old vs New Tax Regime: The Definitive Research Guide

We analyzed 50+ income scenarios, official Finance Ministry circulars, and Section 115BAC clauses to give you the final verdict.

By Editorial Team • Updated: Jan 2026 • Valid for AY 2026-27

1. The Legislative Shift: Section 115BAC

In the Union Budget 2020, the Government of India introduced Section 115BAC of the Income Tax Act, 1961. This marked a paradigm shift from an "Exemption-Based" tax system to a "Minimalist" tax system.

Official Stance: According to the Income Tax Department, the New Regime is designed to simplify compliance, reduce paperwork, and lower the tax burden for those who do not have specific investments. As of FY 2023-24, the New Regime became the "Default Regime".

The Core Philosophy

  • Old Regime: Promotes savings/investment (Forceful saving via 80C).
  • New Regime: Promotes consumption/liquidity (More cash in hand).

2. Comprehensive Slab Comparison (FY 2025-26)

The tax slabs have been revised to make the New Regime attractive. Here is the official comparison table valid for Assessment Year 2026-27.

Net Taxable Income New Regime Rates Old Regime Rates
0 - ₹2.5 Lakhs Nil Nil
₹2.5L - ₹3L Nil (Limit is 3L) 5%
₹3L - ₹5L 5% 5%
₹5L - ₹6L 5% 20% (Big Jump)
₹6L - ₹9L 10% 20%
₹9L - ₹10L 15% 20%
₹10L - ₹12L 15% 30%
₹12L - ₹15L 20% 30%
Above ₹15L 30% 30%

3. The "70 Exemptions" Analysis

The Finance Ministry stated that around 70 deductions and exemptions are removed in the New Regime. As a taxpayer, you must know what you are losing.

Major Deductions LOST in New Regime:

  • ❌ Section 80C: PPF, EPF, LIC, ELSS, Tuition Fees (Max ₹1.5L).
  • ❌ Section 80D: Medical Insurance Premiums (Max ₹25k-₹50k).
  • ❌ Section 24(b): Interest on Housing Loan for Self-occupied property (Max ₹2L).
  • ❌ Section 10(13A): House Rent Allowance (HRA).
  • ❌ Section 10(5): Leave Travel Allowance (LTA).
  • ❌ Section 80E: Interest on Education Loan.

What is RETAINED in New Regime?

  • ✅ Standard Deduction: ₹75,000 (For Salaried/Pensioners).
  • ✅ Section 80CCD(2): Employer contribution to NPS (Up to 10% of Salary).
  • ✅ Section 80CCH: Contribution to Agniveer Corpus Fund.
  • ✅ Transport Allowance: For specially-abled employees.

4. The Breakeven Calculation (Mathematical Proof)

At what point does the Old Regime become better? We ran simulations using our Income Tax Calculator.

The Breakeven Point is approximately ₹3.75 Lakhs in Deductions.

The Rule of Thumb:
If your total eligible deductions (80C + 80D + HRA + Home Loan Interest) exceed ₹3.75 Lakhs, stick to the Old Regime.
If your deductions are below this number, the New Regime will likely save you more tax.

Example: An individual earning ₹15 Lakhs claiming only 80C (₹1.5L) pays ₹1,45,600 in Old Regime but only ₹1,40,000 in New Regime (approx). New Regime wins here.

5. The Surcharge Loophole for HNIs

For High Net Worth Individuals (Income > ₹5 Crores), the New Regime has a massive hidden advantage.

  • Old Regime Surcharge: For income > ₹5 Cr, the surcharge is 37%. Effective Tax Rate ≈ 42.74%.
  • New Regime Surcharge: The surcharge is capped at 25% even for income > ₹5 Cr. Effective Tax Rate ≈ 39%.

Impact: A person earning ₹6 Crores saves roughly ₹12-15 Lakhs purely by switching to the New Regime, regardless of deductions.

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Legal Disclaimer

Tax laws are subject to change. The information provided here is based on the Finance Act 2025. Please consult a Chartered Accountant (CA) before filing your ITR.