The Union Budget 2026, presented on 1 February 2026 by Finance Minister Nirmala Sitharaman, delivered the most significant overhaul of the new tax regime since its introduction in 2020. The nil-tax threshold has been raised to Rs 12 lakh (Rs 12.75 lakh for salaried individuals after the standard deduction), and the slab rates under Section 115BAC have been restructured. The old regime under Sections 115BAA and the traditional slabs remains available but unchanged. For FY 2026-27 (AY 2027-28), taxpayers must evaluate both regimes carefully before making a choice.
The Revised New Regime Slabs for FY 2026-27
Under the revised new regime, income up to Rs 4 lakh attracts nil tax. The next slab, from Rs 4 lakh to Rs 8 lakh, is taxed at 5%. Income between Rs 8 lakh and Rs 12 lakh is taxed at 10%. From Rs 12 lakh to Rs 16 lakh the rate is 15%, from Rs 16 lakh to Rs 20 lakh it is 20%, from Rs 20 lakh to Rs 24 lakh it is 25%, and income above Rs 24 lakh is taxed at 30%. A rebate under Section 87A ensures that individuals with total income up to Rs 12 lakh pay zero tax under the new regime.
The old regime retains the familiar structure: nil tax up to Rs 2.5 lakh (Rs 3 lakh for senior citizens), 5% from Rs 2.5 lakh to Rs 5 lakh, 20% from Rs 5 lakh to Rs 10 lakh, and 30% above Rs 10 lakh. Section 87A rebate in the old regime applies only up to Rs 5 lakh of total income.
Deductions: Where the Old Regime Still Wins
The new regime allows only the standard deduction of Rs 75,000 and employer NPS contribution under Section 80CCD(2). All other deductions including Section 80C (Rs 1.5 lakh), Section 80D (health insurance), HRA exemption, home loan interest under Section 24(b), and LTA are unavailable. The old regime permits the full stack of deductions and exemptions, which can total Rs 4-5 lakh for an employee with a home loan, health insurance, and NPS contributions.
For a salaried individual earning Rs 15 lakh gross with Rs 3.5 lakh in deductions under the old regime, the tax liability works out to approximately Rs 1,56,000 under the old regime versus Rs 1,50,000 under the new regime. The gap narrows at this income level, and the new regime wins by a small margin. However, at Rs 20 lakh gross with Rs 4.5 lakh in deductions, the old regime may save Rs 20,000-30,000 depending on the exact deduction mix.
Who Should Choose Which Regime
The new regime is generally advantageous for individuals with annual income below Rs 12 lakh, those who do not have a home loan, and younger professionals who have not yet built a significant deduction portfolio. The old regime continues to favour individuals with home loan interest exceeding Rs 2 lakh, those making full use of 80C, 80D, and 80CCD(1B) deductions, and salaried employees with substantial HRA claims in metro cities.
CBDT has clarified via Circular No. 2/2026 that salaried employees must inform their employer of the chosen regime at the start of the financial year for correct TDS deduction. The regime can be switched at the time of ITR filing, but any excess or shortfall in TDS will need to be adjusted. Self-employed individuals and professionals can choose the regime afresh each year without restriction.
Practical Decision Framework
To make the right choice, list all deductions and exemptions you are eligible for under the old regime. If the total exceeds Rs 3.75 lakh and your gross income is between Rs 12 lakh and Rs 24 lakh, the old regime likely saves more tax. Below Rs 12 lakh, the new regime is almost always better due to the full rebate. Above Rs 24 lakh, the calculation depends heavily on whether you have a home loan and NPS investments. Use the Oquilia Old vs New Regime Calculator to compare your exact liability under both regimes before making a decision.
Source
Finance Act 2026, Income Tax Department, CBDT Circular No. 2/2026