India Income Tax 2026: New vs Old Regime Explained
Last reviewed: July 2026
Quick Answer
India's income tax offers two systems filed with the Income Tax Department. The default new regime has lower slab rates, a INR 75,000 standard deduction, and makes income up to INR 12,00,000 tax free, but drops most exemptions. The old regime keeps deductions like 80C up to INR 1,50,000. Compare both.
Rates as of 2026. Verify with official sources before filing.
For most salaried Indians in 2026, the new tax regime gives a lower bill because of its lower rates and the rebate that makes income up to INR 12,00,000 tax free, but the old regime can still win if you claim large deductions. The only way to be certain is to compute both, which is exactly what this guide helps you do. Below we explain the two regimes, who should pick which, the key deductions under Section 80C, and how the maths works. To compare your own numbers instantly, use the India income tax calculator.
What Are the Two Tax Regimes?
Since a few years ago, India has run two parallel income tax systems, and you choose one each year. The new regime, now the default, offers lower slab rates in exchange for giving up almost all exemptions and deductions. The old regime keeps the traditional higher rates but lets you reduce your taxable income with a long list of deductions.
Here are the new regime slabs for FY 2025-26, which apply to income after the INR 75,000 standard deduction.
| Taxable Income (INR) | New Regime Rate |
|---|---|
| 0 to 4,00,000 | 0% |
| 4,00,001 to 8,00,000 | 5% |
| 8,00,001 to 12,00,000 | 10% |
| 12,00,001 to 16,00,000 | 15% |
| 16,00,001 to 20,00,000 | 20% |
| 20,00,001 to 24,00,000 | 25% |
| Above 24,00,000 | 30% |
The old regime is simpler on the surface but has higher rates, with a 0% band only up to INR 2,50,000, then 5%, 20%, and 30%. Its advantage is not the rates but the deductions you can subtract before those rates apply.
Who Should Choose Which Regime?
The choice comes down to one question: how much can you deduct? The new regime rewards simplicity, while the old regime rewards those who invest and claim heavily.
- Choose the new regime if you have few deductions, do not pay rent that qualifies for HRA, or simply prefer not to track and prove exemptions. For most middle income earners with modest deductions, it produces a lower tax.
- Choose the old regime if you max out 80C, claim significant HRA, pay home loan interest, and have medical insurance. When these stack up, they can push your taxable income low enough that the old regime beats the new one.
A useful rule of thumb is to add up your realistic annual deductions. If they comfortably exceed roughly INR 3,50,000 to INR 4,00,000, the old regime is worth checking closely. Below that, the new regime usually wins. But rules of thumb are no substitute for running the actual numbers.
Compare both in seconds. The India income tax calculator computes your tax under the new and old regimes side by side and tells you which one saves you more.
What Are the Key Deductions Under Section 80C?
Section 80C is the workhorse deduction of the old regime, allowing up to INR 1,50,000 per year. It covers a wide range of investments and payments, so most salaried people can fill it without much effort.
- EPF: Your own provident fund contributions from salary
- PPF: Public Provident Fund deposits, a popular long term savings tool
- ELSS: Equity Linked Savings Scheme mutual funds, which also offer growth
- Life insurance: Premiums paid for yourself, spouse, or children
- Home loan principal: The principal portion of your housing loan repayment
- Tuition fees: School fees for up to two children
- NSC and tax saving fixed deposits: Certain five year deposits and certificates
Beyond 80C, the old regime also allows Section 80D for medical insurance, Section 24 for home loan interest, and HRA exemption for rent. None of these are available under the new regime, which is precisely why heavy claimers often stay with the old system.
How Do You Calculate Your Tax?
The calculation follows the same shape under both regimes, with different numbers.
- Step 1: Start with your gross salary.
- Step 2: Subtract the standard deduction, INR 75,000 under the new regime or INR 50,000 under the old.
- Step 3: Under the old regime, subtract your other deductions such as 80C, 80D, and HRA. Under the new regime, skip this step.
- Step 4: Apply the slab rates to the taxable income that remains.
- Step 5: Apply the Section 87A rebate, which zeroes tax on income up to INR 12,00,000 in the new regime or INR 5,00,000 in the old.
- Step 6: Add the 4% health and education cess to whatever tax remains.
As a worked example, take a salary of INR 15,00,000 with full deductions of INR 1,75,000 under the old regime. The new regime taxes INR 14,25,000 and produces about INR 97,500 including cess. The old regime taxes INR 12,75,000 and produces about INR 2,02,800 including cess. Here the new regime is far cheaper, because the deductions are not large enough to overcome its lower rates. Change the inputs and the answer can flip, which is why comparing matters.
How Does India Compare With the Rest of Asia?
India's top marginal rate of 30% kicks in at a relatively modest income by regional standards, and a surcharge applies to very high earners. Compared with the flat, low systems of Hong Kong and Singapore, India's structure is more complex and, at higher incomes, heavier. For a broader view of how pay and tax stack up across the region, see our Asia salary comparison and the Hong Kong tax guide.
Frequently Asked Questions
What is the difference between the new and old tax regimes?
The new regime has lower slab rates, a larger standard deduction of INR 75,000, and a rebate that makes income up to INR 12,00,000 tax free, but it removes almost all exemptions. The old regime has higher rates and a smaller standard deduction, but lets you claim deductions like 80C, 80D, and HRA to reduce taxable income.
Who should choose the old regime?
The old regime tends to suit people with large deductions, such as a full 80C of INR 1,50,000, home loan interest, HRA, and medical insurance. If your total deductions are high enough, the old regime can produce a lower tax bill than the new regime despite its higher rates. Run both to be sure.
What can you claim under Section 80C?
Section 80C allows up to INR 1,50,000 in deductions for EPF, PPF, ELSS mutual funds, life insurance premiums, National Savings Certificates, home loan principal repayment, and children's tuition fees. It is available only under the old regime, and it is the single most used deduction by salaried taxpayers.
Is the new regime the default in 2026?
Yes. The new regime is the default tax regime. If you want the old regime, you must actively opt for it when filing. Salaried individuals can switch between the two each year, while those with business income face more restrictions on switching back once they leave the old regime.
How do you calculate income tax in India?
Subtract the standard deduction and any eligible deductions from your gross salary to get taxable income, apply the slab rates for your chosen regime, apply the Section 87A rebate if you qualify, then add a 4% health and education cess. Comparing both regimes is easiest with an online calculator.