For AY 2026-27, the choice between old and new tax regimes continues to be the most common question CAs receive from salaried clients. Here is a comprehensive comparison under the IT Act 2025.
The Two Regimes Under IT Act 2025
New Regime (Default), Section 200, IT Act 2025 (old Section 115BAC):
| Income Slab | Tax Rate |
|---|---|
| Up to Rs. 4,00,000 | Nil |
| Rs. 4,00,001 – Rs. 8,00,000 | 5% |
| Rs. 8,00,001 – Rs. 12,00,000 | 10% |
| Rs. 12,00,001 – Rs. 16,00,000 | 15% |
| Rs. 16,00,001 – Rs. 20,00,000 | 20% |
| Rs. 20,00,001 – Rs. 24,00,000 | 25% |
| Above Rs. 24,00,000 | 30% |
- Standard deduction: Rs. 75,000 [Section 22(2)]
- Rebate under Section 87A: Full rebate if taxable income does not exceed Rs. 12,00,000 (effective zero tax up to approximately Rs. 12,75,000 gross income)
- NPS employer contribution deduction: Available up to 14% of salary [Section 80CCD(2) equivalent]
Old Regime, Section 199, IT Act 2025 (old Section 115BAC opt-out):
| Income Slab | Tax Rate |
|---|---|
| Up to Rs. 2,50,000 | Nil |
| Rs. 2,50,001 – Rs. 5,00,000 | 5% |
| Rs. 5,00,001 – Rs. 10,00,000 | 20% |
| Above Rs. 10,00,000 | 30% |
- Standard deduction: Rs. 50,000
- All Chapter VI-A deductions available (80C, 80D, 80E, 80G, etc.)
- HRA exemption available
- LTA, professional tax, and other exemptions available
Worked Example: Salary of Rs. 15,00,000
Assumptions for old regime: 80C: Rs. 1,50,000, 80D: Rs. 25,000, HRA exemption: Rs. 1,80,000, professional tax: Rs. 2,400
New Regime:
- Gross salary: Rs. 15,00,000
- Less: Standard deduction: Rs. 75,000
- Taxable income: Rs. 14,25,000
- Tax: Rs. 4L × 0% + Rs. 4L × 5% + Rs. 4L × 10% + Rs. 2.25L × 15% = 0 + 20,000 + 40,000 + 33,750 = Rs. 93,750
- Cess (4%): Rs. 3,750
- Total tax: Rs. 97,500
Old Regime:
- Gross salary: Rs. 15,00,000
- Less: Standard deduction: Rs. 50,000
- Less: HRA exemption: Rs. 1,80,000
- Less: Professional tax: Rs. 2,400
- Gross total income: Rs. 12,67,600
- Less: 80C: Rs. 1,50,000
- Less: 80D: Rs. 25,000
- Taxable income: Rs. 10,92,600
- Tax: Rs. 2.5L × 0% + Rs. 5L × 5% + Rs. 5L × 20% + Rs. 0.926L × 30% = 0 + 12,500 + 1,00,000 + 27,780 = Rs. 1,40,280
- Cess (4%): Rs. 5,611
- Total tax: Rs. 1,45,891
Winner: New regime by Rs. 48,391
Worked Example: Salary of Rs. 25,00,000
Assumptions for old regime: 80C: Rs. 1,50,000, 80D: Rs. 50,000 (family floater + parents), HRA exemption: Rs. 3,60,000, NPS 80CCD(1B): Rs. 50,000, professional tax: Rs. 2,400
New Regime:
- Taxable income: Rs. 24,25,000 (after Rs. 75,000 standard deduction)
- Tax: Rs. 4L × 0% + Rs. 4L × 5% + Rs. 4L × 10% + Rs. 4L × 15% + Rs. 4L × 20% + Rs. 4L × 25% + Rs. 0.25L × 30% = 0 + 20,000 + 40,000 + 60,000 + 80,000 + 1,00,000 + 7,500 = Rs. 3,07,500
- Cess: Rs. 12,300
- Total tax: Rs. 3,19,800
Old Regime:
- Taxable income: Rs. 18,37,600 (after all deductions)
- Tax: Rs. 2.5L × 0% + Rs. 5L × 5% + Rs. 5L × 20% + Rs. 5.876L × 30% = 0 + 12,500 + 1,00,000 + 1,76,280 = Rs. 2,88,780
- Cess: Rs. 11,551
- Total tax: Rs. 3,00,331
Winner: Old regime by Rs. 19,469
The Break-Even Point
The key question: at what level of deductions does the old regime become more beneficial?
Based on our analysis across income levels:
| Gross Salary | Minimum Deductions Needed for Old Regime to Win |
|---|---|
| Rs. 10,00,000 | Old regime almost never wins |
| Rs. 12,00,000 | Rs. 4,00,000+ |
| Rs. 15,00,000 | Rs. 4,50,000+ |
| Rs. 20,00,000 | Rs. 5,25,000+ |
| Rs. 25,00,000 | Rs. 5,75,000+ |
| Rs. 30,00,000+ | Rs. 6,00,000+ |
Key deductions that make old regime viable:
- HRA exemption (biggest factor for metro-city residents paying high rent)
- Section 80C: Rs. 1,50,000 (PPF, ELSS, insurance, EPF)
- Section 80D: Rs. 25,000-75,000 (health insurance for self, family, parents)
- Section 80CCD(1B): Rs. 50,000 (additional NPS)
- Home loan interest: Rs. 2,00,000 (Section 24b)
Practical Guidance for CAs
1. For clients earning below Rs. 12,75,000: New regime is almost always better (zero tax with rebate)
2. For clients earning Rs. 12-20 lakh: New regime wins unless client has HRA + full 80C + 80D
3. For clients earning above Rs. 20 lakh with high HRA: Run both calculations, old regime may win
4. For clients with home loans: The Rs. 2 lakh interest deduction under old regime can be decisive
5. Advise early: Salaried clients must inform their employer before April if they wish to opt for old regime (Form 12BAA)
The Opt-Out Process
- New regime is the default, no action needed
- To choose old regime: submit Form 12BAA to employer before the start of the tax year
- Salaried individuals can switch regimes every year
- Business/professional income earners who opt out of new regime can switch back only once
Use TaxMarg to run these comparisons for your clients. Search "old vs new regime comparison" and get the latest slab rates, deduction limits, and cross-references.