Old and New Tax Regime FY 2026-27: Every new financial year brings the same tax puzzle for salaried people. They have to choose between the old tax regime and the new tax regime. The new one looks easier because the tax rates are lower and the rule book is shorter. For FY 2026-27, the Income Tax Department says the standard deduction is Rs 75,000 in the new regime, and resident individuals with total income up to Rs 12 lakh can get a rebate of up to Rs 60,000 under section 87A.
That is why a salaried person with Rs 12.75 lakh salary can end up with zero tax if the Rs 75,000 standard deduction brings taxable income down to Rs 12 lakh.
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Even so, the new regime is not always the best fit. The tax department’s own deduction list shows that the new regime blocks several popular claims under section 115BAC, while the old system still keeps many of them alive.
That is why the choice should not be rushed. “The selection between the two options needs to be done wisely after considering tax liability under both options,” said Gopal Bohra, partner–tax, NA Shah Associates.
Why the Old Regime is still Helpful
The old regime can still win for people who use a lot of exemptions and deductions. The Income Tax Department says resident individuals under the old regime can get a rebate if total income does not exceed Rs 5 lakh, with tax relief up to Rs 12,500. It also gives a standard deduction of Rs 50,000. So for people with many salary-linked claims, the old route can still be the better one.
One of the biggest old-regime benefits is House Rent Allowance. The department says HRA exemption is the least of the actual HRA received, 40% of salary, or 50% if the house is in Mumbai, Kolkata, Delhi, or Chennai, minus rent paid over 10% of salary.
The same official material says HRA is fully taxable if a person lives in their own house or does not pay rent. Leave Travel Allowance also stays useful in the old regime, since the department says it is allowed for two journeys in a block of four calendar years, subject to the actual travel cost.
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The Main Deductions And Small Salary Benefits
The old regime also keeps the big Chapter VI-A deductions that many salaried people depend on.
- Section 80C allows tax deduction up to Rs 1,50,000 on investments like PPF, ELSS, life insurance, and more.
- Section 80CCD(1B) gives an extra benefit of Rs 50,000 for contributions to NPS.
- Section 80D covers deductions for health insurance premiums paid for self and family.
- Section 24(b) lets you claim up to Rs 2 lakh on home loan interest, but only in eligible cases.
- Section 80E allows full deduction on interest paid for education loans, with no upper limit.
- Section 80G provides tax benefits on donations made to approved charities.
- Section 80TTA and Section 80TTB give deductions on interest earned from savings accounts.
- The total limit for Section 80C, 80CCC, and 80CCD(1) combined cannot go above Rs 1,50,000.
The department also keeps some smaller salary benefits in the list. Children’s education allowance is exempt up to Rs 100 per month per child for up to 2 children, and hostel expenditure allowance is exempt up to Rs 300 per month per child for up to 2 children.
Employer gifts
For employer gifts, the tax-free limit is Rs 5,000 in kind per year. Family pension deduction is also different across regimes. The official guide says it is 33.33% of family pension up to Rs 15,000 in the regular regime, while the new regime raises that limit to Rs 25,000.
Health Cover
For health cover, the old regime also stays stronger for many families. The department says Section 80D allows deductions for health insurance premiums, preventive check-ups, and medical expenses.
The usual limit is Rs 25,000 for self and family, with another Rs 25,000 for parents, and the parent limit can go up to Rs 50,000 if they are senior citizens. For disability-linked claims, the official deduction tables also keep Section 80DD and Section 80U in place.
