Income Tax Slabs FY 2026-27: New vs Old Regime, Explained

Two Regimes, Two Ways to Compute Tax

Since the 2020 budget, Indian taxpayers have a choice between the old regime and the new regime. The old regime has more tax-saving deductions — Sections 80C, 80D, 24(b) home loan interest, HRA — but higher rates. The new regime has lower rates but few deductions, and since 2023 it is the default choice if you do not state a preference.

You can still opt for the old regime when filing, so the decision is not locked. The right choice depends entirely on how many deductions you genuinely claim. A salaried person using 80C to the full limit, paying health insurance premiums, and servicing a home loan almost always benefits from the old regime. A person with few deductions often pays less under the new regime.

Understanding the Rate Slices

Both regimes tax income in slabs — every rupee up to a limit is taxed at that slice's rate. Your income does not attract one flat rate; it is split across the slabs. A salaried individual in the new regime pays no tax on income up to 3 lakh, then 5% on the next slice, 10% on the following slice, and so on.

The rebate under Section 87A is a separate and important feature: in both regimes, if your taxable income is within the rebate threshold, the tax you computed is fully rebated, so you pay zero tax. This is why "income up to 7 lakh pays no tax in the new regime" is technically the effect of the rebate, not a slab.

Deductions That Only Work in the Old Regime

Section 80C covers up to 1.5 lakh of investments in PPF, ELSS, EPF, NSC, and tax-saving fixed deposits. Section 80D covers health insurance premiums for you and your parents. Section 24(b) allows up to 2 lakh a year on home loan interest. HRA exemption applies when you live in rented accommodation.

If you claim deductions worth more than roughly 3.5 to 4 lakh a year, the old regime almost certainly wins despite its higher slab rates. If your deductions total less than about 2.5 lakh, the new regime usually wins. In between, you need the exact calculation — that is exactly what the Tax Regime Comparison Calculator does.

Step-by-Step: How Your Tax Is Computed

Start with your gross total income: salary, rental income, capital gains, interest, and other income. Subtract the deductions allowed in your chosen regime. Add any income that is not exempt. The result is your taxable income.

Apply the slab rates for your age group — regular individuals, senior citizens (60+), and super senior citizens (80+) have different threshold rules. Subtract the Section 87A rebate if applicable. Add cess at 4% on the final tax amount. That final figure, divided by 12, is roughly what your employer deducts from your salary as TDS each month.

This is why the Income Tax Calculator asks for the same inputs a tax form does. The calculator handles the slab arithmetic, the rebate, and the cess so you can see your tax before you file.

Common Confusions and Mistakes

The most common error is thinking your entire income is taxed at your highest slab rate. It is not — each slab slice is taxed independently, so the "average" tax rate is always lower than the marginal rate.

Another common confusion is mixing up the new regime default. Since FY 2023-24, if you do not choose, the new regime is applied. Employees who want the old regime must submit a declaration to their employer to have correct TDS deducted. A mismatch shows up as a refund or a demand when you file.

Finally, remember that capital gains on equity are taxed separately, not within the slab. Long-term equity gains above the exemption threshold attract 10% with the grandfathering provision, and short-term equity gains attract 15%. These do not merge with your salary slab.

Use the Calculators, Then File

Run the Income Tax Calculator with your salary, investments, home loan interest, and health premiums in both regimes. The Tax Regime Comparison Calculator shows the difference in one view. If your employer has not adjusted for your chosen regime, compare your year-end tax to what has been deducted so far and increase or decrease advance tax accordingly.