Every salaried Indian now faces the same annual ritual: new regime or old regime? Since the 2025 Budget supercharged the new regime — zero tax up to 12 lakh rupees of income, a higher standard deduction and lower slab rates — the default choice for most taxpayers has flipped. The new regime is now the default option in 2026, and you must actively opt into the old regime if you want it. But default does not mean optimal for everyone. The right choice depends on your salary structure, your deductions and a bit of arithmetic.

How the new regime looks in 2026

The new regime’s appeal is simplicity and lower rates. For FY 2025-26, income up to 4 lakh rupees is tax-free, with slabs rising gradually to 30 per cent above 24 lakhs. The headline feature is the Section 87A rebate: resident individuals with taxable income up to 12 lakh rupees pay zero tax — and with the 75,000 rupee standard deduction for salaried taxpayers, that means salaries up to 12.75 lakhs effectively attract no tax. The trade-off: the new regime disallows most deductions and exemptions — no 80C, no 80D, no HRA exemption, no LTA. What you see is what you are taxed on, at gentler rates.

How the old regime compares

The old regime keeps the familiar slabs — 5 per cent above 2.5 lakhs, 20 per cent above 5 lakhs, 30 per cent above 10 lakhs — but preserves the full menu of deductions: 80C up to 1.5 lakhs for EPF, PPF, ELSS, life insurance premiums and children’s tuition fees; 80D for health insurance premiums; HRA exemption for rent-payers; home loan interest deduction up to 2 lakhs on self-occupied property; NPS additional deduction under 80CCD(1B); and more. For a taxpayer who genuinely uses these — a 1.5 lakh 80C basket, 25,000 in 80D, substantial HRA — the old regime’s effective rate can undercut the new regime’s, particularly at incomes between 12 and 20 lakhs where deductions shave taxable income into lower slabs.

The break-even arithmetic

The decision reduces to one question: do your total deductions exceed the break-even threshold? As a rough rule for salaried taxpayers in 2026, if your combined deductions and exemptions are below about 4 to 4.5 lakh rupees, the new regime usually wins; above that, the old regime starts pulling ahead — though the exact crossover moves with your income level and HRA component. The honest mistake to avoid is counting deductions you would not otherwise make: buying an ELSS fund or insurance policy purely to save tax under the old regime often destroys more wealth than the tax saved. Compare the regimes on deductions you already have — EPF contributions, existing insurance, actual rent paid — not hypothetical ones.

• New regime wins when: deductions are modest, income is under ~12.75 lakhs, or you prefer simplicity.
• Old regime wins when: you have large genuine deductions — 80C, HRA, home loan interest, 80D — typically above ~4 lakhs.
• Salaried can switch yearly: choose afresh each financial year; business income faces stricter switching rules.
• Default is new: inaction means the new regime; opt in actively for the old one.

Practical points most people miss

Salaried individuals without business income can switch regimes every year, so treat this as an annual exercise, not a lifetime commitment — inform your employer via the investment declaration, and the final choice is locked when you file your return. Those with business or professional income face restrictions on switching back and forth, and must file Form 10-IEA to opt for the old regime. Also remember that regime choice interacts with other decisions: the new regime’s lack of 80C means your EPF contribution no longer earns a tax deduction, which changes the maths of voluntary PF top-ups. Run both computations on the income tax portal’s calculator each March — it takes ten minutes and is the only opinion that matters.

FAQs

Is the new regime really tax-free up to 12 lakhs? Yes for FY 2025-26: the 87A rebate wipes out tax on taxable income up to 12 lakhs, and the 75,000 standard deduction extends that to 12.75 lakhs of salary income.

Can I change my regime every year? Salaried taxpayers can. Those with business income have limited switching flexibility.

Does HRA work in the new regime? No. HRA exemption, LTA and most deductions are unavailable; only the standard deduction and a few specified items apply.

The new regime’s simplicity has won the majority — but the old regime remains the rational choice for heavy, genuine deduction-users. Do the ten-minute calculation with your real numbers each year, and let arithmetic, not habit, decide where your money stays.

Compiled by the Khabar 24h Editorial Desk from publicly available sources.