Old vs New Tax Regime: Which Offers More Benefits for Your Income Tax Filing

Choosing between the old and new tax regimes can feel like a tough decision for many taxpayers. Both have their own advantages, but the key question is: which one saves you more money? This post breaks down the differences with a focus on the breakeven point — the income level where one regime becomes more beneficial than the other. We’ll compare the basic exemption limits, deductions, rebates, and how these affect your tax liability for FY 2026-27.

Comparison of Old and New Tax Regimes for FY 2026-27

Image: Eye-level view of a calculator and tax documents representing tax filing choices

Understanding the Basics of Both Tax Regimes

Before diving into numbers, here’s a quick overview of the two regimes:

• Old Tax Regime

- Basic exemption limit: ₹2.5 lakh

- Allows deductions under sections like 80C (up to ₹1.5 lakh), 80D (health insurance), and others

- Standard deduction: ₹50,000

- Tax slabs with higher rates for income above exemption

• New Tax Regime

- Basic exemption limit: ₹4 lakh

- No deductions allowed except NPS employer contribution and few others

- Standard deduction: ₹75,000 (higher than old regime)

- Lower tax rates and slabs designed to simplify tax calculation

The new regime aims to simplify tax filing by removing most deductions but compensates with a higher exemption and standard deduction.

Key Differences in Tax Slabs and Deductions

Feature	Old Tax Regime	New Tax Regime
Basic Exemption Limit	₹2.5 lakh	₹4 lakh
Standard Deduction	₹50,000	₹75,000
80C Deduction	Allowed (up to ₹1.5 lakh)	Not allowed
80D Deduction (Health)	Allowed	Not allowed
Tax Slabs	Higher rates beyond exemption	Lower rates, more slabs
Rebate under Section 80

7A | Up to ₹12,500 (income ≤ ₹5 lakh) | Up to ₹25,000 (income ≤ ₹7 lakh) |

What Is the Breakeven Point?

The breakeven point is the income level where the tax payable under both regimes becomes equal. Below this point, one regime saves you more, and above it, the other does.

For FY 2026-27, the breakeven point depends on how much you claim in deductions like 80C and 80D under the old regime. If you claim high deductions, the old regime might be better. If you claim fewer deductions or none, the new regime’s higher exemption and rebate often save more tax.

Comparing Tax Payable at Different Income Levels

Let’s look at some examples assuming you claim ₹1.5 lakh under 80C and ₹25,000 under 80D in the old regime.

Annual Income	Old Regime Tax Payable	New Regime Tax Payable	Which is Better?
₹5 lakh	₹12,500	₹0	New Regime
₹7 lakh	₹42,500	₹37,500	New Regime
₹10 lakh	₹1,00,000	₹1,12,500	Old Regime
₹12 lakh	₹1,50,000	₹1,65,000	Old Regime
₹15 lakh	₹2,10,000	₹2,25,000	Old Regime

Note: These figures are approximate and exclude cess and surcharge for simplicity.

When Does the New Regime Make More Sense?

• Your total deductions under 80C, 80D, and others are low or zero

• You earn up to ₹15 lakh annually

• You prefer a simpler tax filing process without tracking multiple investments

• You want to benefit from a higher standard deduction of ₹75,000 and increased rebate under section 87A

  
  

For taxpayers earning up to ₹7 lakh, the new regime’s higher rebate and exemption often result in zero or minimal tax.

When Should You Stick to the Old Regime?

• You invest heavily in tax-saving instruments under 80C (like PPF, ELSS, NSC)

• You pay significant health insurance premiums eligible under 80D

• Your total deductions exceed ₹1.5 lakh

• You want to maximize tax savings through exemptions and deductions

  
  

If your deductions are substantial, the old regime’s lower tax slabs and deductions usually reduce your tax liability more than the new regime.

Practical Example: Choosing the Right Regime

Imagine two taxpayers, A and B, both earning ₹10 lakh annually.

• Taxpayer A claims ₹1.5 lakh under 80C and ₹25,000 under 80D.

• Taxpayer B claims no deductions.

  
  

Taxpayer A saves more tax under the old regime because of the deductions.

Taxpayer B benefits from the new regime’s higher exemption and standard deduction.

This shows the importance of evaluating your deductions before choosing.

How to Decide Which Regime to Choose

1. Calculate your total eligible deductions under the old regime.

2. Compute tax payable under both regimes using online calculators or tax software.

3. Compare the tax payable and consider the ease of filing.

4. Choose the regime with lower tax liability and simpler compliance for you.

   
   

Final Thoughts on the Tax Regime Choice

The decision between the old and new tax regimes depends on your income and deductions. The new regime’s higher exemption and standard deduction often benefit those earning up to ₹15 lakh with fewer deductions. The old regime remains attractive for those who invest in tax-saving instruments and claim multiple deductions.

Review your financial situation annually before filing taxes. Use the breakeven point as a guide to pick the regime that saves you the most money. Remember, you can switch regimes every financial year, so stay flexible and informed.