Is income up to Rs 12 lakh really tax-free in AY 2026-27?

Under the new regime, a Section 87A rebate of up to Rs 60,000 makes taxable income up to Rs 12 lakh effectively tax-free. For salaried people, after the Rs 75,000 standard deduction, salary up to about Rs 12.75 lakh can be tax-free. The rebate does not apply to capital gains taxed at special rates.

Which regime is the default for AY 2026-27?

The new regime under Section 115BAC is the default. You must specifically opt for the old regime, and a belated return filed after the due date is taxed under the new regime only.

When is the old regime still better?

The old regime can save more when you have large deductions such as a big HRA claim, the full Rs 1.5 lakh under 80C, health insurance under 80D, and home-loan interest up to Rs 2 lakh. The only reliable way to know is to compute tax under both regimes.

Can I switch between regimes every year?

Salaried individuals without business income can choose the regime afresh each year while filing. Those with business income can switch to the new regime once, and moving back to the old regime is restricted.

What deductions are allowed in the new regime?

The new regime allows the Rs 75,000 standard deduction on salary, the employer's NPS contribution under 80CCD(2), and a few others, but not HRA, 80C, 80D or home-loan interest on a self-occupied house.

Roughly how much deduction do I need for the old regime to win?

It depends on your income, but as a rough guide, at incomes in the Rs 12-20 lakh range you typically need total deductions well above Rs 4-5 lakh for the old regime to beat the new one. Below that, the new regime usually wins.

Blog · Tax planning · Updated 12 Jul 2026 · 10 min read

New vs Old Tax Regime AY 2026-27: Which One Saves You More?

For FY 2025-26 (AY 2026-27), the new regime is the default and now makes income up to ₹12 lakh tax-free — but the old regime can still win if you have large deductions. Here's how to tell, with worked examples at every income level.

The headline: ₹12 lakh tax-free under the new regime

Thanks to the updated slabs and a bigger Section 87A rebate (up to ₹60,000), if your taxable income under the new regime is up to ₹12 lakh, your tax comes to zero. For salaried people there's an extra cushion: the ₹75,000 standard deduction comes off first, so a salary up to about ₹12.75 lakh can be entirely tax-free. Note: this rebate does not cover capital gains — those are always taxed separately.

New regime slabs (AY 2026-27)

Income slab	Rate
Up to ₹4,00,000	Nil
₹4,00,001 – ₹8,00,000	5%
₹8,00,001 – ₹12,00,000	10%
₹12,00,001 – ₹16,00,000	15%
₹16,00,001 – ₹20,00,000	20%
₹20,00,001 – ₹24,00,000	25%
Above ₹24,00,000	30%

Standard deduction: ₹75,000. Most other deductions (80C, HRA, etc.) are not available. A 4% health & education cess applies on the tax.

Old regime slabs (AY 2026-27)

Income slab	Rate
Up to ₹2,50,000	Nil
₹2,50,001 – ₹5,00,000	5%
₹5,00,001 – ₹10,00,000	20%
Above ₹10,00,000	30%

Standard deduction: ₹50,000. But you can claim HRA, ₹1.5 lakh under 80C, health insurance under 80D, home-loan interest up to ₹2 lakh, and more — see old-regime deductions. The 87A rebate covers income only up to ₹5 lakh.

What each regime lets you claim

Benefit	New regime	Old regime
Standard deduction (salary)	₹75,000	₹50,000
87A rebate	Up to ₹12L income	Up to ₹5L income
80C / 80D / HRA / home-loan interest	No	Yes
Employer NPS (80CCD(2))	Yes	Yes

Worked examples at different incomes

Salary ₹10 lakh: New regime → ₹10L − ₹75k = ₹9.25L taxable → tax about ₹44,000 (incl. cess). But under the old regime with typical deductions, and under the new regime's rebate cushion, tax stays modest. Below ₹12 lakh, the new regime is usually zero-or-low and hard to beat unless deductions are very high.

Salary ₹15 lakh:

New: ₹15L − ₹75k = ₹14.25L taxable → about ₹97,500 (incl. cess).
Old (₹50k std + ₹1.5L 80C + ₹25k 80D + ₹2L home-loan interest = ₹4.25L deductions): ₹15L − ₹4.25L = ₹10.75L → about ₹1,40,400 (incl. cess).
New wins by ~₹42,900. The old regime would need much larger deductions to pull ahead.

Salary ₹25 lakh: at higher incomes the gap narrows and the old regime becomes competitive if you have a big HRA claim plus the full 80C/80D/home-loan stack. This is exactly where a proper both-regime computation pays for itself.

Quick decision guide

Your situation	Usually better
Few or no deductions	New regime
Income up to ₹12L (₹12.75L salaried)	New regime (zero tax)
Big HRA + full 80C + home-loan interest	Compare — old may win
Filing a belated return	New regime (no choice)

Don't forget surcharge (high incomes)

Above ₹50 lakh, a surcharge applies (10% over ₹50L, 15% over ₹1 crore, and higher beyond) — but the new regime caps the top surcharge at 25%, which can make it materially cheaper for very high earners.

You don't have to guess

Your CA computes your tax under both regimes and files under whichever saves you more — you see the comparison before you approve.

Compare & file with a CA →

New to filing this year? Start with our ITR Filing Guide for AY 2026-27 →

Figures are illustrative for FY 2025-26 (AY 2026-27) and not individual tax advice; your actual tax depends on your income, deductions and any surcharge. Rules can change via CBDT notifications. Reviewed by a Chartered Accountant.