For tax year 2026-27 the new regime (section 202(1)) has nil tax to ₹4 lakh, 5% to ₹8 lakh, 10% to ₹12 lakh, 15% to ₹16 lakh, 20% to ₹20 lakh, 25% to ₹24 lakh and 30% above, a ₹75,000 standard deduction and a rebate up to ₹60,000 (tax-free to ₹12 lakh taxable). The old regime (Finance Act, 2026) has a basic exemption of ₹2.5 lakh (₹3 lakh at 60 to 79, ₹5 lakh at 80+), 5%, 20% and 30% slabs, a ₹50,000 standard deduction, a ₹12,500 rebate up to ₹5 lakh, and allows HRA, professional tax and Chapter VIII deductions. If the employee says nothing, deduct under the new regime.
Slab rates side by side
| Taxable income (tax year 2026-27) | New regime, s.202(1) | Old regime, below 60 | Old regime, 60 to 79 | Old regime, 80+ |
|---|---|---|---|---|
| Up to ₹2,50,000 | Nil | Nil | Nil | Nil |
| ₹2,50,001 to ₹3,00,000 | Nil | 5% | Nil | Nil |
| ₹3,00,001 to ₹4,00,000 | Nil | 5% | 5% | Nil |
| ₹4,00,001 to ₹5,00,000 | 5% | 5% | 5% | Nil |
| ₹5,00,001 to ₹8,00,000 | 5% | 20% | 20% | 20% |
| ₹8,00,001 to ₹10,00,000 | 10% from ₹8 lakh | 20% | 20% | 20% |
| ₹10,00,001 to ₹12,00,000 | 10% | 30% | 30% | 30% |
| ₹12,00,001 to ₹16,00,000 | 15% | 30% | 30% | 30% |
| ₹16,00,001 to ₹20,00,000 | 20% | 30% | 30% | 30% |
| ₹20,00,001 to ₹24,00,000 | 25% | 30% | 30% | 30% |
| Above ₹24,00,000 | 30% | 30% | 30% | 30% |
Surcharge applies above ₹50 lakh of income (10%, rising with income) and is not covered here.
Worked example: who wins
| Asha: ₹15 lakh, moderate claims | Vikram: ₹20 lakh, heavy claims | |
|---|---|---|
| Gross salary | ₹15,00,000 | ₹20,00,000 |
| Old regime deductions | Std ₹50,000, PT ₹2,400, HRA ₹1,20,000, investments ₹1,50,000, health ₹25,000 | Std ₹50,000, PT ₹2,500, HRA ₹3,60,000, investments ₹1,50,000, health ₹25,000, home-loan interest ₹2,00,000 |
| Old regime taxable | ₹11,52,600 | ₹12,12,500 |
| Old regime tax with cess | ₹1,64,611 | ₹1,83,300 |
| New regime taxable | ₹14,25,000 | ₹19,25,000 |
| New regime tax with cess | ₹97,500 | ₹1,92,400 |
| Better for TDS | New, by ₹67,111 | Old, by ₹9,100 |
The amounts claimed in the old-regime column are examples; each deduction has its own conditions and limits. Compare your own numbers in the income tax calculator.
How to run the choice in payroll
- In April, ask each employee to state the regime for TDS for the year, with a provisional Form No. 124 if they choose the old regime.
- If there is no reply, deduct under the new regime.
- Record the choice on the payslip and in the year's computation (Part C of Form No. 130).
- Tell employees that, if they have no business income, they can still pick either regime when they file the return; a different choice simply changes the refund or balance tax.
Edge cases
- Employees with business income exercise the old-regime option by the return due date, and can withdraw it only once (section 202(4)(a)).
- Retirement exemptions in section 19, such as gratuity and leave encashment on retirement, are available in both regimes; HRA is not available in the new regime.
- Senior employees: the higher old-regime exemption applies at 60 and 80, while the new regime has the same slabs at every age.
FundRaksha HR lets employees choose the regime in the app and shows the tax both ways, then deducts on the chosen one.
Sources
Last reviewed: 2026-10-21. Information for Indian businesses; not legal advice.