"The new regime is always cheaper": What the break-even math actually says for AY 2026-27

"Just pick the new regime, it's always lower now." You have heard it in office WhatsApp groups, from a colleague who did the math once in 2023, and possibly from your own payroll team when they asked you to declare a regime in April. It is the single most repeated claim of this filing season — and it is wrong often enough to cost salaried taxpayers real money. The truth is that the new regime wins for most people, but "most" is not "all," and whether it wins for you comes down to one number: the total deductions you can legitimately claim. Below that break-even figure, the new regime is cheaper. Above it, the old regime still beats it, sometimes by tens of thousands of rupees.

What the law actually says

Two things matter before any arithmetic. First, the new regime is now the default. If you do nothing, your employer and the return utility apply the new regime under Section 115BAC of the Income-tax Act, 1961 (carried forward as the equivalent concessional-regime provision under the Income-tax Act, 2025). You must actively opt out to use the old regime.

Second — and this trips up a lot of people right now — is which Act governs the return you are filing today. The return due on 31 July 2026 is for AY 2026-27, i.e. income earned in FY 2025-26. That income was earned before 1 April 2026, so it is assessed under the ITA 1961, not the new ITA 2025. The Income-tax Act, 2025 takes effect from Tax Year 2026-27 (the income year beginning 1 April 2026), and it is under ITA 2025 that the "Tax Year" terminology replaces the old "Previous Year / Assessment Year" split. So for this filing: old Act, familiar slabs. For next year's planning: same regime choice, new Act wrapper. The regime rates below were set by Budget 2025 and apply to FY 2025-26.

New regime slabs (FY 2025-26, Section 115BAC):

• Up to ₹4,00,000 — Nil
• ₹4,00,001 to ₹8,00,000 — 5%
• ₹8,00,001 to ₹12,00,000 — 10%
• ₹12,00,001 to ₹16,00,000 — 15%
• ₹16,00,001 to ₹20,00,000 — 20%
• ₹20,00,001 to ₹24,00,000 — 25%
• Above ₹24,00,000 — 30%

Standard deduction under the new regime is ₹75,000 for salaried taxpayers. The Section 87A rebate in the new regime wipes out tax entirely for total income up to ₹12,00,000 (rebate up to ₹60,000). Add the standard deduction and a salaried person earning up to ₹12,75,000 pays zero tax under the new regime.

Old regime slabs (FY 2025-26, unchanged for years):

• Up to ₹2,50,000 — Nil
• ₹2,50,001 to ₹5,00,000 — 5%
• ₹5,00,001 to ₹10,00,000 — 20%
• Above ₹10,00,000 — 30%

Standard deduction under the old regime is ₹50,000. The Section 87A rebate here only covers total income up to ₹5,00,000 (rebate up to ₹12,500). But the old regime is where all the familiar deductions live: Section 80C (₹1.5 lakh), Section 80D health insurance, Section 24(b) home-loan interest (up to ₹2 lakh on a self-occupied house), Section 80CCD(1B) NPS (₹50,000), HRA under Section 10(13A), and more.

The choice is therefore a trade: the new regime gives you lower rates and a bigger zero-tax band but almost no deductions; the old regime gives you higher rates but lets you shrink your taxable income.

Practical implications: where the break-even actually falls

The break-even is the level of deductions at which both regimes produce identical tax. Claim more than that, old wins; claim less, new wins. It is not a single national number — it rises with income. Here is the math worked out at the incomes most salaried readers sit at.

Income ₹15,00,000 (salary):

New regime — taxable after ₹75,000 standard deduction = ₹14,25,000. Tax = 20,000 (5% slab) + 40,000 (10% slab) + 33,750 (15% on ₹2,25,000) = ₹93,750, plus 4% cess = ₹97,500.

Old regime — to merely match that ₹97,500, you would need to reduce taxable income to about ₹9,06,000, which means claiming roughly ₹5,43,000 in deductions on top of the ₹50,000 standard deduction. In other words, unless you are stacking full 80C + full ₹2 lakh home-loan interest + 80D + NPS + meaningful HRA, the new regime wins at ₹15 lakh.

Income ₹24,00,000 and above: both regimes tax the top rupee at 30%, so the comparison is cleaner. The new regime's structural advantage (the ₹0–4 lakh nil band and the gentler 5–10–15% climb) is worth roughly ₹1.3–1.5 lakh versus the old slab structure before deductions. To overcome that, an old-regime filer needs total deductions in the region of ₹8,00,000+ — achievable only for someone with a large home loan, full 80C, NPS, HRA in a metro, and health premiums for parents.

The rule of thumb that actually holds: for FY 2025-26, if your total claimable deductions (excluding standard deduction) are below roughly ₹4,00,000 to ₹5,00,000, the new regime is cheaper at almost every salary level. Only taxpayers who genuinely deploy a home loan plus a fully-loaded 80C/80D/NPS/HRA stack should still be running the old-regime numbers.

Step-by-step: how to decide correctly

• Add up your real, provable deductions for FY 2025-26. Not aspirational ones — what you actually paid and can document: 80C contributions (EPF, ELSS, life insurance premium, children's tuition, principal on home loan), 80D premiums, 80CCD(1B) NPS, Section 24(b) home-loan interest, and HRA if you paid rent and your salary structure includes an HRA component.
• Compute tax under the new regime. Subtract ₹75,000 standard deduction, apply the slabs above, check whether the 87A rebate zeroes you out (total income up to ₹12 lakh), then add 4% cess.
• Compute tax under the old regime. Subtract ₹50,000 standard deduction and your deduction stack, apply the old slabs, add cess.
• Compare the two totals — not the deductions. People fixate on "how much I saved with 80C." What matters is only the final tax figure under each regime.
• Salaried taxpayers can switch every year. You are not locked in. Declare one regime to your employer for TDS purposes, but you may choose the other when you file your return, as long as you file by the due date. (Taxpayers with business or professional income face restrictions on switching back — that limit does not apply to pure salary earners.)
• File the right ITR by 31 July 2026. For most salaried filers that is ITR-1 or ITR-2; opting for the old regime when it is not your default may require filing the prescribed declaration with the return.

FAQ

Is the new regime really the default now?
Yes. Under Section 115BAC (and its ITA 2025 successor), the new regime applies automatically unless you opt out. If you want the old regime, you must actively choose it when filing — silence means new regime.

I have a ₹2 lakh home-loan interest deduction. Which regime?
Home-loan interest under Section 24(b) is one of the few deductions large enough to tip the scale, but on its own it usually is not enough at higher incomes. Run both numbers. If that ₹2 lakh sits alongside a full ₹1.5 lakh 80C and 80D premiums, the old regime often wins at ₹12–20 lakh salaries. With the loan interest alone and little else, the new regime frequently still wins.

Does the ₹12 lakh zero-tax figure mean I pay nothing up to ₹12 lakh?
Under the new regime, yes — total income up to ₹12,00,000 is effectively tax-free because of the enhanced Section 87A rebate, and a salaried person gets there at ₹12,75,000 gross after the ₹75,000 standard deduction. But note: this rebate does not extend to special-rate income such as capital gains. Salary and normal income up to the threshold, yes; a chunk of LTCG on top can still be taxed.

Can I switch regimes next year under the new ITA 2025?
Yes. The annual choice for salaried taxpayers continues under ITA 2025. Each year you recompute and pick the cheaper regime. The Act changed the wrapper and terminology (Tax Year replaces Previous/Assessment Year), not your right to choose.

Book a consultation

The break-even depends entirely on the deductions you can actually substantiate — and the difference between guessing and computing both regimes properly is often ₹30,000–₹1,00,000 of tax. For your specific salary structure, deductions, and any capital gains, book a consultation at harunraaj.com and we will run both regimes side by side before you file for AY 2026-27.

Need help with this?

Our team handles the paperwork. You focus on your business.