Old Tax Regime Vs New Tax Regime: As Union Budget 2026-27 draws closer, taxpayers are hoping for tax relief and additional exemptions. At the same time, speculation has intensified over whether the government
may finally phase out the old income tax regime as it continues to push taxpayers towards the new regime.
At present, both the old and new tax regimes coexist, allowing taxpayers to choose based on their income structure and eligible deductions.
However, uncertainty around the future of the old tax regime has grown amid repeated policy signals favouring the new system. The New Tax Regime is the default option from FY 2025-26.
This has raised a key question: will Finance Minister Nirmala Sitharaman scrap the old tax regime in Union Budget 2026-27?
According to CA Hita Desai, Partner at NPV & Associates LLP, the old tax regime is unlikely to be abolished in the upcoming Budget. While the new tax regime offers lower slab rates and a zero-tax threshold of up to Rs 12.75 lakh, it requires taxpayers to forgo several important deductions, she told News18.
Desai pointed out that the old regime remains essential for many taxpayers, particularly those living in high-rent urban areas. “It is the only regime that allows House Rent Allowance (HRA) exemption,” she said. Scrapping it would also mean losing key housing-related benefits, including the Rs 2 lakh deduction on home loan interest and the Rs 1.5 lakh principal repayment benefit under Section 80C.
She added that for disciplined savers, the old tax regime continues to deliver a higher take-home salary when combined with Chapter VI-A deductions such as medical insurance under Section 80D and life insurance investments.
“Until the new tax regime adequately compensates for housing and long-term investment-related reliefs, the old regime is likely to continue to avoid a significant tax burden on the middle class,” Desai said.
Difference Between Old Tax Regime And New Tax Regime
Under the new tax regime, individuals earning up to Rs 12 lakh a year are effectively exempt from paying income tax, provided the income qualifies as “normal income”. This excludes special-rate incomes such as short-term capital gains (STCG) and long-term capital gains (LTCG).
For ongoing FY 2025–26 income tax return (ITR) filings, the new regime applies automatically. Salaried taxpayers can still opt for the old regime at the time of filing their return. However, a belated ITR, filed after the due date, can only be submitted under the new regime.
New tax regime slabs
Rs 0 to Rs 4,00,000: Nil
Rs 4,00,001 to Rs 8,00,000: 5%
Rs 8,00,001 to Rs 12,00,000: 10%
Rs 12,00,001 to Rs 16,00,000: 15%
Rs 16,00,001 to Rs 20,00,000: 20%
Rs 20,00,001 to Rs 24,00,000: 25%
Above Rs 24,00,000: 30%
The old tax regime continues to attract taxpayers who are able to claim multiple exemptions and deductions. These include Section 80C benefits of up to Rs 1.5 lakh through investments such as PPF, ELSS and LIC, as well as house rent allowance (HRA), leave travel allowance (LTA), home loan interest under Section 24, health insurance premiums under Section 80D, education loan interest under Section 80E and a standard deduction of Rs 50,000 for salaried individuals.
Slabs for individuals below 60 years
Rs 0 to Rs 2,50,000: Nil
Rs 2,50,001 to Rs 5,00,000: 5%
Rs 5,00,001 to Rs 10,00,000: 20%
Above Rs 10,00,000: 30%
Slabs for senior citizens (60 to below 80 years)
Rs 0 to Rs 3,00,000: Nil
Rs 3,00,001 to Rs 5,00,000: 5%
Rs 5,00,001 to Rs 10,00,000: 20%
Above Rs 10,00,000: 30%
Slabs for super senior citizens (80 years and above)
Rs 0 to Rs 5,00,000: Nil
Rs 5,00,001 to Rs 10,00,000: 20%
Above Rs 10,00,000: 30%
Tax experts suggest that the choice depends largely on income levels and the ability to claim deductions.
“You may benefit from the new regime if you earn up to Rs 12 lakh in a year. Most people fall under this category,” said Aman Sharma, a Delhi-based chartered accountant.
He added that the old regime may still work better if you claim substantial deductions under Sections 80C and 80D, HRA or home loan interest, have invested heavily in tax-saving instruments such as PPF or ELSS, receive salary components like HRA or LTA, or are a senior citizen eligible for multiple deductions.
