Quick answer: The old vs new tax regime choice sets how salary is taxed in India. The new regime, section 202 of the Income-tax Act, 2025 (formerly 115BAC), is the default. It offers lower slabs, a ₹75,000 standard deduction and a full rebate up to ₹12 lakh, with no HRA, LTA, 80C or 80D. The old regime keeps those, at higher rates.
- Finance Act 2026 left the slabs for tax year 2026-27 unchanged.
- The rebate under section 156 (formerly 87A) is up to ₹60,000 in the new regime and ₹12,500 in the old.
- Salaried employees with no business income can pick either regime each year, with their return.
- Employer NPS contributions up to 14% of salary stay deductible in the new regime.
How do the two slab structures compare for 2026-27?
The new regime taxes almost every band less, and the gap is widest between ₹5 lakh and ₹16 lakh.
| Taxable income | New regime | Old regime |
|---|---|---|
| Up to ₹2.5 lakh | Nil | Nil |
| ₹2.5 lakh to ₹4 lakh | Nil | 5% |
| ₹4 lakh to ₹5 lakh | 5% | 5% |
| ₹5 lakh to ₹8 lakh | 5% | 20% |
| ₹8 lakh to ₹10 lakh | 10% | 20% |
| ₹10 lakh to ₹12 lakh | 10% | 30% |
| ₹12 lakh to ₹16 lakh | 15% | 30% |
| ₹16 lakh to ₹20 lakh | 20% | 30% |
| ₹20 lakh to ₹24 lakh | 25% | 30% |
| Above ₹24 lakh | 30% | 30% |
Both add 4% cess. Surcharge in the new regime tops out at 25%. The Income Tax Department’s section 202 page carries the official slab table.
Which tax regime is better on an ₹18 lakh salary?
Usually the new one. Here’s a Pune engineer on ₹18 lakh gross, with basic pay of ₹9 lakh, house rent allowance of ₹3.6 lakh and rent of ₹30,000 a month.
| Line | Old regime | New regime |
|---|---|---|
| Gross salary | ₹18,00,000 | ₹18,00,000 |
| HRA exemption | ₹2,70,000 | Not allowed |
| Standard deduction | ₹50,000 | ₹75,000 |
| Professional tax | ₹2,500 | Not allowed |
| 80C, now section 123 | ₹1,50,000 | Not allowed |
| 80D, now section 126 | ₹25,000 | Not allowed |
| Taxable income | ₹13,02,500 | ₹17,25,000 |
| Tax with 4% cess | ₹2,11,380 | ₹1,50,800 |
The HRA exemption is the lowest of three numbers. Actual HRA is ₹3.6 lakh, rent minus 10% of basic is ₹2.7 lakh, and 50% of basic is ₹4.5 lakh, since Pune joined the 50% list in 2026.
The new regime saves ₹60,580. That’s despite ₹4,97,500 of claims.
For the old regime to win at this salary, deductions beyond the standard deduction must pass about ₹6.42 lakh. Few salaried employees get there without a large home loan.
Run the numbers yearly.
How does the regime choice work under an EOR?
The employer of record asks each employee to state a regime at the start of the year, then runs TDS on salary on that basis. Old-regime employees back their claims with Form 124, the old Form 12BB.
The final call is the employee’s, made with the return. Payroll only needs a sensible choice for monthly cash flow, because the return settles the actual tax and any refund or balance due.
Structure still matters in the new regime. Employer contributions to the National Pension System remain one of the few deductions left, as our note on EOR tax implications explains.
How does Remunance help your team pick a tax regime?
Remunance deducts TDS on whichever regime each employee declares, and chases proofs only from those on the old one. Our India salary calculator guide works both regimes through a sample CTC. Flat fee from USD 99 per employee per month. If you want offers that show take-home pay under both regimes, ask us to model your India offers.
What else do people ask about the old vs new tax regime?
Can I switch between the old and new tax regime every year?
Yes, if you have no business income. Salaried employees choose with each year’s return. With business income, an opt-out can be withdrawn only once.
Is the new tax regime the default from 2026?
Yes. Section 202 applies to every individual unless they opt out under section 202(4).
Is ₹12.75 lakh salary tax-free in the new regime?
Yes, for resident salaried individuals. The ₹75,000 standard deduction brings taxable income to ₹12 lakh, where the rebate wipes out the tax.