IT Act 1961 → 2025 / Salaried employees / Old vs new regime:
Old vs new regime: how to choose
The new regime is the default. A salaried employee can still pick the old regime each year — here is how the choice works and when it pays.
Tax year 2026-27 · Income-tax Act, 2025 as amended by Finance Act 2026 · reviewed 5 November 2026
The rule
- Section 202(1): tax is computed under the new regime unless you opt out under 202(4).
- If you have no business or professional income, you can choose each year — but the opt-out must be made in the original return filed by the due date under section 263(1) (31 July 2027 for 2026-27). A belated or updated return cannot switch to the old regime.
- If you have business income, the option once exercised continues and can be withdrawn only once (202(4)(a)).
- Your declaration to the employer only decides TDS; the return decides the final tax.
What you give up in the new regime
- HRA, LTA, children education and hostel allowances, and other personal allowances not prescribed for the new regime.
- Professional tax.
- Interest on a self-occupied house (and set-off of house property loss against salary).
- Chapter VIII deductions — 80C (123), 80D (126), own NPS ₹50,000 (124(3)), 80E (129), 80G (133), 80GG (134), savings interest (153) and others.
- Allowed even in the new regime: standard deduction ₹75,000, employer NPS up to 14% (124(2)), Agniveer corpus (125(2)), gratuity, leave encashment and VRS exemptions.
Worked comparison — salary ₹15 lakh
| Old regime | New regime | |
|---|---|---|
| Salary | ₹15,00,000 | ₹15,00,000 |
| HRA exempt | (₹75,000) | — |
| Standard deduction | (₹50,000) | (₹75,000) |
| Professional tax | (₹2,500) | — |
| Home loan interest (self-occupied) | (₹2,00,000) | — |
| 80C, own NPS, 80D | (₹2,75,000) | — |
| Total income | ₹8,97,500 | ₹14,25,000 |
| Tax + 4% cess | ₹95,680 | ₹97,500 |
With about ₹5.3 lakh more in deductions than the new regime allows (₹6.03 lakh in total), the old regime saves only ₹1,820. Always compute both before choosing.
Frequently asked
Can a salaried employee switch between old and new tax regime every year?
Yes. Without business or professional income, the choice is made each year in the original return filed by the due date (section 202(4)(b) read with 263(1)); a belated or updated return cannot opt for the old regime.
Which regime is default from 2026-27?
The new regime under section 202 of the Income-tax Act, 2025.
Old vs new section pages
115BAC→202New tax regime (default) for individuals, HUFs, AOPs, BOIs and artificial juridical persons80C→123Deduction for life insurance, PF, PPF, ELSS, tuition fees, home-loan principal and other specified savings10(13A)→Sch IIIHouse rent allowance (HRA) exemption — 50% now for 8 cities incl. Bengaluru, Hyderabad, Pune, Ahmedabad