Old vs new tax regime: which saves more in FY 2026-27?

The short answer

For FY 2026-27 the new regime is the default, and for most salaried people it is also the cheaper one. The old regime wins only when your deductions are large: at ₹20 lakh of gross salary you need about ₹7.08 lakh of deductions that only the old regime allows before it costs the same as the new one. Above roughly ₹25 lakh, the figure is exactly ₹8 lakh.

All tax figures below come from the same engine as the old vs new regime calculator. They include the 4% health and education cess and exclude surcharge, which starts at ₹50 lakh of income.

The two schedules side by side

The Income-tax Act 2025 took effect on 1 April 2026 and renumbered most sections without changing the amounts. Section 80C is now section 123, the extra NPS deduction once known as 80CCD(1B) is section 124, and the health-insurance deduction under 80D is section 126. Your payroll team and your CA will probably still use the old numbers.

What each regime costs at seven salaries

The table shows total tax at different gross salaries. The three old-regime columns assume deductions beyond the standard deduction of ₹1.5 lakh (a full 80C and nothing else), ₹3.75 lakh (80C, NPS ₹50,000, health insurance ₹25,000 and ₹1.5 lakh of home-loan interest) and ₹5.25 lakh (the same with ₹3 lakh of HRA exemption added in place of the home loan).

Read across any row and the pattern holds: even ₹5.25 lakh of deductions, which is a lot for one household to claim, leaves the old regime more expensive at every salary from ₹12.75 lakh up. At ₹10 lakh both regimes can reach zero, because the old regime's taxable income falls under ₹5 lakh and its own rebate applies.

The ₹12.75 lakh row is the new regime's sweet spot. ₹75,000 of standard deduction brings taxable income down to exactly ₹12 lakh, the rebate takes the tax to nil, and the old regime would need ₹7.25 lakh of deductions to match a bill of zero.

Who the old regime still suits

The old regime wins when three large deductions arrive together:

• Home-loan interest of up to ₹2 lakh on a self-occupied house, under what used to be section 24(b).
• A large HRA exemption: high rent in a metro on a high basic salary. The HRA calculator works out the exempt amount, which is the smallest of three figures and often less than people expect.
• A full 80C basket plus ₹50,000 in NPS, which many people already fill through EPF and home-loan principal.

Add health insurance for parents over 60 (up to ₹50,000) and a household earning ₹20–25 lakh can sometimes get near the break-even. Missing any one of the big three usually leaves the old regime short.

What this means for ELSS

On the new regime, the 80C deduction is worth nothing, so an ELSS fund has to be judged as a plain equity fund. On that basis it is unremarkable. As of 1 October 2026, the median ELSS fund (Direct plan, Growth option) returned 10.85% a year over three years across 48 funds, while the median flexi-cap fund returned 11.03% across 36. The lock-in is the only real difference, and without the deduction you get nothing for accepting it. The full argument is in ELSS and Section 80C, and the ELSS category page lists the funds.

Capital gains sit outside the choice

The section 87A rebate never applies to equity capital gains, which are taxed at their own rates. Worse, the gains still count towards the ₹12 lakh ceiling, so a salary of ₹10 lakh plus ₹5 lakh of long-term gains can cost you the rebate on the salary itself. The salary + capital gains calculator models this case, and it is worth checking before you book a large gain in a year when you expected to pay no tax.

How to decide in practice

1. Add up only the deductions the old regime allows: 80C, NPS under 124, health insurance, HRA exemption, home-loan interest and the smaller ones covered in our post on deductions salaried people miss.
2. Compare that total with the break-even for your salary in the calculator. If you are ₹50,000 short, you are not close: every rupee of the gap is taxed.
3. Tell payroll your choice early. TDS runs all year on the regime you declare, and a mismatch only settles when you file.

The guide choosing your tax regime explains why the break-even dips between about ₹12.75 lakh and ₹13.5 lakh before rising again.

This is educational commentary, not tax or investment advice; tax rules change with each Budget, and past fund returns do not predict future returns.