As the financial year 2026-27 commences, salaried employees once again face the challenge of choosing the right option between the Old and New Tax Regimes. This decision hinges on your income, investments, and tax-saving habits. Opting for the right regime has a direct impact on your tax burden as well as your monthly take-home salary.

Although there have been no major changes to the income tax slabs this year, certain new updates and clarifications have reignited the debate regarding which tax system is superior. For many individuals, the optimal choice this year may differ from the one they made last year.

**Benefits of the Old Tax Regime**

Under the Old Tax Regime, taxpayers are entitled to various exemptions and deductions—such as investments under Section 80C, health insurance premiums (Section 80D), home loan interest payments, HRA (House Rent Allowance), and LTA (Leave Travel Allowance). However, in exchange for these benefits, the applicable tax rates are higher. Under this regime, income up to ₹2.5 lakh is tax-free; income between ₹2.5 lakh and ₹5 lakh is taxed at 5%; income between ₹5 lakh and ₹10 lakh is taxed at 20%; and income exceeding ₹10 lakh is taxed at 30%.

**Benefits of the New Tax Regime**

Under the New Tax Regime, the tax rates are lower; however, most exemptions and deductions have been removed. Under this system, income up to ₹4 lakh is tax-free; income between ₹4 lakh and ₹8 lakh is taxed at 5%; ₹8 lakh to ₹12 lakh at 10%; ₹12 lakh to ₹16 lakh at 15%; ₹16 lakh to ₹20 lakh at 20%; ₹20 lakh to ₹24 lakh at 25%; and income exceeding ₹24 lakh is taxed at 30%.

If your annual income is up to ₹12.75 lakh, the New Tax Regime could prove beneficial for you, as the tax liability may effectively be reduced to zero through the Standard Deduction and the rebate available under Section 87A. Furthermore, this new system is also a better choice for individuals who do not engage in tax-saving investments or who prioritize a higher take-home salary. Who Benefits from the Old Tax Regime?

If you claim deductions amounting to ₹4–5 lakh or more—such as those under Section 80C, 80D, HRA, or home loans—the old tax regime may prove to be more advantageous. This option can be particularly beneficial for the middle class and individuals with family responsibilities.

Certain recent amendments to the Income Tax Act will not have an immediate impact on tax filings for the Financial Year 2027. These changes will come into effect when filing tax returns in June–July 2027. Meanwhile, under Budget 2026, the deadline for filing ITR-3 and ITR-4 has been extended to August 31.

New Changes Effective from April 1, 2026

Several new changes have come into effect starting April 1, 2026. Under the old tax regime, the food allowance—previously capped at ₹50—will now be tax-exempt up to ₹200. Gift vouchers and coupons will be tax-free up to an annual limit of ₹15,000.

Additionally, Ahmedabad, Bengaluru, Hyderabad, and Pune have been included in the "High HRA" category. The children's education allowance has been increased from ₹100 to ₹3,000 per month, and the hostel expense allowance has been raised from ₹300 to ₹9,000 per month.

The transport allowance has also been increased to ₹25,000 per month. Furthermore, the tax liability on vehicles provided by an employer will now be determined based on the vehicle's engine capacity.

Disclaimer: This content has been sourced and edited from Dainik Jagran. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.