[FAQs] Old vs New Tax Regime for AY 2026-27 | Slabs, Rebate & Rule

The New Tax Regime for AY 2026-27 under Section 115BAC offers reduced tax rates to eligible taxpayers, including individuals, HUFs, AOPs, BOIs and artificial juridical persons. Income up to ₹4 lakh is tax-free, while income above this limit is taxable at progressive rates ranging from 5% to 30%. Resident individuals with total income up to ₹12 lakh can claim a rebate of up to ₹60,000 under Section 87A, along with marginal relief in specified cases. Taxpayers opting for this regime must generally forgo certain exemptions, deductions and loss set-offs while computing their taxable income.

FAQ 1. What is the new tax regime under section 115BAC?

Section 115BAC of the ITA 1961 provides an alternative tax regime (new tax regime) for Individuals, HUFs, AOPs, BOIs, and AJPs (‘eligible assesses’). Under this tax regime, eligible assesses have the option of being taxed at reduced rates based on their income brackets.

If an eligible assessee opts for this regime, the income shall be taxable at the following rate for assessment year 2026-27:

A resident individual who has opted for the new tax regime can claim a rebate of up to Rs. 60,000, provided his total income does not exceed Rs. 12,00,000. However, if the total income exceeds the threshold limit of Rs. 12,00,000, the marginal rebate is allowed.

Furthermore, an assessee opting for the new tax regime is required to satisfy the following conditions:

(a) The total income of the assessee is computed without claiming specified exemptions and deductions (discussed in FAQ 15)

(b) The total income of the assessee is computed without set-off of losses or depreciation carried forward from earlier years if such loss or depreciation is attributable to any of the specified exemptions and deductions

(c) The total income of the assessee is computed without set-off of any loss under the head “Income from house property” with any other head of income

(d) The total income of the assessee is calculated after claiming depreciation in the prescribed manner, and if the depreciation rate of any block of assets exceeds 40%, it is restricted to 40%. and

(e) The total income of the assessee is computed without claiming any exemptions or deductions for allowances or perquisites provided under any other law for the time being in force.

FAQ 2. How to choose between the old and new tax regimes?

The decision to opt for the new tax regime will depend on the amount of exemptions and deductions available to the assessee. If an individual has no deductions or exemptions to claim, it would always be beneficial for him to opt for the new tax regime.

On the other hand, if an individual is eligible to claim deductions/exemptions like Section 80C, Section 80D, House Rent Allowance or interest on a housing loan under Section 24, it is recommended that taxes be calculated under both regimes to determine which is more beneficial.

To calculate the tax under both regimes, you may use ‘Tax Calculator – Old Regime Vis-À-Vis New Regime’ available on the Income-tax Dept. website.

FAQ 3. The field to claim deduction for interest on borrowed capital in respect of my self-occupied house property is disabled in the ITR utility. Why am I unable to claim the deduction?

If the field to claim deduction for interest on borrowed capital in respect of a self-occupied house property is disabled in the ITR utility, it generally indicates that you have opted for the new tax regime under section 115BAC. The new tax regime is the default tax regime for individuals, HUFs and certain other taxpayers. Under this regime, deduction for interest on borrowed capital in respect of a self-occupied house property is not allowable. Consequently, the ITR utility disables this field where the new tax regime has been selected. If you wish to claim deduction for interest on housing loan in respect of a self-occupied house property, you should opt for the old tax regime, subject to the fulfilment of the prescribed conditions under the Income-tax Act.

FAQ 4. What are the exemptions and deductions not available in the new tax regime?

The option to pay tax at lower rates shall be available if the total income is computed without claiming the following exemptions or deductions:

(a) Leave Travel concession [Section 10(5)]
(b) House Rent Allowance [Section 10(13A)]
(c) Official and personal allowances (other than those as may be prescribed) [Section 10(14)]
(d) Allowances to MPs/MLAs [Section 10(17)]
(e) Exemption for income of minor [Section 10(32)]
(f) Deduction for units established in Special Economic Zones (SEZ) [Section 10AA]
(g) Entertainment Allowance [Section 16(ii)]
(h) Professional Tax [Section 16(iii)]
(i) Interest on housing loan (In case of property referred under section 23(2) i.e. self-occupied house property) [Section 24(b)]
(j) Additional depreciation in respect of new plant and machinery [Section 32(1)(iia)]
(k) Deduction for investment in new plant and machinery in notified backward areas [Section 32AD]
(l) Deduction in respect of tea, coffee or rubber business [Section 33AB
(m) Deduction in respect of business consisting of prospecting or extraction or production of petroleum or natural gas in India [Section 33ABA]
(n) Deduction for donations made to approved scientific research associations, universities, colleges or other institutes for doing scientific research that may or may not be related to business [Section 35(1)(ii)]
(o) Deduction for payment made to an Indian company for doing scientific research which may or may not be related to business [Section 35(1)(iia)]
(p) Deduction for donations made to universities, colleges, or other institutions for doing research in social science or statistical research [Section 35(1)(iii)]
(q) Deduction for donations made for or expenditure on scientific research [Section 35(2AA)]
(r) Deduction for capital expenditure incurred for certain specified businesses, i.e., cold chain facility, warehousing facility, etc. [Section 35AD]
(s) Deduction for expenditure on agriculture extension project [Section 35CCC]
(t) Deduction under Sections 80C to 80U other than specified under Section 80JJAA, Section 80CCD(2), Section 80CCH(2), and Section 80LA(1A) [Chapter VI-A].

(Read more: New tax regime for Individual, HUF, AOP, BOI or AJP on Taxmann.com/Practice)

FAQ 5. What is the break-even point of deductions at different income levels where tax liability is the same under both regimes?

The following table lists the break-even points for deductions at income levels of Rs. 8 lakh, Rs. 9 lakh, Rs. 10 lakh, Rs. 12.50 lakh, Rs. 15 lakh, Rs. 20 lakh, Rs. 24 lakh and Rs. 30 lakh.

FAQ 6. I earn a salary of Rs. 14 lakhs. In FY 2025-26, I paid Rs. 4 lakhs to repay the principal of the home loan, Rs. 50,000 for health insurance, and Rs. 1.5 lakh towards the interest on the home loan. Which tax regime should I choose?

Here’s the comparison in a table format for an individual under 60 years of age:

In the above example, the new tax regime results in a lower tax liability (Rs. 81,900) compared to the old tax regime (Rs. 1,17,000).

FAQ 7. How to opt for the new tax regime under Section 115BAC?

The new tax regime is the default regime for Individuals, HUFs, AOPs, BOIs, and AJPs. If an assessee does not want to opt for the new tax regime, he will have to explicitly opt out of it and choose to be taxed under the old tax regime.

An assessee having income from a business or profession can opt out of the new tax regime and switch to the old tax regime by furnishing Form No. 10-IEA on or before the due date for filing the return of income under Section 139(1). Further, once he exercises the option of the old tax regime, it shall apply for the year in which the option is exercised and for the subsequent assessment year.

This form can be filed at https://www.incometax.gov.in/ > e-file > Income Tax forms > file Income Tax Forms.

If the assessee has income other than income from a business or profession and wants to opt for the old tax regime, he must indicate his choice of the tax regime in the ITR while filing an income return.

(Read more: New tax regime for Individual, HUF, AOP, BOI or AJP on Taxmann.com/Practice)

FAQ 8. What lower tax regimes are available to other assessees under the Income-tax Act?

The Income Tax Act contains alternative tax regimes under the provisions mentioned in the table below for other assessees, which are not the default tax regimes. Thus, a taxpayer wishing to opt for an alternative tax regime must file a specified form on or before the due date of filing an income tax return (ITR).