Budget 2026: Old vs New Tax Regime — Which saves more for individual, salaried taxpayers?

With just days to go before Union Finance Minister Nirmala Sitharaman presents the Union Budget on February 1, the familiar question has once again taken centre stage for individual taxpayers: should you stay with the old tax regime or shift to the new one? As Budget 2026 approaches, speculation is rife over whether the government will further tilt the balance in favour of the New Tax Regime or finally phase out the old structure altogether.

Over the last few years, the Centre has made its preference clear. The New Tax Regime, now the default option, has been steadily sweetened through wider slabs, lower rates and higher rebates. The most consequential changes came in Union Budget 2025, which significantly altered the tax arithmetic for millions of taxpayers.

New Tax Regime: lower rates, fewer breaks

The New Tax Regime is designed around simplicity. It offers concessional tax rates across multiple slabs but requires taxpayers to give up most exemptions and deductions that were hallmarks of the old system. For FY 2025-26 (AY 2026-27), the revised slab structure starts with a nil rate up to Rs 4 lakh and gradually rises to 30 per cent only for income above Rs 24 lakh. This compares favourably with the old regime, where the highest rate kicks in once income crosses Rs 10 lakh.

One of the biggest draws of the new regime is the enhanced rebate under Section 87A. Resident individuals with taxable income of up to Rs 12 lakh are eligible for a rebate of up to Rs 60,000, effectively bringing their tax liability to zero. Coupled with a higher standard deduction of Rs 75,000 for salaried individuals and pensioners, the effective tax-free income rises to Rs 12.75 lakh. For taxpayers with limited deductions, this alone can translate into substantial savings.

Tax slab rates under the new tax regime:

Income Tax Slabs    Tax Rates Up-to Rs. 4 lakhs    NIL Rs. 4 lakhs - Rs. 8 lakhs    5% Rs. 8 lakhs- Rs. 12 lakhs    10% Rs. 12 lakhs - Rs. 16 lakhs    15% Rs. 16 lakhs - Rs. 20 lakhs    20% Rs. 20 lakhs - Rs. 24 lakhs    25% Above Rs. 24 lakhs    30%

Old Tax Regime: deductions still matter

The old regime, unchanged for several years, continues to reward structured tax planning. It allows a wide range of deductions and exemptions, including Section 80C investments up to ₹1.5 lakh, medical insurance under Section 80D, house rent allowance, leave travel allowance, and home loan interest benefits. Senior citizens also enjoy a higher basic exemption limit under this system.

For individuals who actively use these provisions—particularly homeowners servicing large loans or families with high insurance and education expenses—the old regime can still result in a lower tax outgo, despite its higher slab rates.

Tax slabs under Old Regime FY 2025-26

The slab rates under the old regime have not changed for the recent financial years. The following slab rates are applicable for individuals aged below 60 years and non-residents.

New Income Tax Slabs     New Income Tax Rates Up to Rs. 2.5 Lakhs    Nil Rs. 2.5 Lakhs to Rs. 5 Lakhs    5% Rs. 5 Lakhs to Rs. 10 Lakhs    20% Above Rs. 10 Lakhs    30%

Tax slabs for resident senior citizens aged between 60-80

New Income Tax Slabs     New Income Tax Rates Up to Rs. 3 Lakhs    Nil Rs. 3 Lakhs to Rs. 5 Lakhs    5% Rs. 5 Lakhs to Rs. 10 Lakhs    20% Above Rs. 10 Lakhs    30%

For resident super senior citizens aged above 80 years, the basic exemption limit increases to Rs 5 lakhs.

So, which regime saves more?

The answer largely depends on income level and the quantum of deductions claimed. Income up to Rs 12 lakh is effectively tax-free under the new regime, making it an obvious choice for lower- and middle-income earners with minimal exemptions. Between Rs 12 lakh and Rs 25 lakh, the decision becomes more nuanced. Taxpayers in this bracket need to assess whether their total deductions exceed roughly Rs 6–8 lakh; if they do, the old regime may still be more beneficial.

For high-income earners above Rs 25 lakh, the old regime tends to work better only if deductions and exemptions are substantial. Otherwise, the wider slabs and reduced surcharge under the new regime, where the maximum surcharge has been capped at 25 per cent, can deliver competitive post-tax outcomes.

Compliance and convenience factor

Beyond pure tax savings, compliance is another differentiator. The old regime demands extensive documentation and annual proof submission for deductions, while the new regime significantly reduces paperwork and planning effort. This ease of compliance has made the new system particularly attractive for younger salaried taxpayers and first-time filers.

As Finance Minister Sitharaman prepares to present her ninth consecutive Budget, expectations are that the government will continue nudging taxpayers toward the New Tax Regime rather than abruptly scrapping the old one. For now, both regimes coexist, but the choice is increasingly becoming a question of simplicity versus savings.