New vs Old Tax Regime – AY 2026-27 (FY 2025-26)
Which one is better? Practical answer for salaried, business owners, and freelancers
Introduction
Every year the same question comes up — should you choose the new tax regime or the old one?
For Financial Year 2025-26 (Assessment Year 2026-27), this confusion has increased because many people are hearing that income up to ₹12 lakh is tax-free. Some believe it blindly, while others reject it completely.
The correct answer depends on how the law actually works and how your income is structured. If not understood properly, you may end up paying extra tax or facing issues later.
This article explains everything in a simple and practical way, especially for individuals and businesses operating in Delhi-NCR areas such as Loni, Karawal Nagar, Shiv Vihar, Indrapuri Extension, Tronica City Industrial Area, and nearby locations.
Understanding the Two Tax Regimes
At present, individuals have two options:
New Tax Regime (Section 115BAC)
This is the default system. It offers lower tax rates but removes most deductions and exemptions.
Old Tax Regime
This is the traditional system where tax rates are higher, but deductions and exemptions are allowed.
In simple terms:
New regime is for simplicity.
Old regime is for tax planning.
New Tax Regime – Detailed Explanation
Tax Slabs for FY 2025-26
- Up to ₹3,00,000 – Nil
- ₹3,00,001 to ₹6,00,000 – 5%
- ₹6,00,001 to ₹9,00,000 – 10%
- ₹9,00,001 to ₹12,00,000 – 15%
- ₹12,00,001 to ₹15,00,000 – 20%
- Above ₹15,00,000 – 30%
Rebate under Section 87A
If the total taxable income is up to ₹12,00,000, the tax liability can be reduced to zero by applying rebate under Section 87A.
This is the reason why it is commonly said that income up to ₹12 lakh is tax-free. However, this benefit is subject to conditions and generally does not apply to incomes taxed at special rates (for example, certain capital gains).
Standard Deduction for Salaried Individuals
Salaried taxpayers are eligible for a standard deduction of ₹75,000 under Section 16(ia).
Example:
- Gross Salary: ₹12,75,000
- Less Standard Deduction: ₹75,000
- Taxable Income: ₹12,00,000
In such a case, rebate under Section 87A applies and the tax liability becomes nil.
Deductions Not Available in New Regime
Under this regime, most common deductions and exemptions are not available, including:
- Section 80C (LIC, PPF, ELSS, etc.)
- Section 80D (medical insurance)
- House Rent Allowance (HRA)
- Leave Travel Allowance (LTA)
- Interest on self-occupied house property
This means tax cannot be reduced through investments under this regime.
Old Tax Regime – Detailed Explanation
Tax Slabs
- Up to ₹2,50,000 – Nil
- ₹2,50,001 to ₹5,00,000 – 5%
- ₹5,00,001 to ₹10,00,000 – 20%
- Above ₹10,00,000 – 30%
Rebate under Section 87A
If total income is up to ₹5,00,000, a rebate of ₹12,500 is available and the tax liability becomes zero.
For salaried individuals:
- Gross Income: ₹5,50,000
- Less Standard Deduction: ₹50,000
- Taxable Income: ₹5,00,000
In this case, the tax payable is nil.
Deductions Available
The old regime allows multiple deductions and exemptions, including:
- Section 80C (up to ₹1.5 lakh)
- Section 80D (medical insurance)
- Section 24(b) (home loan interest)
- HRA exemption
- Donations under Section 80G
These benefits are available subject to eligibility and proper documentation.
New vs Old Regime – Comparison
| Particular | New Regime | Old Regime |
| Governing Section | 115BAC | Normal provisions |
| Tax Rates | Lower | Higher |
| Deductions | Not allowed | Allowed |
| Rebate Limit | Up to ₹12 lakh income | Up to ₹5 lakh income |
| Standard Deduction | ₹75,000 | ₹50,000 |
| Complexity | Lower | Higher |
Which Regime is Better?
Salaried Individuals
If there are limited deductions and investments, the new regime is generally more suitable.
If there are significant deductions such as home loan interest, insurance, and investments, the old regime may be more beneficial.
Business Owners and Traders
For small traders in areas such as Loni, Karawal Nagar, Shiv Vihar, and Tronica City:
- Income may include cash and digital receipts
- Documentation may not always be structured
In such situations, the new regime is generally more suitable due to simplicity and reduced dependency on documentation.
Amazon, Flipkart, and Meesho Sellers
E-commerce transactions are already reported, and TCS is deducted. Since data is available with the authorities, consistency between GST and income tax becomes important.
In many cases, the new regime is preferred for ease of compliance.
Freelancers
Freelancers receiving income through bank transfers, UPI, or foreign remittances may not always maintain detailed expense records.
The new regime is generally more suitable where deductions are limited.
High-Income Individuals
Where structured investments, insurance, and financial planning are actively used, the old regime may still provide tax advantages.
Important Considerations
Choosing the incorrect regime may lead to:
- Higher tax liability
- Inability to justify deductions
- Mismatch between reported income and actual transactions
- Increased scrutiny risk
With systems like AIS, TIS, GST reporting, and banking data being interconnected, accurate reporting is essential.
Practical Insight for Delhi-NCR Taxpayers
For individuals and businesses in:
Karawal Nagar, Shiv Vihar, Dayalpur, Sabhapur
Loni, Main Loni Road, Indrapuri, Indrapuri Extension
Tronica City Industrial Area, Loni Industrial Area
Gokulpuri, Sonia Vihar, Mustafabad
A large portion of transactions is traceable through banking and digital systems. In such cases, a simple and consistent tax approach is often more effective than aggressive deduction-based planning.
Final Conclusion
Under the new tax regime (Section 115BAC), a resident individual can have nil tax liability up to ₹12 lakh taxable income due to rebate under Section 87A. For salaried individuals, this effectively extends to ₹12.75 lakh after standard deduction under Section 16(ia), subject to applicable conditions.
The choice between the new and old tax regime should be based on actual income structure, availability of deductions, and ability to maintain proper documentation.
Contact for Assistance
CompliAid – Tax & Business Advisory
WhatsApp: +91 9810225019
Landline: 0120-4362389
Email: CompliAidIndia@gmail.com
Website: https://CompliAid.in
Office Address: Plot No. 46A, Between Gali No. 6 & 7
Main Movie Magic – Gurudwara Road
Indrapuri Extension, Loni, Ghaziabad – 201102