Old tax regime vs new tax regime: The new financial year FY26-27 is set to begin from 1 April (tomorrow), and there may be some confusion over whether changes to the Income-Tax Act and updates to deductions under the old tax regime will impact your income tax returns this year.
Mint deconstructs the key points to be considered before choosing the new or old regimes for taxpayers.
Will changes to I-T Act impact ITR this year?
No, these changes will not impact tax filings for FY26 (AY25) but will come into effect when filing income tax returns () next year, in June 2027 for FY27 (AY26).
Notably, extended ITR due date for ITR-3 and ITR-4 for non-audit taxpayers to 31 August, while deadline for ITR-1 and ITR-2 remains 31 July of the relevant tax year; and due date for tax audit also stays unchanged on 31 October.
Further, there are no changes in the income tax slabs for FY26-27.
What are the current income tax slabs?
Is salary up to ₹12.75 lakh tax-free under new tax regime?
Yes, announced by Finance Minister in Budget 2025, there is no income tax for salary up to ₹12 lakh (effectively ₹12.75 lakh including standard deduction and rebate) this FY26 under the new tax regime.
In the new tax regime, offered is ₹75,000, with total rebate under Section 87A at ₹60,000. This effectively removes tax liability for income up to ₹12.75 lakh by cancelling out the estimated tax you would otherwise have to pay.
Notably, is the default regime, and you must choose and switch to the old tax regime if you prefer it.
Which income tax regime is better: Old or New?
Both tax regimes have use cases, and your choice depends on your financial plan and the kind of investments you make. For instance, if you fall under the high tax bracket and are entitled to fewer , the new tax regime makes more sense. There is also the matter of reduced paperwork requirement under new regime.
Conversely, standard deduction under the is ₹50,000 (rebate is ₹12,500) and it has a number of other deductions which are allowed that are restricted for new regime. Thus, when you have invested in a large number of tax-saving instruments such as public provident fund (PPF), equity-linked saving schemes (ELSS), and Kisan Vikas Patra (KVP) and are entitled to house rent allowance (HRA), the old tax regime may be more suitable.
Chirag Chauhan, a Mumbai-based chartered accountant, told Mint that minimum threshold of deductions at which it is rational for to opt for the old tax regime is ₹4 lakh.
What changes will salaried taxpayers have from FY27?
These are some of the tweaks coming into effect from 1 April for next year (June 2027 filing):
- No taxes for corporate that cost ₹200 or less per meal, under the Old Tax regime, up from previous ₹50 per meal. So, if a company offers covers costs of two meals that works out to over ₹1 lakh per annum tax free.
- A similar increase has been made corporate gift cards, gift certificates or coupons, which will be tax free up to ₹15,000 annually under the Old Tax regime.
- Corporate loans with no interest or interest rates below the market rate will be taxed, based on the difference between the State Bank of India () lending rate and the actual rate charged, subject to certain exceptions. However, loans less than ₹2 lakh and those taken for medical emergencies remain tax-free.
- For vehicles assigned by employer for work and personal use, tax of ₹8,000/month will be applicable on cars with engines up to 1.6 litre; and ₹10,000/month for bigger vehicles. This is under the Old and New Tax regimes.
- Four new cities added to list of metros allowed to claim 50% House and Rental Allowance () exemption under the Old Tax regime. Ahmedabad, Bengaluru, Hyderabad and Pune have been added to the list which includes Chennai, Delhi, Kolkata and Mumbai.
- Exemption for children’s education allowance has increased from ₹100/month to ₹3,000/month, per child under Old Tax regime.
- Further, the hostel expenditure allowance under Old Tax regime has also been increased from ₹300/month to ₹9,000/month, per child.
- Exemption for the allowance granted to working in any transport system has been enhanced from ₹10,000/month or 70% of the allowance, whichever is lower, to ₹25,000/month or 70% of the allowance, whichever is lower.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.