Old vs New Tax Regime Guide

How regime choice works

The Income Tax Department states that the new regime is the default regime. In non-business cases, taxpayers can choose between the two regimes every year directly in the ITR, provided the return is filed on or before the due date under section 139(1).

Where the taxpayer has income from business or profession and wants to opt out of the new regime, Form 10-IEA must be filed on or before the due date under section 139(1). The portal also explains that re-entering the new regime after opting out is available only once for eligible taxpayers having business or professional income.

Main practical difference between the two regimes

According to the portal FAQ, the old regime allows various deductions and exemptions, while the new regime offers lower tax rates but permits only limited deductions and exemptions. The right choice therefore depends on the taxpayer's actual mix of salary structure, deductions, house-property interest, and investments.

The same FAQ specifically states that HRA exemption is not available in the new regime. It also states that Chapter VI-A deductions such as section 80C, 80D, 80DD and 80G cannot generally be claimed in the new regime, except for deductions specifically preserved by section 115BAC, such as section 80CCD(2), section 80CCH(2), and section 80JJAA. The subsection matters: section 80CCH(1) is the individual's contribution and is not generally allowed in the new regime.

• HRA exemption: available in old regime, not available in new regime
• Section 80C and many Chapter VI-A deductions: generally old regime benefit
• Interest on borrowed capital for self-occupied property under section 24(b): not allowed in the new regime
• Standard deduction: up to Rs. 50,000 in the old regime and up to Rs. 75,000 in the new regime for AY 2026-27, subject to salary income

How to decide which regime may suit you

The official portal advises taxpayers to compare liability under both regimes. In practice, the old regime often becomes more attractive when the taxpayer has meaningful deductions and exemptions. The new regime may be attractive where deductions are low and the simplified rate structure produces a lower result.

What section 115BAC means in everyday language

Section 115BAC gives the new regime its rate structure and its conditions. The new regime is the default for eligible taxpayers, but “default” does not mean that every taxpayer must use it. An eligible taxpayer may choose the old regime when the applicable option and timing requirements are met.

The new regime is calculated after removing many exemptions and deductions listed in section 115BAC(2). The Act still preserves certain items, such as specified employer contributions under section 80CCD(2), subject to their own limits and conditions. Therefore, the comparison should use deductions that are legally available under each regime—not every amount appearing in a taxpayer's documents.

For a person with business or professional income, the choice to opt out of the default regime is tied to Form 10-IEA and the due date under section 139(1). The AY 2026-27 validation rules also state that the option to opt out is not available after that due date. A professional should therefore decide and file the required form on time rather than waiting until the return is submitted.

• Compare both regimes using actual eligible deductions and exemptions.
• Do not treat every salary component or investment as deductible under both regimes.
• Business and professional cases need extra care for Form 10-IEA and the due date.
• Keep the selected regime consistent across the return, computation, and any related response or correction.