With the new tax regime under Section 115BAC continuing as the default regime for FY 2026–27, many salaried taxpayers are discovering that lower slab rates come at the cost of foregoing several popular deductions and exemptions. While the simplified regime benefits taxpayers with limited investments or exemptions, it may not necessarily be advantageous for everyone.

Which deductions are still available under the new regime despite most exemptions being removed?

Under the new regime, most traditional deductions and exemptions are not available. Taxpayers shifting from the old regime should particularly note that deductions such as Section 80C (PF, LIC, ELSS, PPF, tuition fees, etc.), Section 80D (medical insurance), interest deduction on self-occupied house property under Section 24(b), House Rent Allowance (HRA), Leave Travel Allowance (LTA), deduction for professional tax and several other allowances are generally not permissible.

At the same time, a few important benefits continue to remain available even under the new regime. These include:

  • Standard deduction of Rs 75,000 for salaried employees and pensioners;
  • Deduction under Section 80CCD(2) for employer’s contribution to NPS;
  • Deduction for employment of new employees under Section 80JJAA in eligible business cases;
  • Family pension deduction under Section 57(iia);
  • Certain transport and conveyance allowances for specially-abled employees.

Sandeep Bhalla, Partner, Dhruva Advisors, says, further, under the revised slab structure applicable for FY 2025–26 (AY 2026–27), taxpayers under the new regime may effectively pay nil tax up to taxable income of Rs 12 lakh due to the enhanced rebate under Section 87A. For salaried taxpayers, the threshold can extend to Rs 12.75 lakh after considering the standard deduction.

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What mistakes are taxpayers making while switching to the new regime?

One of the most common mistakes taxpayers are making while switching to the new regime is assuming that salary components automatically qualify for exemptions merely because they appear in the salary structure or Form 16. Several taxpayers continue claiming HRA, LTA, home loan interest or Chapter VI-A deductions despite opting for the new regime, leading to notices, demand adjustments and return rectifications later.

Another practical issue is that many salaried individuals choose the new regime solely because it is the default option selected by employers during TDS computation, without carrying out a comparative tax analysis. Taxpayers should remember that salaried individuals without business income can generally switch between the old and new regimes every year while filing the return, whereas persons having business or professional income face stricter conditions for switching back once they opt out.

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For whom does the old tax regime still make more sense in FY 2026-27?

The old regime may still make more sense for taxpayers who have substantial tax-saving deductions and exemptions. According to Sandeep Bhalla, typically, the old regime could continue to be beneficial for:

  • Individuals paying significant housing loan interest on self-occupied property;
  • Taxpayers fully utilising Section 80C investments;
  • Persons claiming large HRA exemptions in metro cities;
  • Individuals with substantial medical insurance deductions under Section 80D;
  • Taxpayers making charitable donations are eligible under Section 80G;
  • Senior citizens with multiple deduction claims.

In practice, taxpayers with substantial deductions exceeding Rs 3–4 lakh annually may still find the old regime more tax-efficient despite the comparatively higher slab rates.

Closing remarks

Accordingly, the choice between the two regimes should not be based merely on slab rates, but on a careful evaluation of income profile, eligible deductions, investment behaviour and long-term financial planning.

Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Tax laws and regimes are subject to frequent changes by the government. Readers should verify details with official Income Tax Department notifications or consult a Chartered Accountant before making any financial decisions.