Salary Tax Planning TY 2026-27: New vs Old Regime
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| Illustrative graphic. Figures follow the Income-tax Act, 2025 and Finance Bill, 2026 (as introduced) — verify against the enacted Finance Act, 2026. |
Contents
Salary tax planning for Tax Year 2026-27
For a resident salaried employee, the new tax regime under the Income-tax Act, 2025 is the default for Tax Year 2026-27 (1 April 2026 to 31 March 2027). It gives a ₹75,000 standard deduction and a rebate that brings tax to nil up to ₹12 lakh of taxable income, but it does not allow section 80C-type or 80D-type deductions. The old regime keeps a ₹50,000 standard deduction, allows those deductions, but taxes income at higher rates from ₹5 lakh onward. This article assumes a resident individual with normal slab-rate salary income only.
Whether the new regime saves you more tax depends on how much you actually claim under the old regime — not on a general rule. Run both computations before you intimate a regime to payroll.
Quick takeaway
Most salaried employees without large home-loan interest or HRA claims come out ahead in the new regime. The worked example below shows a ₹15 lakh salary case where the new regime still wins even after claiming ₹2.25 lakh in old-regime deductions.
"Tax Year" and section renumbering: what changed
The Income-tax Act, 2025 applies from 1 April 2026 and replaces the Financial Year/Assessment Year structure with a single "Tax Year." Income earned between 1 April 2026 and 31 March 2027 is Tax Year 2026-27 — not "AY 2027-28." The Department's own FAQ confirms this terminology change takes effect from 1 April 2026.
Search terms built around the 1961 Act — 80C, 80D, 80CCD, section 192, Form 24Q — still work as legacy search labels, but they are not the operative references under the new Act. Use this mapping box before relying on any old section number:
| Legacy label (Income-tax Act, 1961) | Income-tax Act, 2025 reference |
|---|---|
| FY / AY | Tax Year |
| Section 80C-type deductions | Section 123 read with Schedule XV |
| Section 192 (salary TDS) | Section 392(1) |
| Form 24Q (salary TDS statement) | Form 138 |
| Return-filing provision | Section 263 |
| New tax regime provision | Section 202 |
Payroll software, Form 16-equivalent certificates, and TDS statements for Tax Year 2026-27 must use the new Act's numbering. If your employer's portal still shows "Section 192" or "Form 24Q," that is legacy labelling in the interface, not a sign that the old Act still applies.
New regime vs old regime: the decision
The new regime is the default. If you do not intimate a choice to payroll, tax is deducted under the new regime by default. Intimating a regime to payroll is an operational instruction for TDS purposes — it is not the same as legally exercising the option, which happens through your return under the applicable Act provision.
Model both regimes when you have any of the following: home loan interest on a self-occupied property, meaningful HRA exemption, large 80C-type commitments already running (PF, life insurance, ELSS), or significant medical insurance premium for senior-citizen parents. Without these, the new regime is very likely better because of the higher standard deduction and the ₹12 lakh rebate threshold.
Slabs, standard deduction and rebate
| Taxable income | New regime, TY 2026-27 | Old regime, resident below 60 |
|---|---|---|
| Up to ₹2.5 lakh | Nil | Nil |
| ₹2.5–4 lakh | Nil | 5% |
| ₹4–5 lakh | 5% | 5% |
| ₹5–8 lakh | 5% | 20% |
| ₹8–10 lakh | 10% | 20% |
| ₹10–12 lakh | 10% | 30% |
| ₹12–16 lakh | 15% | 30% |
| ₹16–20 lakh | 20% | 30% |
| ₹20–24 lakh | 25% | 30% |
| Above ₹24 lakh | 30% | 30% |
Verify before relying on this table: these figures come from the Finance Bill, 2026 as introduced on 1 February 2026. Cross-check against the enacted Finance Act, 2026 before finalising your planning, especially close to the July 2027 filing season.
Old-regime basic exemption is ₹3 lakh for resident senior citizens aged 60–79 and ₹5 lakh for resident super-senior citizens aged 80 and above; the new regime's basic exemption stays at ₹4 lakh regardless of age, per the Finance Bill, 2026.
| Item | New regime | Old regime |
|---|---|---|
| Standard deduction (salaried/pensioner) | ₹75,000 | ₹50,000 |
| Section 87A-equivalent rebate | Up to ₹60,000 tax where total income does not exceed ₹12 lakh, with marginal relief near the threshold | Up to ₹12,500 tax where total income does not exceed ₹5 lakh |
| Cess | 4% of income tax plus applicable surcharge | 4% of income tax plus applicable surcharge |
| Surcharge | 10% (₹50L–1cr), 15% (1cr–2cr), effectively capped near 25% above 2cr for normal slab-rate income | 10% (₹50L–1cr), 15% (1cr–2cr), 25% (2cr–5cr), 37% above ₹5cr |
A commonly repeated figure is "₹12.75 lakh nil-tax salary" under the new regime. That number only holds once the ₹75,000 standard deduction is added on top of the ₹12 lakh rebate threshold for taxable income. Do not treat ₹12.75 lakh as the rebate limit itself — the rebate limit is ₹12 lakh of taxable income.
Deductions available under each regime
| Deduction | Limit | Available in |
|---|---|---|
| Section 123 / Schedule XV (legacy 80C) | Aggregate ₹1.50 lakh | Old regime only |
| Self-NPS (legacy 80CCD(1B)) | Additional ₹50,000 | Old regime only |
| Employer NPS (legacy 80CCD(2)) | Generally 14% of salary for Central/State Government employees; 10% (old regime) or 14% (new regime) for other employees, subject to statutory conditions | Both regimes, subject to conditions |
| Medical insurance (legacy 80D) | Generally ₹25,000; ₹50,000 where the insured person or parent is a senior citizen, subject to combined statutory limits | Old regime only |
| Savings-account interest (legacy 80TTA) | Up to ₹10,000 | Old regime only |
Employer NPS is the one significant deduction available under both regimes, subject to the applicable percentage and conditions — this is worth prioritising in salary restructuring discussions regardless of which regime you choose.
Payroll and TDS checklist
Salary TDS for Tax Year 2026-27 operates under section 392(1) of the Income-tax Act, 2025. Your employer estimates your annual taxable salary, factors in your regime intimation and any declared deductions, computes the annual tax, and spreads the balance across your remaining salary payments.
- Step 1 — Intimate your regime choice to payroll at the start of the year, or payroll will apply the new regime by default.
- Step 2 — Submit investment declarations if choosing the old regime, followed by actual proofs (premium receipts, loan interest certificate, investment statements) before the payroll cut-off.
- Step 3 — If you changed jobs during the year, provide your previous employer's salary and TDS details to your current employer using the current payroll-prescribed form or workflow. Confirm the exact form reference with your employer, since forms were renumbered from 1 April 2026.
- Step 4 — Check your TDS certificate and annual information against what was actually deducted before filing your return.
- Step 5 — Reconcile and file. Your regime choice becomes final only when you file your return under section 263 — payroll intimation alone does not fix your regime for the year.
Key due dates for Tax Year 2026-27
| Compliance | Due date |
|---|---|
| Salary TDS statement (Form 138), Q1 | 31 July 2026 |
| Salary TDS statement (Form 138), Q2 | 31 October 2026 |
| Salary TDS statement (Form 138), Q3 | 31 January 2027 |
| Salary TDS statement (Form 138), Q4 | 31 May 2027 |
| Salary TDS certificate (Form 16-equivalent) | 15 June 2027, subject to the prescribed certificate timeline under the new rules |
| Return due date (non-audit salaried taxpayer) | Generally 31 July 2027 |
| Belated return | Within 9 months from the end of Tax Year 2026-27 — normally 31 December 2027 — or before assessment, whichever is earlier |
| Revised return | [VERIFY BEFORE PUBLISHING] Proposed 12 months from the end of Tax Year 2026-27 (normally 31 March 2028) per the Finance Bill, 2026 — confirm against the enacted Finance Act, 2026 |
Worked example: ₹15 lakh salary
This is an illustrative example only. It assumes a resident employee below 60, gross salary ₹15,00,000, no HRA exemption, no home loan interest, and no capital gains or other income. Under the old regime, actual payments of ₹1,50,000 under section 123/Schedule XV, ₹50,000 additional self-NPS, and ₹25,000 medical insurance premium are assumed to have genuinely been made — deductions are not automatic.
| Particulars | New regime | Old regime |
|---|---|---|
| Gross salary | ₹15,00,000 | ₹15,00,000 |
| Standard deduction | ₹75,000 | ₹50,000 |
| Section 123/Schedule XV deduction | Nil | ₹1,50,000 |
| Self-NPS additional deduction | Nil | ₹50,000 |
| Medical insurance deduction | Nil | ₹25,000 |
| Taxable income | ₹14,25,000 | ₹12,25,000 |
| Income tax before cess | ₹93,750 | ₹1,80,000 |
| Rebate | Not applicable — taxable income exceeds ₹12 lakh | Not applicable — taxable income exceeds ₹5 lakh |
| Health and Education Cess at 4% | ₹3,750 | ₹7,200 |
| Total tax payable | ₹97,500 | ₹1,87,200 |
New regime, taxable income Rs 14,25,000 0-4L: Nil 4-5L: 1L x 5% = Rs 5,000 5-8L: 3L x 5% = Rs 15,000 8-10L: 2L x 10% = Rs 20,000 10-12L: 2L x 10% = Rs 20,000 12-14.25L: 2.25L x 15% = Rs 33,750 Tax before cess = Rs 93,750 Cess at 4% = Rs 3,750 Total tax = Rs 97,500 Old regime, taxable income Rs 12,25,000 0-2.5L: Nil 2.5-5L: 2.5L x 5% = Rs 12,500 5-10L: 5L x 20% = Rs 1,00,000 10-12.25L: 2.25L x 30% = Rs 67,500 Tax before cess = Rs 1,80,000 Cess at 4% = Rs 7,200 Total tax = Rs 1,87,200 Result: New regime saves Rs 89,700 in this scenario
Example only: This employee saves under the new regime despite claiming ₹2.25 lakh of old-regime deductions, because the higher standard deduction and lower new-regime rates on the ₹5–12 lakh band outweigh those specific claims. A different result is possible with larger deductions — particularly home loan interest or a substantial HRA exemption, neither of which is modelled here. Run your own numbers with your actual figures before deciding.
Common mistakes salaried employees make
- Assuming payroll intimation locks in the regime: the choice is only final when you file your return under section 263, not when you tell payroll.
- Treating ₹12.75 lakh as the rebate threshold: the rebate applies up to ₹12 lakh of taxable income; ₹12.75 lakh is the gross-salary figure after the ₹75,000 standard deduction.
- Claiming old-regime deductions without actual payment proof: section 123/Schedule XV, self-NPS, and medical insurance deductions require genuine payments and valid proofs submitted to payroll before the cut-off.
- Ignoring a job change mid-year: failing to report a previous employer's salary and TDS to the new employer causes under-deduction and a shortfall at return time.
- Using 1961 Act section numbers as if they were current law: for Tax Year 2026-27, cite the Income-tax Act, 2025 references (section 123/Schedule XV, section 392(1), section 263) rather than legacy numbers, especially in any written submission.
- Treating the Finance Bill 2026 rate table as final: confirm figures against the enacted Finance Act, 2026 before making an irreversible salary-structuring decision.
Important: This article is for general guidance. It does not constitute personalised tax advice. Confirm your specific figures, especially surcharge and marginal relief calculations at higher incomes, with a qualified professional or the official CBDT/Income Tax Department resources referenced below.
Frequently asked questions
Is Tax Year 2026-27 the same as AY 2027-28?
No. Under the Income-tax Act, 2025, the FY/AY structure is replaced by a single "Tax Year." Income earned between 1 April 2026 and 31 March 2027 is Tax Year 2026-27, not AY 2027-28. Treat "AY 2027-28" only as a legacy search term.
Which regime is better for a ₹15 lakh salary?
In the worked example above, with ₹2.25 lakh of old-regime deductions actually claimed, the new regime still results in lower tax (₹97,500 versus ₹1,87,200). Employees with larger deductions — particularly home loan interest — should compute both regimes with their own figures before deciding.
Do I need to submit proofs to claim old-regime deductions?
Yes. An initial investment declaration is not sufficient. Payroll requires actual proof of payment — premium receipts, investment statements, or loan interest certificates — before the internal cut-off, or it will deduct tax as if the deduction was not claimed.
What is section 392(1) and how does it affect my salary TDS?
Section 392(1) of the Income-tax Act, 2025 is the new-Act provision governing salary TDS, replacing the erstwhile section 192. Your employer still estimates annual tax and deducts it in instalments from your salary; only the statutory reference and form numbers (such as Form 138 replacing Form 24Q) have changed.
When is my Tax Year 2026-27 return due?
For a non-audit salaried taxpayer, the return is generally due by 31 July 2027. A belated return can generally be filed within 9 months from the end of the Tax Year, normally by 31 December 2027, or before assessment, whichever is earlier.
Can I change my regime choice after intimating payroll?
Yes, in most cases. Payroll intimation affects only how much TDS is deducted during the year. Your final regime choice is exercised when you file your return under section 263, so you can generally correct the choice at that stage, subject to the applicable conditions for your category of taxpayer.
Official sources and references
2. Income Tax Department — TDS compliance transition FAQ, 31 March 2026
3. Income Tax Department — Finance Bill, 2026, introduced 1 February 2026
4. Income Tax Department — New tax regime vs old tax regime FAQ
5. Income Tax Department — Guide to Income-tax Act 2025 form mapping, March 2026
6. Income Tax Department — Form 138 manual, 31 July 2026
7. Income Tax Department — Income tax returns FAQ, 2026
Conclusion
For most salaried employees under the Income-tax Act, 2025, the new regime is worth defaulting to unless you have significant home loan interest, HRA exemption, or deduction commitments already in place — the ₹15 lakh worked example above shows the new regime winning even with ₹2.25 lakh of old-regime deductions claimed. Confirm your regime choice with payroll early in the year, keep proofs ready if choosing the old regime, and treat any Finance Bill 2026 figure as provisional until the Finance Act 2026 is enacted and confirmed on incometax.gov.in.
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