New Delhi, April 26: As the financial year 2026-27 begins, salaried employees face the challenge of selecting between the old and new tax systems. This decision hinges on your income, investments, and tax-saving habits. Choosing wisely can significantly impact your tax burden and monthly salary.
While there are no major changes in the tax slabs this year, recent updates and clarifications have reignited discussions about which tax system is more advantageous. For many, the best choice this year may differ from last year.
The old tax regime offers various exemptions and deductions, such as investments under Section 80C, health insurance (80D), home loan interest, HRA, and LTA. However, it comes with higher tax rates: no tax on income up to ₹2.5 lakh, 5% on ₹2.5-5 lakh, 20% on ₹5-10 lakh, and 30% on income above ₹10 lakh.
In contrast, the new tax regime features lower tax rates but eliminates most exemptions and deductions. Income up to ₹4 lakh is tax-free, with rates of 5% on ₹4-8 lakh, 10% on ₹8-12 lakh, 15% on ₹12-16 lakh, 20% on ₹16-20 lakh, 25% on ₹20-24 lakh, and 30% on income above ₹24 lakh.
If your annual income is up to ₹12.75 lakh, the new tax regime may be beneficial, as it allows for a standard deduction and potential tax exemption under Section 87A. Additionally, for those who do not engage in tax-saving investments or prefer a higher take-home salary, the new system is more appealing.
Conversely, if you claim deductions of ₹4-5 lakh or more, such as those under 80C, 80D, HRA, or home loans, the old tax regime may be more advantageous. This option is particularly beneficial for middle-class individuals and those with family responsibilities.
Recent changes in the income tax law will not immediately affect the filing for FY 2027. These changes will take effect during return filing in June-July 2027. Furthermore, the deadline for filing ITR-3 and ITR-4 under Budget 2026 has been extended to August 31.
As of April 1, 2026, several new changes have been implemented. The allowance for meals under the old tax regime has increased to ₹200, up from ₹50. Gift vouchers and coupons are now tax-free up to ₹15,000 annually.
Additionally, cities like Ahmedabad, Bengaluru, Hyderabad, and Pune have been included in the high HRA category. The education allowance for children has been raised from ₹100 to ₹3,000 per month, while hostel expenses have increased from ₹300 to ₹9,000 per month.
The transport allowance has also been increased to ₹25,000 per month. Tax on company-provided vehicles will now be determined based on engine capacity.
My name is Bhupendra Singh Chundawat. I am an experienced content writer with several years of expertise in the field. Currently, I contribute to Daily Kiran, creating engaging and informative content across a variety of categories including technology, health, travel, education, and automobiles. My goal is to deliver accurate, insightful, and captivating information through my words to help readers stay informed and empowered.
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