Old vs New Tax Regime FY27: Which one offers more tax benefits for salaried employees?

Choosing between the old and new income tax regimes remains one of the biggest financial decisions for salaried employees in FY27. While income tax slabs remain unchanged this year, updated allowances, exemptions and rebate rules have once again changed the calculation for many taxpayers.

The choice between the two regimes can directly affect annual tax liability, monthly take-home salary and overall savings strategy. For some employees, the new regime may offer lower taxes and simpler filing, while others could still save more under the old structure through deductions and exemptions.

Old vs New Tax Regime in FY27

The government continues to keep the new tax regime as the default option for taxpayers. However, salaried employees can still opt for the old regime if it helps reduce taxable income through deductions. The better option depends on factors such as:

• Annual salary
• Investments under Section 80C
• Home loan repayment
• Health insurance premiums
• House Rent Allowance (HRA)
• National Pension System (NPS) contributions
• Other tax-saving benefits claimed through employers

For many middle-income salaried employees, the difference between the two regimes can run into thousands of rupees annually.

Old tax regime: Higher deductions, higher tax rates

The old tax regime allows taxpayers to reduce taxable income through exemptions and deductions. Popular claims available under the old regime include:

• Section 80C investments such as PPF, ELSS, EPF and life insurance
• Section 80D health insurance
• Home loan interest
• HRA
• Leave Travel Allowance (LTA)
• Education and transport allowances

Old tax regime slabs

• Up to Rs 2.5 lakh – Nil
• Rs 2.5 lakh to Rs 5 lakh – 5 per cent
• Rs 5 lakh to Rs 10 lakh – 20 per cent
• Above Rs 10 lakh – 30 per cent

This regime generally benefits taxpayers who make disciplined tax-saving investments and claim multiple exemptions.

New tax regime: Lower rates with fewer exemptions

The new tax regime offers lower slab rates but removes most deductions and exemptions.

Only limited benefits remain available, including select employer contributions such as NPS contributions.

New tax regime slabs

• Up to Rs 4 lakh – Nil
• Rs 4 lakh to Rs 8 lakh – 5 per cent
• Rs 8 lakh to Rs 12 lakh – 10 per cent
• Rs 12 lakh to Rs 16 lakh – 15 per cent
• Rs 16 lakh to Rs 20 lakh – 20 per cent
• Rs 20 lakh to Rs 24 lakh – 25 per cent
• Above Rs 24 lakh – 30 per cent

The structure mainly favours taxpayers seeking simplified compliance and higher monthly take-home pay instead of investment-linked deductions.

Who benefits more from the new tax regime?

The new regime may work better for salaried employees who:

• Earn up to around Rs 12.75 lakh annually
• Do not actively invest in tax-saving products
• Have limited deductions
• Prefer higher in-hand salary
• Do not pay rent or home loan EMIs
• Want simpler tax filing

Because of the standard deduction and rebate under Section 87A, many taxpayers in the lower-middle income bracket may effectively pay zero income tax under the new regime.

Employees in the Rs 12 lakh to Rs 20 lakh salary range with fewer exemptions may also find the new structure more beneficial.

Who benefits more from the old tax regime?

The old regime may remain advantageous for employees who claim deductions of around Rs 4 lakh to Rs 5 lakh or more annually.

It can particularly benefit taxpayers who:

• Invest heavily under Section 80C
• Claim HRA
• Pay home loan interest
• Buy family health insurance
• Contribute to NPS
• Support senior citizen parents’ medical expenses
• Use structured tax planning regularly

For such taxpayers, deductions can significantly reduce taxable income despite the higher slab rates.

Important FY27 tax changes salaried employees should keep in mind

Several changes effective from April 1 will impact the next return filing cycle.

Meal allowance exemption increased

Under the old regime, tax-free meal allowance eligibility rises from Rs 50 per meal to meals costing up to Rs 200.

Gift vouchers become more tax friendly

Gift vouchers, cards and coupons up to Rs 15,000 annually become tax free under the old regime.

HRA benefits expanded in key cities

Ahmedabad, Bengaluru, Hyderabad and Pune have been moved into the higher HRA exemption category, potentially increasing tax savings for salaried employees living there.

Changes in perquisites and allowances

Low-interest or zero-interest employer loans will now be taxed based on the difference between the SBI lending rate and the actual rate charged.

Loans below Rs 2 lakh and medical emergency loans remain exempt.

Employer-provided car taxation updated

• Rs 8,000 monthly taxable value for cars with engines up to 1.6 litre
• Rs 10,000 monthly taxable value for larger engines

Education and hostel allowances increased

Children’s education allowance rises from Rs 100 monthly to Rs 3,000 monthly per child under the old regime.

Hostel expenditure allowance increases from Rs 300 monthly to Rs 9,000 monthly per child.

Transport allowance revised

Transport-related allowances increase to Rs 25,000 monthly or 70 per cent of the allowance, whichever is lower.

ITR filing deadlines remain unchanged

The latest Income-Tax Act changes will not affect FY27 filing immediately. These provisions will apply when returns are filed during June-July 2027.

Budget 2026 also extended the due date for ITR-3 and ITR-4 filing for non-audit taxpayers till August 31.

Which tax regime should salaried employees choose in FY27

There is no one-size-fits-all answer. Employees with substantial deductions and investments may continue benefiting from the old regime. Those with limited exemptions and a preference for simpler compliance may save more under the new regime.

Before making a choice, salaried taxpayers should compare total taxable income under both systems, including all exemptions, deductions and rebates. Even a small difference in deductions can change which regime offers better savings.