Union Budget 2026: Old tax regime vs new tax regime, which is better for taxpayers?

Union Finance Minister Nirmala Sitharaman will present her ninth consecutive budget today. Every year, income tax is hyped in the Union Budget, as it's one of the most important sources of the government's revenue. While taxpayers and the middle class eagerly look for relief, it will directly impact their disposable income and discretionary spending. Since 1962, the old tax regime has been in practice with little bit modification in tax rates, adjusting to growth and inflation. However, since 2020, the Union Government has introduced the optional new tax regime. Taxpayers will be keen on whether the government scraps the old tax regime altogether. Further, the new and simplified Income Tax Act is set to come into effect on April 1, 2026, for easier compliance.

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Old tax regime vs new tax regime- Which one is better?

Both tax regimes have different slab rates, with modifications in exemptions. The slab rates in the old tax regime are higher, new tax regime has lower and more progressive slabs.

Slab rates of the old tax regime

Slab rates of the new tax regime

Standard deductions

A person with a salaried income can claim a standard deduction of Rs 50,000 under the old tax regime, compared to the Rs 75,000 standard deduction of the new tax regime.

Other exemptions

The new tax regime has done away with some of the exemptions and deductions, such as HRA, home loan interest under Section 80 EE, and Section 80EEA, investments under 80C, medical insurance under 80D, and education loan under 80E, etc., that were available under the old tax regime. Some controversial omissions are also there in the new regime, such as disability, charity, and donation to a political party.

Which one is better?

Each one has its own advantages. However, under the new tax regime, there is a tax-free rebate under section 87A up to Rs 12 lakh, which was Rs 5 lakh under the old tax regime. So, for a salaried employee with minimal deduction, the new tax regime is beneficial. But with a substantial tax-saving investment and claiming major deductions, the old tax regime is better.