Old and new tax regime in FY 2026-27, and what the choice does to a budget

The Act changed, so the section number did too #

Paragraph 99 of the Budget Speech delivered on 1 February 2026 states that the Income Tax Act, 2025 comes into effect from 1 April 2026. The Finance Bill 2026 then does something unusual and carries two charging clauses side by side. Clause 2 charges assessment year 2026-27, which is the year in which FY 2025-26 income is assessed, under the Income-tax Act, 1961. Clause 3 charges the tax year commencing on 1 April 2026 under the Income-tax Act, 2025.

For a household planning the current year, clause 3 is the operative one. Under it the personal default rates no longer sit in section 115BAC of the 1961 Act. They sit in section 202 of the Income-tax Act, 2025, and the old regime rates sit in Paragraph A of Part I-B of the First Schedule to the Finance Act, 2026. The Memorandum sets the two Acts out in parallel and the tables under each are identical, so this is a renumbering rather than a rate change. It still matters, because a search for the current rules returns page after page written against a section that no longer charges the year in question, and there is no way to tell from the numbers alone which vintage a page is.

The two tables for FY 2026-27 #

The default table, from section 202(1) of the Income-tax Act, 2025 as amended by the Finance Act, 2026.

One qualification belongs with that table before any arithmetic is done on it, because it is a rate schedule and not a tax bill. A rebate sits outside the table and can take the tax computed from these rates to nil, so reading the 5% or the 10% step as tax actually payable will overstate the position for a lower income. Section 156(2) of the Income-tax Act, 2025 allows a resident individual taxed under section 202(1) a deduction of 100% of the income-tax payable or ₹ 60,000, whichever is less, where total income does not exceed ₹ 12,00,000. Just above that line the same sub-section grants marginal relief, so the tax cannot exceed the amount by which total income passes ₹ 12,00,000. The optional table has its own smaller rebate under section 156(1), ₹ 12,500 or the tax payable, whichever is less, up to a total income of ₹ 5,00,000.

That table also runs on total income rather than on salary, and the standard deduction is part of what separates those two figures. It sits at serial number 2 of the table in section 19(1) of the same Act, and it is ₹ 75,000 or the salary, whichever is less, where the tax is computed under section 202(1), against ₹ 50,000 or the salary, whichever is less, in any other case. The default regime carries the larger of the two.

The optional table, from Paragraph A of Part I-B of the First Schedule to the Finance Act, 2026, for a resident individual below sixty.

The optional table alone carries an age dimension. A resident aged sixty to seventy-nine starts paying at ₹ 3,00,000 rather than ₹ 2,50,000, and a resident aged eighty or more starts at ₹ 5,00,000 and skips the 5% step. The enacted Finance Act's section 3(2)(a) table of the maximum amount not chargeable to income-tax lists ₹ 2,50,000, ₹ 3,00,000 and ₹ 5,00,000 for those three groups against a flat ₹ 4,00,000 for anyone taxed under section 202. Health and education cess of 4% is added on top of the tax and any surcharge under both tables, with no marginal relief on the cess itself.

Both tables are rate schedules and nothing more, and neither states a surcharge. Surcharge is not fixed by the Income-tax Act, 2025 at all. Section 2(70) of that Act defines the maximum marginal rate as the rate including surcharge specified in the Finance Act of the relevant year, so the surcharge rates and the income levels at which they start are set annually and separately. This page does not state them. Everything on it, including the worked example below, is scoped to a total income below the level at which surcharge begins.

Neither table moved in February 2026. The default table was checked against section 202(1) of the Income-tax Act, 2025 as amended by the Finance Act, 2026. The optional table and all three age thresholds were checked against Paragraph A of Part I-B of the enacted Finance Act's First Schedule and its section 3(2)(a) table.

Doing nothing is now the new regime #

The Memorandum is explicit that the section 202 rates apply unless the option under section 202(4) is exercised, and calls them the default rates. That is a reversal of how the choice worked when the alternative regime was introduced, and it changes what silence means. A salaried person who files nothing and declares nothing is not postponing the decision. The default has been taken on their behalf, with a rupee consequence that shows up every month in tax deducted at source.

The practical consequence is a calendar one. The declaration that fixes the regime for deduction purposes is usually collected by an employer early in the financial year, and the deduction that follows is spread across twelve salary credits rather than settled in one. A month of budgeting sits behind each of those credits, which is the reason this reads as a cash-flow question long before it becomes a filing question.

The same total income through both tables #

Take a total income of ₹ 20,00,000 and run it through each table as published. This is arithmetic on the two rate schedules and nothing else, chosen at a level high enough that no rebate is in play at either end.

Section 202, the default. Nil on the first ₹ 4,00,000. Then 5% of ₹ 4,00,000, which is ₹ 20,000. Then 10% of ₹ 4,00,000, which is ₹ 40,000. Then 15% of ₹ 4,00,000, which is ₹ 60,000. Then 20% of the last ₹ 4,00,000, which is ₹ 80,000. That totals ₹ 2,00,000, and the 4% cess brings it to ₹ 2,08,000.

Part I-B Paragraph A, the option. Nil on the first ₹ 2,50,000. Then ₹ 12,500 for the slice to ₹ 5,00,000. Then 20% of ₹ 5,00,000, which is ₹ 1,00,000, taking the running total to ₹ 1,12,500 at the ₹ 10,00,000 mark. Then 30% of the remaining ₹ 10,00,000, which is ₹ 3,00,000. That totals ₹ 4,12,500, and the 4% cess brings it to ₹ 4,29,000.

The gap on that one figure is ₹ 2,21,000 a year, or ₹ 18,417 a month. On a budget built from that income, that is not a rounding difference. It is roughly the size of an entire discretionary band.

What that does to a monthly budget #

A needs, wants and savings split is built on take-home, not on gross. The regime decides part of the distance between the two, so the split is downstream of a decision most people treat as a filing formality. Setting the bands before the regime is settled means sizing them against a number that is about to move.

There is a second effect that is quieter and probably larger over a working life. Under a regime rich in deductions, a meaningful part of the household savings rate was enforced by the tax rules themselves. The relief only arrived if money was genuinely locked into an eligible instrument, so the tax form was doing the work of a savings discipline, whatever anyone thought of the instruments it steered money into. A regime with fewer deductions does not perform that function. Nothing in it rewards the act of putting money away. The savings band has to hold because the budget says so, which puts the whole weight of it back on the household.

That is the honest reason this page sits under budgeting rather than under tax. The regime choice is a tax computation for one afternoon a year and a cash-flow fact for the other three hundred and sixty-four.

What this page does not answer #

The standard deduction and the rebate were both missing from an earlier draft of this page, because neither appears in the Finance Bill 2026 or in its Memorandum. Neither changed this year and neither document restates what it does not amend. Both are stated above now, read from the enacted Act itself rather than from the Budget papers, with the section numbers attached so that anyone can check them.

What is still absent is a surcharge schedule, because the rates vary with income level and type. The worked example is ₹ 20,00,000, below the Finance Act's first surcharge threshold, so no surcharge enters that arithmetic. Two further things this page does not do. It does not net a salary down to total income, which needs the deduction rules of each regime in full, and it does not say which regime costs less for any household. A rebate threshold or a surcharge rate quoted from memory or from a search summary is exactly the kind of figure that stays plausible for a year after it stops being true. Anyone needing the position on a specific salary is looking at a question that turns on individual circumstances, which is work for a qualified tax professional rather than for a page.

Common questions #