- From April 1, 2026, the government's draft income tax rules make the old tax regime worth a second look
- In the last few years, many taxpayers have moved to the new regime as it offers lower tax rates
- The choice is less about which regime is better, and more about what one aligns with your financial behaviour
If you earn around Rs 20 lakh a year, the choice between the old and new tax regimes could mean a difference of over Rs 1 lakh in your pocket.
From April 1, 2026, the government's draft income tax rules make the old tax regime worth a second look. The new rules, aligned with upcoming Income-tax Act, 2025, clarify deductions, exemptions and compliance norms. This changes the calculation for salaried individuals who invest, pay rent, or service a home loan.
Speaking on the new rules, Sudhir Kaushik, Co-founder and chief executive officer (CEO), Taxspanner, a Zaggle company, said, "The new Income Tax Draft Rules make the old tax regime significantly more rewarding -- higher meal limits (Rs 50 to Rs 200), gift exemption (Rs 5,000 to Rs 15,000), along with fuel and mobile leasing benefits, can unlock up to Rs 1.25 lakh tax savings on a Rs 20 lakh salary. Smart structuring is now essential to maximise take-home and employee satisfaction.
Why The Old Regime Is Back In Focus
In the last few years, many taxpayers have moved to the new regime as it offers lower tax rates and less paperwork. But there's a trade-off. The new regime removes most deductions. No HRA benefit, no Section 80C investments, no housing loan advantages.
The old regime, on the other hand, rewards behaviour -- saving, investing and spending in specific ways. What the new draft rules indicate is this: the government is not phasing out the old system. Instead, it is keeping it relevant by continuing key deductions and ironing out procedural gaps. For salaried individuals who already claim HRA, invest under Section 80C, or pay EMIs, the old regime is not just alive, it may still be the smarter choice.
Himanshu Arya, Founder of Luxury Cart, sums it up: "The 2026 draft tax rules highlight that the old regime continues to reward disciplined financial planning. For individuals earning Rs 20 lakh, leveraging deductions effectively can translate into savings of up to Rs 1.25 lakh. It's a strong reminder that taxpayers should assess their investment patterns and not shift regimes blindly without evaluating actual, tangible benefits."
Where The Savings Come From
To understand the impact, consider a salaried individual earning Rs 20 lakh annually.
Step 1: Standard deductions and exemptions
| Component | Amount (Rs) |
| Gross Salary | 20,00,000 |
| Standard Deduction | 50,000 |
| Net Salary | 19,50,000 |
Step 2: Common deductions under old regime
| Deduction Section | Instrument | Amount (Rs) |
| 80C PF | ELSS, LIC, principal repayment | 1,50,000 |
| 80D | Health insurance premium | 25,000 |
| HRA | Rent-based exemption (varies) | 2,50,000 |
| Interest on home loan (Section 24) | Housing loan interest | 2,00,000 |
Total deductions/exemptions: Rs 6.25 lakh
Step 3: Taxable income
| Particulars | Amount (Rs) |
| Net Salary | 19,50,000 |
| Less deductions | 6,25,000 |
| Taxable Income | 13,25,000 |
Tax comparison: Old vs New regime
| Old regime (after deductions) | Slab Tax (Rs) |
| Up to Rs 2.5 lakh | Nil |
| 2.5-5 lakh | 12,500 |
| 5-10 lakh | 1,00,000 |
| Above 10 lakh | 97,500 |
| Total tax | 2,10,000 |
(+ cess extra)
New regime (no deductions)
| Particulars | Amount (Rs) |
| Taxable Income | 20,00,000 |
| Approximate tax liability | 3.35 lakh |
Net savings
| Particulars | Amount (Rs) |
| Tax under new regime | 3,35,000 |
| Tax under old regime | 2,10,000 |
| Savings | 1,25,000 |
What Changes From April 1, 2026
According to CA Suresh Surana, the shift is not about rates but about structure and clarity. Some of the key changes include:
1) Introduction of a single "tax year": The distinction between "previous year" and "assessment year" will be removed. A unified "tax year" will apply, simplifying compliance and reporting.
2) No change in tax slabs: Both old and new regime slab rates remain unchanged, ensuring continuity in tax burden.
3) Revised ITR filing deadlines
• July 31: Individuals with simple income (unchanged)
• August 31: Non-audit business/profession cases
• October 31: Audit cases
• November 30: Special cases
This gives more time to taxpayers with business income.
4) More time to revise returns: The window to file a revised return will be extended from 9 months to 12 months, with a graded fee structure for delays beyond nine months.
5) Expanded perquisite benefits: Employer-paid commuting expenses (home-to-office travel) will now be clearly excluded from taxable perquisites - a practical relief for salaried employees.
What This Means For Taxpayers
The message from the draft framework is clear: the old regime is not being phased out, it is being fine-tuned.
Surana notes that the new law introduces "structural, conceptual and procedural changes" while keeping the core tax framework stable. This effectively allows taxpayers to choose between simplicity (new regime) and optimisation (old regime).
Who should consider sticking to the old regime
The old regime still works best if:
• You claim HRA or pay significant rent
• You have a home loan (interest + principal benefits)
• You invest regularly under Section 80C
• You pay health insurance premiums
• You structure salary efficiently with allowances
If these apply, the math often tilts decisively in favour of the old regime.
Karan Rijhsinghani, Director & Head - Product & Advisory, Atom Prive; Financial Services, said, "The old tax regime continues to be very relevant in 2026, particularly for salaried individuals who actively use deductions. For someone earning around Rs 20 lakh annually, structured claims under HRA, Section 80C, 80D, and home loan interest can significantly reduce taxable income, often leading to savings of up to Rs 1-1.25 lakh compared to the new regime."
He added, "However, this benefit depends on disciplined financial planning. The new regime offers simplicity and lower rates, but the old regime still rewards individuals who are investing, insuring, and servicing long-term commitments. The choice today is less about which regime is better universally, and more about which one aligns with an individual's financial behaviour."
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