Old vs new tax regime: Key differences that you must know before ITR filing for tax year 2026-27
May 5, 2026
Synopsis
The new tax regime offers lower rates but removes many deductions, making a thorough comparison with the old regime crucial. While both regimes allow certain allowances and perquisites, understanding these benefits, like meal vouchers and motor car perquisites, is key to minimizing your tax burden for FY 2026-27.
At first glance, the new tax regime seems like a great deal. With lower tax rates and less hassle many end up paying zero income tax on salary incomes up to ₹12.75. Many non-salaried people also end up paying zero income tax on income up to Rs 12 lakh. It’s no surprise that more and more taxpayers are jumping on board without a second thought.
But the choice may not be as simple as it appears, especially considering some of the changes in deductions from income in the old tax regime.
While the new regime trims tax rates, it also removes many of the deductions and exemptions that taxpayers have long relied on to reduce their tax burden. At the same time, the new income tax rules still allow for several allowances and perquisites across both tax regimes. In some cases, these can reduce your tax burden more effectively than just relying on lower tax rates. This makes it crucial to compare both tax regimes thoroughly instead of just picking one by default.
For the FY 2026–27 (AY 2027–28) Tax Year 2026-2027, for which income tax returns need to be filed on or before July 31, 2027, the differences between the old and new tax regimes remain significant, particularly in terms of deductions, exemptions, and overall tax outgo. For AY 2026-27, the ITR filing due date is on or before July 31, 2026 and none of the changes under Income Tax Rules, 2026, are applicable.
Old vs new tax regime: What has changed under the new income tax rules 2026 for Tax Year 2026-2027
To understand how both tax regimes compare after the latest updates, here’s a detailed breakdown of allowances and benefits available:
| Benefits |
Old Tax Regime |
New Tax Regime |
| Value of free food voucher | INR 200 per meal | INR 200 per meal A specific carve-out allowed tax exemption earlier. However, no such carve-out has been retained. |
| Children Education Allowance | INR 3,000 p.m. per child (max 2 children) |
- |
| House Rent Allowance (Coverage of Metro cities for exemption ) | Addition of cities along with existing ones: Hyderabad, Pune, Ahmedabad, and Bengaluru. Additional requirement: Employees must disclose any relationship with the landlord while claiming HRA and Employers are required to obtain the copy of the House Rent Agreement for verifying the HRA Claims. |
- |
| Increase in Interest-free or Concessional loan amount | Increased to INR 2,00,000 | - |
| Children Hotel Allowance | INR 9,000 p.m. per child (max 2 children) |
- |
| Employer Owned Car- a. Cubic capacity up to 1.6 litres or where the motor car is an electric vehicle | INR 8,000 p.m. (INR 5,000 plus INR 3,000 for chauffeur) This benefit has been extended to a motor car which is an electric vehicle |
INR 8,000 p.m. (INR 5,000 plus INR 3,000 for chauffeur) This benefit has been extended to a motor car which is an electric vehicle |
| Employer Owned Car- b. Cubic capacity exceeding 1.6 litres | INR 10,000 p.m. (INR 7,000 plus INR 3,000 for chauffeur) | INR 10,000 p.m. (INR 7,000 plus INR 3,000 for chauffeur) |
| Employee owns any other automotive conveyance | Actual expense (less) INR 3,000 | Actual expense (less) INR 3,000 |
| Compensatory field area | INR 13,500 p.m. | - |
| Compensatory modified field area | INR 8,000 p.m. | - |
| Counter-insurgency allowance to armed forces | INR 22,000 p.m. | - |
| Transport allowance to disabled employees | Metro cities: INR 15,000 + DA Other cities: INR 8,000 + DA |
- |
| Underground allowance for employees working underground mines | 15% of basic pay | - |
| Allowance to employees working in transport system | 70% of allowance up to INR 25,000 p.m. | - |
| Value of any gift and voucher to employee | INR 15,000 | INR 15,000 |
| Leave Travel Concession (LTC) | Economy class airfare restriction is removed and allow exemption based on the airfare applicable to the class of travel to which the employee is entitled. In areas without a recognised public transport system, the existing limit equivalent to the air‑conditioned first‑class rail fare is proposed to be revised to INR 30 per kilometre for the shortest route. |
- |
Source: Grant Thornton Bharat.
Tax benefits available under both regimes
Below are the major tax benefits available under both income tax regimes. These can help reduce your taxable income if structured correctly for the Tax Year 2026-27
Meal coupons
Meal cards or food vouchers like Sodexo, Pluxee, and Zaggle are employer-paid cards meant for food expenses. If structured correctly, they are not treated as taxable perquisites up to the allowed limit. This helps employees save tax while managing everyday meal costs at the office or nearby outlets.
From April 1, 2026 salaried employees may get tax-free meal card benefits of up to Rs 200 per meal during working hours. This is a sharp rise from the earlier Rs 50 limit.
“Free food and non-alcoholic beverages provided by employers during working hours at office or business premises or through paid vouchers usable only at eating joints, to the extent the value does not exceed Rs. 200 per meal is not taxable as a perquisite,” says Neeraj Agarwala, Senior Partner, Nangia & Co LLP.
Motor car perquisite
The Income Tax Rules 2026 have also revised how car-related perquisites are valued. These rules apply under both the tax regimes.
In case the car is used wholly and exclusively in performance of their official duties, then the value of perquisite is considered NIL.
In case the car is partially used for personal purpose and partially for official purposes, the taxable amount would be calculated as under:
Employer-Owned car (engine capacity ≤ 1.6 litres or electric vehicle)
Perquisite value: ₹8,000 per month (₹ 5,000 + ₹ 3,000 (if a driver is provided by the employer)
Note: The same valuation applies to electric vehicles, regardless of engine capacity.
Employer-owned car (engine capacity > 1.6 litres)
Perquisite Value: ₹10,000 per month (₹ 7,000 + ₹ 3,000 (if a driver is provided by the employer)
As explained by Agarwal, in case the car is owned by the employee:
Where cubic capacity of engine does not exceed 1.6 litres, or the motor car is an electric vehicle: actual amount of expenditure incurred by the employer as reduced by ₹ 5,000 + ₹ 3,000 (if a driver is provided by the employer)
Where cubic capacity of engine exceeds 1.6 litres: actual amount of expenditure incurred by the employer as reduced by ₹ 7,000 + ₹ 3,000 (if a driver is provided by the employer)
In case, an employer gives a higher allowance, the tax free part will also be higher since taxable perquisite remains fixed at above levels. For instance, if an employer gives Rs 20,000 for car usage and Rs 18,000 as driver’s salary with total allowance of Rs 38,000, the taxable part will remain fixed at Rs 8000 if the engine capacity is below 1.4 litres. The remaining allowance of Rs 30,000 will not attract any taxes.
For ITR filing in 2027, choosing between the old and new tax regimes is not just a routine step; it can directly impact how much tax you pay.
[The Economic Times]
