In short: “Old vs new tax regime” is an individual/HUF question under Section 202 of the Income-tax Act, 2025 — it is not a choice a partnership firm, LLP or company makes for itself. For Tax Year 2026-27, the new regime is the default: nil tax up to ₹4 lakh, rising in ₹4-lakh slabs to 30 per cent above ₹24 lakh, with a Section 156 rebate that can zero out tax up to ₹12 lakh of taxable income — not turnover. The old regime keeps broader deductions (80C, 80D, NPS, donations, self-occupied home loan interest) at higher slab rates. Which one wins depends entirely on your own numbers, and for business and professional taxpayers the choice is not a simple annual toggle: opting out of the new regime and later withdrawing that option can only be done once. This guide works through who is actually eligible to choose, how each business structure is taxed, a verified worked example, and the switching rules that trip up business owners most often.
Contents
- Why This Is a Different Question for Business Owners
- Income-tax Act, 2025: Getting the Tax Year Right
- Who Can Actually Choose Between the Two Regimes
- How Different Business Structures Are Actually Taxed
- Old vs New Regime: The Core Differences at a Glance
- New Regime Tax Slabs for Tax Year 2026-27
- The ₹12 Lakh Rebate Under Section 156 — What It Actually Means
- Deductions You Keep — and Give Up — Under Each Regime
- Worked Example: Same ₹15 Lakh Income, Two Different Outcomes
- Regime-Switching Rules for Business and Professional Income
- A Practical Way to Decide: My Two-Column Approach
- Where I See Business Owners Get This Wrong
- Why Businesses Choose CA Murli Chandak for This Decision
- Related Reading
- Final Takeaway
- Frequently Asked Questions
1. Why This Is a Different Question for Business Owners
For a salaried individual, choosing between the old and new tax regime is largely a once-a-year arithmetic exercise done at the time of filing. For a business owner, it is a different question altogether, because the entity earning the income, the deductions available, the loss and depreciation position, and the rules for switching back later are all more complicated than a salary computation.
This matters more from 1 April 2026, when the Income-tax Act, 2025 replaces the Income-tax Act, 1961. The new Act keeps the broad shape of the regime choice taxpayers have known since 2020, but it renumbers the relevant provisions, and it tightens the switching rules specifically for anyone with business or professional income. Getting the terminology and the applicable law right is the first step before comparing a single tax rate.
In my practice, the business owners who get the best outcome are the ones who treat this as a genuine two-computation exercise on their own numbers — not the ones who default to whichever regime a colleague or a headline mentioned. This guide sets out the framework I actually use.
2. Income-tax Act, 2025: Getting the Tax Year Right
The Income-tax Act, 2025 replaces the concepts of “Previous Year” and “Assessment Year” with a single “Tax Year” — the period in which income is earned. Tax Year 2026-27 runs from 1 April 2026 to 31 March 2027 and is the first period governed by the new Act, a transition the Income Tax Department’s own guidance confirms.
- Income earned between 1 April 2025 and 31 March 2026 (FY 2025-26, Assessment Year 2026-27) is still governed by the Income-tax Act, 1961, including the return you file for it in 2026.
- Income earned between 1 April 2026 and 31 March 2027 (Tax Year 2026-27) is the first period governed by the Income-tax Act, 2025.
This matters for a business owner who may be closing FY 2025-26 books, estimating advance tax for Tax Year 2026-27, and planning the regime choice, all at the same time. Do not apply 2025-Act section numbers to a return governed by the 1961 Act, and do not assume every provision keeps the number you may already know — Section 115BAC of the 1961 Act, for instance, is now Section 202.
3. Who Can Actually Choose Between the Two Regimes
Section 202 of the Income-tax Act, 2025 is the provision that matters here, and it is worth being precise about who it actually covers. The new regime it introduces is the default regime for individuals, Hindu Undivided Families (HUFs), Associations of Persons other than co-operative societies, Bodies of Individuals, and specified artificial juridical persons. A person in one of these categories is taxed under the new regime unless they exercise the option to move out of it in the manner Section 202(4) prescribes.
That is a narrower list than “every business owner”, and the distinction has real consequences.
| Taxpayer category | Covered by Section 202? |
|---|---|
| Individual | Yes |
| Sole proprietor | Yes — through the proprietor’s own individual return |
| Freelancer or professional (individual capacity) | Yes |
| HUF | Yes, as its own assessee |
| Association of Persons (non-cooperative) | Yes |
| Body of Individuals | Yes |
| Specified artificial juridical person | Yes |
| Partnership firm / LLP | No — taxed under its own separate provisions |
| Private limited company / OPC | No — taxed under the corporate-tax provisions |
The point I make to every founder I work with: owning a business is not the same as being the taxpayer whose income the business generates. Before comparing regimes, establish which legal person is actually being assessed.
4. How Different Business Structures Are Actually Taxed
4.1 Sole proprietorship
There is no separate proprietorship taxpayer. Business profit, after allowable business expenditure, is added to the proprietor’s own total income and taxed under whichever regime the proprietor is assessed under. This is the clearest case where the Section 202 comparison applies directly.
4.2 Freelancer or professional
Consultants, doctors, architects, designers and similar professionals operating in their own name are assessed as individuals in exactly the same way. The distinction that matters here is between gross receipts and taxable income — a point I come back to in Section 7.
4.3 HUF carrying on business
An HUF is a distinct assessee covered by Section 202, but it should not be treated as a copy of an individual proprietor. In particular, the Section 156 rebate discussed below is restricted to a resident individual — it is not available to an HUF.
4.4 Partnership firm and LLP
A firm or LLP is assessed separately from its partners and does not elect into Section 202 at all. Under the Income-tax Act, 2025, firm taxation sits in its own chapter: a flat 30 per cent rate on total income, a 12 per cent surcharge where income exceeds ₹1 crore, and 4 per cent cess on tax plus surcharge. A partner’s share of profit is exempt in the partner’s hands to avoid double taxation, but remuneration and interest paid to partners are taxable as the partner’s own business income — and that personal income is where the partner’s individual Section 202 question re-enters the picture.
4.5 Private limited company and OPC
A company is a separate taxable entity under the corporate-tax provisions, not Section 202. A domestic company may pay the standard corporate rate, or opt into the concessional 22 per cent rate under Section 200 by giving up specified deductions and incentives — a choice that, once made, is not withdrawable. An OPC follows the same corporate framework despite having a single member.
4.6 Director or shareholder
A director’s salary or a shareholder’s dividend is personal income, taxed under the individual’s own Section 202 position, entirely separately from how the company itself is taxed. The two decisions — the entity’s tax structure and the individual’s regime — should never be run together.
Not sure which taxpayer you actually are for this purpose?
It is a more common question than it sounds — a founder drawing salary, dividends and remuneration from three different entities in a year genuinely has three separate computations to run. I can map yours out on a short call.
5. Old vs New Regime: The Core Differences at a Glance
| Particular | Old regime | New regime (Section 202) |
|---|---|---|
| Default status | Must be actively chosen | Default for eligible individuals, HUFs, AOPs, BOIs and specified AJPs |
| Basic exemption (non-senior individual) | ₹2.5 lakh | ₹4 lakh |
| Slabs above exemption | 5%, 20%, 30% | 5%, 10%, 15%, 20%, 25%, 30% across ₹4-lakh bands |
| 80C-type investments | Available, subject to conditions | Not available |
| 80D health insurance | Available | Not available |
| Self-contribution to NPS | Available | Not available |
| Employer NPS contribution | Available | Remains available |
| 80G donations | Available, subject to conditions | Not available |
| Self-occupied home loan interest | Available | Not available |
| Standard deduction (salary/pension) | ₹50,000 | ₹75,000 |
| Ordinary business expenditure | Deductible in computing business income | Also deductible — this is not a restricted item |
| Loss/depreciation tied to a restricted deduction | Available where otherwise eligible | Treated as fully absorbed — no further deduction in later years |
| Regime switching (business/professional income) | — | Opting out and later withdrawing that option can be done only once |
The row worth pausing on is ordinary business expenditure. Moving to the new regime does not mean paying tax on gross receipts — genuine business expenses are still deducted in arriving at business income. What the new regime restricts is a specific list of personal deductions and incentives, which is a different thing entirely, and the distinction is worth keeping in mind through the rest of this article.
6. New Regime Tax Slabs for Tax Year 2026-27
For eligible taxpayers, Section 202(1) sets out the following slabs for Tax Year 2026-27:
| Total income | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,000 – ₹8,00,000 | 5% |
| ₹8,00,000 – ₹12,00,000 | 10% |
| ₹12,00,000 – ₹16,00,000 | 15% |
| ₹16,00,000 – ₹20,00,000 | 20% |
| ₹20,00,000 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
These are progressive slabs — each rate applies only to the income falling within that band, not to the whole amount. The corresponding old-regime slabs for a non-senior individual remain ₹2.5 lakh nil, 5 per cent from ₹2.5 lakh to ₹5 lakh, 20 per cent from ₹5 lakh to ₹10 lakh, and 30 per cent above ₹10 lakh, with higher exemption thresholds for resident senior and super-senior citizens — a benefit the new regime does not replicate as a separate slab, applying the same ₹4 lakh exemption to all ages.
On top of the slab tax, 4 per cent health and education cess applies in both regimes. Surcharge also applies at higher incomes, but the new regime caps the maximum surcharge at 25 per cent, against up to 37 per cent under the old regime for income above ₹5 crore — which caps the top effective rate at roughly 39 per cent rather than 42.74 per cent. Income taxed at special rates, such as certain capital gains, is computed separately and does not sit inside this slab structure.
7. The ₹12 Lakh Rebate Under Section 156 — What It Actually Means
Section 156 of the Income-tax Act, 2025 (the successor to the familiar Section 87A) is available only to a resident individual, and it works differently under each regime:
- Old regime — Section 156(1): a rebate of 100 per cent of tax payable or ₹12,500, whichever is lower, where total income does not exceed ₹5 lakh.
- New regime — Section 156(2): a rebate of 100 per cent of tax payable or ₹60,000, whichever is lower, where total income does not exceed ₹12 lakh, with marginal relief tapering the benefit for income slightly above that mark.
The rebate is not available to an HUF, a partnership firm, an LLP or a company — only to a resident individual.
The point I want to stress to business owners specifically: ₹12 lakh refers to taxable income, not turnover. A consultant with ₹35 lakh of gross professional receipts is not automatically outside the rebate — if legitimate business expenditure brings taxable income down to ₹12 lakh, the rebate can still apply. Equally, a business with only ₹12 lakh of turnover does not automatically owe nil tax — low expenses or other taxable income can easily push total taxable income above ₹12 lakh. The sequence that actually matters is: gross receipts, less allowable business expenditure, plus any other income, equals total taxable income — and only that final figure is tested against the ₹12 lakh threshold.
8. Deductions You Keep — and Give Up — Under Each Regime
8.1 What the old regime still offers
The old regime’s real advantage for a business owner with a genuine deduction profile is the combination of several benefits at once: 80C investments, 80D health insurance premiums, self-contribution to NPS, 80G donations, and interest on a self-occupied home loan. None of these operate in isolation — a taxpayer using several together can bring taxable income down substantially, which is exactly what the worked example in Section 9 shows.
8.2 What carries over regardless of regime
Two things are easy to conflate with each other, and shouldn’t be:
- Business expenditure — genuine costs of running the business (staff, office, materials, professional fees and so on) are deducted in computing business income under either regime. This stage happens before the regime choice even becomes relevant.
- Personal deductions — 80C, 80D, home loan interest and similar items operate on total income after business income is computed, and this is the stage where the two regimes genuinely diverge.
The employer’s contribution to NPS also survives into the new regime, even though the employee’s own self-contribution does not.
8.3 What the new regime restricts on the loss and depreciation side
Where brought-forward losses or unabsorbed depreciation are attributable to a deduction the new regime does not permit, Section 202(3) treats that loss or depreciation as having been given full effect already — no further deduction is allowed for it in a later year. For a business with meaningful carried-forward amounts of this kind, that is a one-way door worth reviewing before choosing the new regime, not after.
9. Worked Example: Same ₹15 Lakh Income, Two Different Outcomes
Two figures below are computed on the slabs in Section 6, with 4 per cent cess and no surcharge, for a resident individual under 60 with only normal-rate income.
9.1 Limited old-regime deductions
| Particulars | Old regime | New regime |
|---|---|---|
| Taxable income | ₹15,00,000 | ₹15,00,000 |
| Tax + 4% cess | ₹2,73,000 | ₹1,09,200 |
With little to claim under the old regime’s deductions, the new regime saves ₹1,63,800.
9.2 ₹6 lakh of eligible old-regime deductions
| Particulars | Old regime | New regime |
|---|---|---|
| Business income | ₹15,00,000 | ₹15,00,000 |
| Eligible deductions | ₹6,00,000 | Not available |
| Taxable income | ₹9,00,000 | ₹15,00,000 |
| Tax + 4% cess | ₹96,200 | ₹1,09,200 |
With ₹6 lakh of genuine deductions in play, the same ₹15 lakh income now favours the old regime by ₹13,000.
The underlying income has not changed between the two examples — only the deduction profile has. That is the entire argument for running your own two-column computation rather than relying on which regime “usually” wins, and it is also why I would caution against manufacturing deductions purely to chase this outcome: a ₹1 lakh deduction reduces taxable income by ₹1 lakh, not tax payable by ₹1 lakh — the actual saving depends on your marginal rate.
10. Regime-Switching Rules for Business and Professional Income
This is where business and professional taxpayers face materially different rules from a salaried individual, and it is the part of this decision most likely to be underestimated.
- Default and timing. The new regime is the default. To move to the old regime, the option under Section 202(4) must be exercised in the return of income filed under Section 263(1), on or before the applicable due date.
- Continuing effect. Once a person with business or professional income exercises the option, it applies to subsequent tax years as well — it is not re-elected each year the way a salaried individual’s choice can be.
- One withdrawal, then done. The option, once exercised, may be withdrawn only once. After that withdrawal, the person is not eligible to exercise the option again for as long as they continue to have business or professional income.
A salaried individual without business income can reassess the choice every year in the return. A proprietor, partner drawing remuneration, or professional cannot treat the decision the same way once business or professional income is in the picture — which is why the decision should be made with an eye on the next several years, not just the current one: expected housing purchases, planned investments, anticipated carried-forward losses and the trajectory of the business itself all belong in the analysis before the option is exercised.
Once the regime and the resulting liability are estimated, the same numbers feed straight into advance-tax planning — instalments of 15, 45, 75 and 100 per cent of the estimated liability are due by 15 June, 15 September, 15 December and 15 March respectively wherever the year’s tax payable is ₹10,000 or more, so this is not purely a year-end filing decision.
11. A Practical Way to Decide: My Two-Column Approach
Rather than asking which regime is “better” in the abstract, I run an actual side-by-side computation on real numbers before recommending either regime to a client:
| Particulars | Old regime | New regime |
|---|---|---|
| Gross total income | ₹____ | ₹____ |
| Eligible exemptions | ₹____ | ₹____ |
| Eligible deductions | ₹____ | ₹____ |
| Taxable income | ₹____ | ₹____ |
| Income tax | ₹____ | ₹____ |
| Cess | ₹____ | ₹____ |
| Final liability | ₹____ | ₹____ |
Alongside the current year’s figures, I also review carried-forward losses and depreciation, any brought-forward amount that could be treated as fully absorbed under Section 202(3), and what the client expects to happen over the next two to three years — a housing purchase, a change in investment pattern, or a shift in business structure can all change which side of the comparison wins.
12. Where I See Business Owners Get This Wrong
- Turnover mistaken for taxable income. The ₹12 lakh rebate threshold and the ₹4 lakh exemption both apply to taxable income after expenses, not to gross receipts or turnover.
- Treating the choice as an annual toggle. Once business or professional income is involved, the option carries forward and can be withdrawn only once — see Section 10.
- Conflating business expense with personal deduction. Genuine business costs reduce business income under either regime; 80C, 80D and similar items are a separate, later stage of the computation that only the old regime allows.
- Ignoring the loss and depreciation position. A business with material carried-forward amounts tied to a restricted deduction can lose that benefit permanently on moving to the new regime.
- Assuming the individual rebate flows to the entity. An HUF, partnership firm, LLP or company cannot claim the Section 156 resident-individual rebate, however the underlying business is structured.
- Comparing only the highest slab rate. As Section 9 shows, the same income and a genuine ₹6 lakh of deductions is enough to flip which regime actually costs less — the marginal rate on its own tells you very little.
13. Why Businesses Choose CA Murli Chandak for This Decision
A regime comparison done properly needs more than the slab table — it needs an accurate business-income computation, a review of your existing deductions and carried-forward positions, and, where a valuation question sits alongside the tax question (for instance, the fair market value of an unquoted shareholding on a transfer or gift under Section 50CA/56(2)(x)), the ability to work through both under one roof rather than routing them to separate professionals.
The support available alongside this decision covers:
- Taxation services — the actual computation run under both regimes on your numbers, not a rule of thumb.
- Valuation as a registered valuer — where a share transfer, gift, or funding round needs a formal valuation alongside the tax position, that work is performed under IBBI registration, verifiable on the IBBI register of registered valuers.
- Secretarial and ROC compliance — relevant where a company or LLP structure is itself part of the decision.
- Startup advisory — for founders weighing personal regime choices against the business’s own growth and funding plans.
More detail on background and areas of practice is available on the About page.
14. Related Reading
- Taxation Services
- Virtual CFO Pricing in India
- GST Consultant in Delhi
- GST Consultant in Mumbai
- Company Registration Consultant in Mumbai
- Can an Indian Valuer Do a 409A Valuation?
15. Final Takeaway
The regime that “usually” wins is not a useful answer for a business owner. What matters is your own taxable income after genuine business expenditure, the deductions you can actually substantiate, your carried-forward loss and depreciation position, and — if business or professional income is involved — the fact that this choice does not reset every year the way it does for a salaried employee. Run the two-column computation on your real numbers before the return-filing deadline, not after.
16. Frequently Asked Questions
What is Section 202 of the Income-tax Act, 2025?
It is the provision that introduces the new tax regime as the default regime for individuals, HUFs, Associations of Persons (other than co-operative societies), Bodies of Individuals and specified artificial juridical persons, replacing Section 115BAC of the Income-tax Act, 1961.
What are the new regime tax slabs for Tax Year 2026-27?
Nil up to ₹4 lakh, 5% from ₹4-8 lakh, 10% from ₹8-12 lakh, 15% from ₹12-16 lakh, 20% from ₹16-20 lakh, 25% from ₹20-24 lakh, and 30% above ₹24 lakh, plus 4% cess and surcharge capped at 25%.
Can a business owner choose the old regime?
An individual, HUF, AOP, BOI or specified artificial juridical person with business or professional income can opt out of the new regime by exercising the option under Section 202(4) in the return filed under Section 263(1). A partnership firm, LLP or company does not make this election at all — each is taxed under its own separate provisions.
Does a private limited company get the ₹12 lakh rebate?
No. The Section 156 rebate is available only to a resident individual. HUFs, partnership firms, LLPs and companies cannot claim it.
Is the ₹12 lakh rebate based on turnover or taxable income?
Taxable income, after allowable business expenditure and any other income — not gross receipts or turnover. A high-turnover business can still qualify if expenses bring taxable income to ₹12 lakh or below, and a low-turnover business can still exceed the threshold once other income is added.
Can I switch back to the old regime after choosing the new regime?
For a person with business or professional income, once the option to move to the old regime is exercised and then withdrawn, it can be withdrawn only once, and the person cannot exercise the option again while they continue to have business or professional income. This is materially stricter than the position for someone without business income, who can choose afresh each year.
Are ordinary business expenses disallowed under the new regime?
No. The new regime restricts specified personal deductions and exemptions, such as 80C, 80D and self-occupied home loan interest. Genuine business expenditure incurred in earning business income continues to be deducted under either regime.
What happens to brought-forward losses or depreciation under the new regime?
Where a loss or unabsorbed depreciation is attributable to a deduction the new regime does not permit, Section 202(3) treats it as fully absorbed — no further deduction is available for it in a subsequent year.
By what date must the option to opt out of the new regime be exercised?
On or before the due date for furnishing the return of income under Section 263(1) for the relevant tax year, in the manner prescribed.
Discuss Your Regime Choice
If you would like an actual computation run on your numbers rather than a general rule, tell me your business structure, your approximate taxable income and the deductions you currently claim, and I can tell you which regime is more efficient for you this year — and what it means for the years after.
CA Murli Chandak – FCA | IBBI-Registered Valuer (Securities or Financial Assets) | IBBI/RV/07/2021/14408
Website: murlichandak.com
Phone: +91 99985 39902
Email: murlichandak@murlichandak.com
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This article is intended for general guidance only and does not constitute professional tax advice. Statutory positions are stated as at August 2026 and are drawn from the Income-tax Act, 2025 and related official guidance, but rules, rates and prescribed procedures are subject to change and, in some respects, remain subject to final rules under the Income-tax Rules, 2026. Please obtain advice specific to your circumstances, and prepare an actual tax computation, before making a regime-selection decision.