Every year, individual taxpayers in India choose between two ways of calculating income tax: the new tax regime (lower rates, very few deductions) and the old tax regime (higher rates, many deductions). Since Budget 2025, the new regime has become far more attractive — income up to ₹12 lakh is effectively tax-free, and up to ₹12.75 lakh for salaried people.
2026 update: The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, and "previous year / assessment year" are now called the "tax year". The slab rates below were not changed for FY 2026-27 (tax year 2026-27). They apply to both FY 2025-26 and FY 2026-27.
New tax regime slabs (default regime)
| Taxable income | Tax rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
- Standard deduction for salaried and pensioners: ₹75,000
- Rebate: up to ₹60,000, so no tax if taxable income is up to ₹12 lakh (not available on special-rate income like certain capital gains)
Old tax regime slabs (below 60 years)
| Taxable income | Tax rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
- Standard deduction: ₹50,000
- Rebate: up to ₹12,500, so no tax if taxable income is up to ₹5 lakh
- Senior citizens (60–80) get a ₹3 lakh basic exemption, and super seniors (80+) get ₹5 lakh
A 4% health and education cess is added to the tax in both regimes.
Deductions: what you lose in the new regime
| Deduction | Old regime | New regime |
|---|---|---|
| Standard deduction (salary) | ₹50,000 | ₹75,000 |
| 80C (PPF, ELSS, LIC, EPF, tuition fees, home loan principal) | Up to ₹1.5 lakh | ✗ |
| 80D (health insurance) | Up to ₹25,000 / ₹50,000 | ✗ |
| HRA exemption | ✓ | ✗ |
| Home loan interest on self-occupied house | Up to ₹2 lakh | ✗ |
| NPS — own contribution (extra ₹50,000) | ✓ | ✗ |
| NPS — employer's contribution | ✓ (up to 10%) | ✓ (up to 14%) |
| Leave travel allowance (LTA) | ✓ | ✗ |
| 80E (education loan interest) | ✓ | ✗ |
Real examples (salaried, FY 2025-26, tax including cess)
| Gross salary | Deductions claimed in old regime (besides standard deduction) | Tax — new regime | Tax — old regime | Better |
|---|---|---|---|---|
| ₹10,00,000 | ₹1,50,000 | ₹0 | ₹75,400 | New |
| ₹12,75,000 | Nil | ₹0 | ₹1,87,200 | New |
| ₹15,00,000 | ₹3,75,000 | ₹97,500 | ₹1,40,400 | New |
| ₹15,00,000 | ₹5,00,000 | ₹97,500 | ₹1,06,600 | New |
| ₹18,00,000 | ₹4,50,000 | ₹1,50,800 | ₹2,10,600 | New |
| ₹25,00,000 | ₹5,00,000 | ₹3,19,800 | ₹4,13,400 | New |
When does the old regime still win?
Only when your total deductions are very high. Roughly, for a salaried person, the old regime becomes better only if deductions (besides the standard deduction) are more than:
| Gross salary | Deductions needed for old regime to win |
|---|---|
| ₹10 lakh | About ₹4.5 lakh |
| ₹15 lakh | About ₹5.5 lakh |
| ₹20 lakh | About ₹7.1 lakh |
| ₹25 lakh | About ₹8 lakh |
This usually happens only for people with large HRA exemption plus a home loan plus full 80C, 80D and NPS.
Switching between regimes
- Salaried and pensioners (no business income): you can choose a regime every year while filing your return. Tell your employer your choice for TDS, but you can still change it when you file.
- Business or professional income: to choose the old regime, you must file a declaration (Form 10-IEA under the old Act) before the return due date. After opting out, you can come back to the new regime only once in your lifetime.
How to decide in 3 steps
- Add up all the deductions you can actually claim in the old regime (with proof).
- Calculate tax under both regimes — or ask us to do it.
- Choose the lower one. Recheck every year, because your salary and deductions change.
Need help with this?
Our team can handle it for you, online, from anywhere in India.
Frequently Asked Questions
Is the new tax regime compulsory?
No. It is the default regime, but you can opt for the old regime if it saves you more tax.
Is income up to ₹12 lakh really tax-free?
Under the new regime, yes, because of the rebate — for normal income like salary. Salaried people also get the ₹75,000 standard deduction, so gross salary up to ₹12.75 lakh is tax-free.
Did Budget 2026 change the slabs?
No. The slabs, standard deduction and rebate stayed the same for FY 2026-27.
Can I claim 80C in the new regime?
No. Most deductions, including 80C, 80D and HRA, are not allowed in the new regime. Employer's NPS contribution is allowed.
Official sources
This article is for general information only and is not legal or tax advice. Rules and fees change; check the latest position or talk to our team before acting.