Budget 2025 made the new tax regime much more generous. For FY 2025-26 (AY 2026-27), a resident individual pays no tax on taxable income up to ₹12 lakh under the new regime, thanks to a larger section 87A rebate. For salaried employees, the ₹75,000 standard deduction takes that to ₹12.75 lakh of salary.
The two slab structures
| New regime (default) | Rate | Old regime (below 60) | Rate |
|---|---|---|---|
| Up to ₹4 lakh | Nil | Up to ₹2.5 lakh | Nil |
| ₹4–8 lakh | 5% | ₹2.5–5 lakh | 5% |
| ₹8–12 lakh | 10% | ₹5–10 lakh | 20% |
| ₹12–16 lakh | 15% | Above ₹10 lakh | 30% |
| ₹16–20 lakh | 20% | ||
| ₹20–24 lakh | 25% | ||
| Above ₹24 lakh | 30% |
Health and education cess of 4% applies on top in both regimes. The rebate is ₹60,000 in the new regime (income up to ₹12 lakh) and ₹12,500 in the old (income up to ₹5 lakh), with marginal relief just above ₹12 lakh in the new regime.
What you give up in the new regime
The new regime trades lower rates for fewer deductions. You lose 80C (PF, PPF, LIC, ELSS, tuition fees), 80D health insurance, HRA exemption, LTA and interest on a self-occupied home loan. You keep the standard deduction, the employer's NPS contribution under section 80CCD(2), and the family-pension deduction.
A quick way to decide
Add up every deduction you would actually claim in the old regime. Then compare the tax both ways. As a rough guide:
- Up to about ₹12.75 lakh salary: the new regime gives nil tax, so it almost always wins.
- ₹15–25 lakh: the old regime wins only with large deductions — typically HRA in a metro, full 80C, 80D and a home loan together.
- Above ₹25 lakh: the new regime usually wins unless home-loan interest and HRA are both large.
Can you switch every year?
If you have no business income, yes — you choose the regime each year when you file, as long as you file by the original due date. If you have business or professional income, opting out of the new regime needs Form 10-IEA before the due date, and you can switch back only once in your lifetime. That makes the decision far more important for doctors, consultants and traders.
The rules in this article apply to FY 2025-26. From 1 April 2026, the new Income-tax Act, 2025 replaces the 1961 Act, so check the current position with your CA before planning for later years.