For FY 2025-26 (assessment year 2026-27), the new tax regime became much more attractive. Budget 2025 widened its slabs and raised the Section 87A rebate so that income up to ₹12 lakh is effectively tax-free, or ₹12.75 lakh for salaried people after the standard deduction. The old regime still exists, with its familiar deductions such as 80C, 80D, HRA and home loan interest, but it now only wins if you claim a lot of deductions.
This guide sets out the slabs under both regimes, explains the rebate and marginal relief, works through examples, and shows roughly how much you would need to claim in deductions for the old regime to come out ahead.
This article is general information for resident individuals below 60 for FY 2025-26, not tax advice. Rules for other years, senior citizens, non-residents and special cases differ. Verify with the Income Tax Department or a qualified tax professional.
New tax regime slabs for FY 2025-26
The new regime is the default. If you do not choose otherwise, your tax is calculated under it.
| Taxable income | Tax rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
The ₹12 lakh rebate
Under Section 87A, resident individuals in the new regime get a rebate of up to ₹60,000 if their taxable income does not exceed ₹12 lakh. Tax on exactly ₹12 lakh under the slabs above is ₹20,000 (5% of ₹4 lakh) plus ₹40,000 (10% of ₹4 lakh), which is ₹60,000, so the rebate wipes it out entirely.
Salaried employees and pensioners also get a standard deduction of ₹75,000 under the new regime. So a gross salary of up to ₹12.75 lakh means zero tax, as long as you have no special-rate income.
Marginal relief just above ₹12 lakh
Without relief, earning one rupee over ₹12 lakh would suddenly create a tax bill of over ₹60,000. Marginal relief prevents that: your tax cannot exceed the amount by which your income goes over ₹12 lakh. For example, at a taxable income of ₹12,10,000, normal tax would be ₹61,500, but marginal relief limits it to ₹10,000 (plus cess). The relief fades out at a taxable income of roughly ₹12.7 lakh.
What the rebate does not cover
The 87A rebate does not apply to income taxed at special rates, such as short-term capital gains on listed shares and equity funds (Section 111A, 20%) and long-term capital gains on them (Section 112A, 12.5% above ₹1.25 lakh). If you have such gains, you may owe tax on them even if your other income is under ₹12 lakh.
Deductions allowed in the new regime
The new regime removes most deductions. The main ones still available are the standard deduction of ₹75,000 for salary and pension, the employer's contribution to your NPS account under Section 80CCD(2), the family pension deduction, and a few others. You cannot claim 80C, 80D, HRA exemption, LTA, or interest on a home loan for a self-occupied house.
Old tax regime slabs for FY 2025-26
| Taxable income | Tax rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 to ₹5,00,000 | 5% |
| ₹5,00,001 to ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Senior citizens (60 to 79) have a basic exemption of ₹3 lakh and super senior citizens (80 and over) ₹5 lakh under the old regime. The old regime's 87A rebate is up to ₹12,500 for taxable income up to ₹5 lakh. The standard deduction for salary is ₹50,000.
The old regime's appeal is its deductions and exemptions, including:
- Section 80C: up to ₹1.5 lakh for EPF, PPF, ELSS, life insurance premiums, home loan principal, children's tuition fees and similar.
- Section 80D: health insurance premiums, up to ₹25,000 for yourself and family (₹50,000 if you are a senior citizen), plus a separate limit for parents.
- Section 80CCD(1B): an extra ₹50,000 for your own NPS contributions.
- HRA exemption if you pay rent and receive house rent allowance.
- Section 24(b): up to ₹2 lakh of interest on a home loan for a self-occupied house.
- Others such as education loan interest (80E) and donations (80G).
Under both regimes, a 4% health and education cess is added to the tax, and a surcharge applies above ₹50 lakh of income (capped at 25% in the new regime).
Worked examples for salaried employees
The examples below use gross salary, apply the relevant standard deduction, and include 4% cess. They assume no other income.
Gross salary ₹12.75 lakh
- New regime: taxable income ₹12 lakh, tax nil after rebate.
- Old regime with ₹1.75 lakh of deductions (80C ₹1.5 lakh and 80D ₹25,000): taxable income ₹10.5 lakh, tax about ₹1,32,600.
Gross salary ₹15 lakh
- New regime: taxable income ₹14.25 lakh, tax ₹97,500.
- Old regime with ₹2.75 lakh of deductions (80C, 80D and ₹50,000 NPS): taxable income ₹11.75 lakh, tax about ₹1,71,600.
- Old regime with ₹5 lakh of deductions: tax about ₹1,06,600, still higher than the new regime.
Gross salary ₹20 lakh
- New regime: taxable income ₹19.25 lakh, tax about ₹1,92,400.
- Old regime with ₹6 lakh of deductions: taxable income ₹13.5 lakh, tax about ₹2,26,200.
When does the old regime win?
Here is roughly how much you would need to claim in deductions and exemptions, on top of the ₹50,000 standard deduction, for the old regime to match the new regime:
| Gross salary | New regime tax (with cess) | Old regime break-even deductions |
|---|---|---|
| ₹10 lakh | Nil | about ₹4.5 lakh |
| ₹12.75 lakh | Nil | about ₹7.25 lakh |
| ₹15 lakh | ₹97,500 | about ₹5.4 lakh |
| ₹20 lakh | ₹1,92,400 | about ₹7.1 lakh |
| ₹25 lakh and above | ₹3,19,800 at ₹25 lakh | about ₹8 lakh |
If your total deductions are below these levels, the new regime is likely to be cheaper. Reaching them usually needs a combination such as full 80C, health insurance, NPS under 80CCD(1B), a large HRA exemption and home loan interest. Many salaried people do not get there, which is why most will find the new regime better for FY 2025-26. People with big rent and home loan claims at higher incomes should still run both calculations.
Can you switch between regimes?
- Salaried and other individuals without business income can choose the regime every year when filing the return. Telling your employer your choice at the start of the year only affects TDS; your final choice is made in the ITR. To choose the old regime, you generally need to file by the original due date; a belated return is taxed under the default new regime.
- Individuals with business or professional income opt out of the new regime by filing Form 10-IEA. They can switch back to the new regime later, but the option to move back and forth is limited, so decide carefully.
A quick checklist
- Add up your gross income from all sources.
- List every deduction and exemption you can genuinely claim under the old regime.
- Calculate tax under both regimes, including cess and any special-rate income.
- Choose the lower one, and remember that the new regime also means less paperwork and no need to lock money into tax-saving products just for the deduction.
- Do not buy an insurance policy or tax-saving investment only to save tax; make sure it suits your goals first.
Compare both regimes on your phone
Advance Finance Calculator is our Android app for Indian personal finance. Its income tax workflow organises income sources, deductions, exemptions, capital gains, tax paid and relief inputs into a guided flow, so you can enter your numbers once and compare outcomes. The app also includes EMI and loan calculators and SIP, FD and PPF calculators for the rest of your planning. Its results are informational estimates; confirm your final figures with the official income tax utilities or a tax professional.