For FY 2025-26, the new tax regime is better for most salaried employees. Under the Finance Act 2025, a salary of up to ₹12.75 lakh pays zero tax in the new regime (₹12 lakh taxable income after the ₹75,000 standard deduction, with the Section 87A rebate). Below that level, the old regime cannot beat it, whatever your deductions. Above ₹12.75 lakh, the old regime wins only if your deductions (HRA, 80C, home-loan interest, 80D, NPS) add up to roughly ₹5.4 lakh at ₹15 lakh, ₹7.1 lakh at ₹20 lakh, and ₹8 lakh at ₹25 lakh or more. The new regime is the default; you must opt in to the old one.
Rules as on 23 October 2026: Slabs, rebate and deductions below are per the Finance Act 2025 (Union Budget, 1 February 2025), in force for FY 2025-26 (AY 2026-27). The new Income Tax Act 2025, effective 1 April 2026, re-numbers sections but does not change these slabs or rates. Any Budget 2026 proposals apply from FY 2026-27 onwards and should be checked on incometaxindia.gov.in before you plan. This article is general information, not tax advice.
Key Takeaways
- New regime (FY 2025-26): nil tax up to ₹12 lakh taxable income via the 87A rebate; ₹12.75 lakh salary for the salaried
- New regime slabs run from 0% (up to ₹4 lakh) to 30% (above ₹24 lakh) in seven steps
- Old regime is unchanged: nil up to ₹2.5 lakh, 30% above ₹10 lakh, 87A rebate only up to ₹5 lakh
- Standard deduction: ₹75,000 (new) vs ₹50,000 (old)
- Old regime alone allows 80C, 80D, HRA, LTA, Section 24(b) and 80CCD(1B); both allow employer NPS under 80CCD(2)
- Salaried employees without business income can choose afresh every year at ITR filing
What are the income tax slabs for FY 2025-26?
The Finance Act 2025 widened every slab in the new regime and raised the Section 87A rebate limit from ₹7 lakh to ₹12 lakh of taxable income. The old regime was left untouched. The official rate charts are published by the Central Board of Direct Taxes (CBDT) on the Income Tax Department website.
| New Regime (Section 115BAC) — taxable income | Rate | Old Regime — taxable income | Rate |
|---|---|---|---|
| Up to ₹4,00,000 | Nil | Up to ₹2,50,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% | ₹2,50,001 – ₹5,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% | ₹5,00,001 – ₹10,00,000 | 20% |
| ₹12,00,001 – ₹16,00,000 | 15% | Above ₹10,00,000 | 30% |
| ₹16,00,001 – ₹20,00,000 | 20% | — | — |
| ₹20,00,001 – ₹24,00,000 | 25% | — | — |
| Above ₹24,00,000 | 30% | — | — |
Section 87A rebate: new regime — full rebate (up to ₹60,000) if taxable income is ₹12 lakh or less, with marginal relief just above it so that tax never exceeds the income over ₹12 lakh (relief runs out near ₹12.7 lakh taxable income). Old regime — rebate up to ₹12,500 if taxable income is ₹5 lakh or less. A 4% health and education cess is added to tax in both regimes. Surcharge applies above ₹50 lakh. Slabs above are for individuals below 60; the old regime has higher nil slabs for senior citizens.
Which deductions does each regime allow?
| Deduction | Old Regime | New Regime |
|---|---|---|
| Standard deduction (salary / pension) | ₹50,000 | ₹75,000 |
| Section 80C (EPF, PPF, ELSS, LIC, tuition fees, home-loan principal) | Up to ₹1,50,000 | Not available |
| Section 80D (health insurance) | ₹25,000 self + ₹25,000/₹50,000 parents | Not available |
| HRA exemption (Section 10(13A)) | Formula-based, needs rent paid | Not available |
| Home-loan interest, self-occupied (Section 24(b)) | Up to ₹2,00,000 | Not available |
| NPS own contribution (80CCD(1B)) | Extra ₹50,000 | Not available |
| LTA (Section 10(5)) | Exempt, twice in a 4-year block | Not available |
| Employer NPS contribution (80CCD(2)) | Up to 10% of basic + DA | Up to 14% of basic + DA (private-sector employees) |
Two points matter here. First, Section 80CCD(2) is the one large deduction that survives in the new regime, and it is more generous there. If your employer offers NPS through salary structuring, it lowers tax in both regimes. Second, the ₹75,000 standard deduction and the 87A rebate are automatic. You do not need to invest or submit any proof to get them.
How much tax do you pay at ₹8L, ₹12L, ₹15L, ₹20L and ₹30L?
Each table below shows three cases: old regime with no deductions, old regime with a typical deduction bundle, and the new regime. The computation lines are written out so you can check them. All figures are for a resident individual below 60, FY 2025-26, with the cess added at the end.
Example 1: ₹8 lakh salary
Typical deductions: HRA ₹1,20,000 + 80C ₹1,50,000 + 80D ₹25,000 = ₹2,95,000.
| Line | Old — no deductions | Old — with deductions | New regime |
|---|---|---|---|
| Gross salary | ₹8,00,000 | ₹8,00,000 | ₹8,00,000 |
| Less standard deduction | − ₹50,000 | − ₹50,000 | − ₹75,000 |
| Less other deductions | — | − ₹2,95,000 | — |
| Taxable income | ₹7,50,000 | ₹4,55,000 | ₹7,25,000 |
| Slab tax | 5% × 2.5L = 12,500 20% × 2.5L = 50,000 = ₹62,500 | 5% × 2.05L = ₹10,250 | 5% × 3.25L = ₹16,250 |
| 87A rebate | Nil (above ₹5L) | − ₹10,250 | − ₹16,250 |
| Cess 4% | ₹2,500 | — | — |
| Total tax | ₹65,000 | ₹0 | ₹0 |
Verdict: the new regime gives zero tax with no paperwork. The old regime only matches it if you can claim at least ₹2.5 lakh of deductions. It can never do better than zero, so the new regime is the easy choice.
Example 2: ₹12 lakh salary
Typical deductions: HRA ₹1,80,000 + 80C ₹1,50,000 + Section 24(b) ₹2,00,000 + 80D ₹25,000 + 80CCD(1B) ₹50,000 = ₹6,05,000.
| Line | Old — no deductions | Old — with deductions | New regime |
|---|---|---|---|
| Gross salary | ₹12,00,000 | ₹12,00,000 | ₹12,00,000 |
| Less standard deduction | − ₹50,000 | − ₹50,000 | − ₹75,000 |
| Less other deductions | — | − ₹6,05,000 | — |
| Taxable income | ₹11,50,000 | ₹5,45,000 | ₹11,25,000 |
| Slab tax | 12,500 + 1,00,000 + 30% × 1.5L = 45,000 = ₹1,57,500 | 12,500 + 20% × 0.45L = 9,000 = ₹21,500 | 5% × 4L = 20,000 + 10% × 3.25L = 32,500 = ₹52,500 |
| 87A rebate | Nil | Nil (above ₹5L) | − ₹52,500 |
| Cess 4% | ₹6,300 | ₹860 | — |
| Total tax | ₹1,63,800 | ₹22,360 | ₹0 |
Verdict: the new regime wins even against a home loan, HRA, full 80C and NPS. To reach zero in the old regime you would need ₹6.5 lakh of deductions on a ₹12 lakh salary, which is rare. This is the single biggest change from FY 2024-25, when the ₹12 lakh earner with these deductions was better off in the old regime.
Example 3: ₹15 lakh salary
Typical deductions: HRA ₹2,40,000 + 80C ₹1,50,000 + Section 24(b) ₹2,00,000 + 80D ₹25,000 + 80CCD(1B) ₹50,000 = ₹6,65,000.
| Line | Old — no deductions | Old — with deductions | New regime |
|---|---|---|---|
| Gross salary | ₹15,00,000 | ₹15,00,000 | ₹15,00,000 |
| Less standard deduction | − ₹50,000 | − ₹50,000 | − ₹75,000 |
| Less other deductions | — | − ₹6,65,000 | — |
| Taxable income | ₹14,50,000 | ₹7,85,000 | ₹14,25,000 |
| Slab tax | 12,500 + 1,00,000 + 30% × 4.5L = 1,35,000 = ₹2,47,500 | 12,500 + 20% × 2.85L = 57,000 = ₹69,500 | 20,000 + 40,000 + 15% × 2.25L = 33,750 = ₹93,750 |
| 87A rebate | Nil | Nil | Nil (above ₹12L) |
| Cess 4% | ₹9,900 | ₹2,780 | ₹3,750 |
| Total tax | ₹2,57,400 | ₹72,280 | ₹97,500 |
Verdict: with the full bundle, the old regime saves ₹25,220. Without the home loan (deductions ₹4,65,000), old-regime tax rises to ₹1,13,880 and the new regime wins by ₹16,380. The home loan is the swing factor at this income.
Example 4: ₹20 lakh salary
Typical deductions: HRA ₹3,00,000 + 80C ₹1,50,000 + Section 24(b) ₹2,00,000 + 80D ₹50,000 (self + parents) + 80CCD(1B) ₹50,000 = ₹7,50,000.
| Line | Old — no deductions | Old — with deductions | New regime |
|---|---|---|---|
| Gross salary | ₹20,00,000 | ₹20,00,000 | ₹20,00,000 |
| Less standard deduction | − ₹50,000 | − ₹50,000 | − ₹75,000 |
| Less other deductions | — | − ₹7,50,000 | — |
| Taxable income | ₹19,50,000 | ₹12,00,000 | ₹19,25,000 |
| Slab tax | 1,12,500 + 30% × 9.5L = 2,85,000 = ₹3,97,500 | 1,12,500 + 30% × 2L = 60,000 = ₹1,72,500 | 20,000 + 40,000 + 60,000 + 20% × 3.25L = 65,000 = ₹1,85,000 |
| Cess 4% | ₹15,900 | ₹6,900 | ₹7,400 |
| Total tax | ₹4,13,400 | ₹1,79,400 | ₹1,92,400 |
Verdict: the old regime edges ahead by ₹13,000, but only with ₹7.5 lakh of deductions. Drop the NPS top-up or the parents' health cover and the gap closes to almost nothing.
Example 5: ₹30 lakh salary
Typical deductions: HRA ₹4,00,000 + 80C ₹1,50,000 + Section 24(b) ₹2,00,000 + 80D ₹50,000 + 80CCD(1B) ₹50,000 = ₹8,50,000.
| Line | Old — no deductions | Old — with deductions | New regime |
|---|---|---|---|
| Gross salary | ₹30,00,000 | ₹30,00,000 | ₹30,00,000 |
| Less standard deduction | − ₹50,000 | − ₹50,000 | − ₹75,000 |
| Less other deductions | — | − ₹8,50,000 | — |
| Taxable income | ₹29,50,000 | ₹21,00,000 | ₹29,25,000 |
| Slab tax | 1,12,500 + 30% × 19.5L = 5,85,000 = ₹6,97,500 | 1,12,500 + 30% × 11L = 3,30,000 = ₹4,42,500 | 20,000 + 40,000 + 60,000 + 80,000 + 1,00,000 + 30% × 5.25L = 1,57,500 = ₹4,57,500 |
| Cess 4% | ₹27,900 | ₹17,700 | ₹18,300 |
| Total tax | ₹7,25,400 | ₹4,60,200 | ₹4,75,800 |
Verdict: old regime by ₹15,600, again only with a large HRA claim and a home loan. The two regimes are close at high incomes because both charge 30% at the top; the fight is only over how much income you can shelter.
How much in deductions makes the old regime better?
The table gives the break-even: the deductions (excluding the standard deduction, which is counted separately) you need in the old regime before its tax equals new-regime tax at the same salary. Anything above this figure, and the old regime saves you money.
| Gross salary | New-regime tax (with cess) | Break-even deductions (old regime) | Realistic? |
|---|---|---|---|
| ₹8,00,000 | ₹0 | ₹2,50,000 (only to tie at zero) | Old can only tie, never win |
| ₹12,00,000 | ₹0 | ₹6,50,000 (only to tie at zero) | Old can only tie, never win |
| ₹15,00,000 | ₹97,500 | ₹5,43,750 | Needs home loan + HRA + full 80C |
| ₹20,00,000 | ₹1,92,400 | ₹7,08,333 | Needs all of the above + large HRA + NPS |
| ₹25,00,000 | ₹3,19,800 | ₹8,00,000 | Metro rent + home loan + every section maxed |
| ₹30,00,000 | ₹4,75,800 | ₹8,00,000 | Same; break-even stays ₹8L above ₹24.75L salary |
How to read this: at ₹15 lakh, 80C + 24(b) + 80D + 80CCD(1B) give ₹4,25,000. You still need about ₹1,19,000 of HRA exemption to break even. At ₹20 lakh and above, the break-even stops moving once your new-regime income crosses the 30% slab, because both regimes then tax each extra rupee at the same rate. Check your own case on our Tax Planning Calculator or the official Income Tax Department calculator.
Who should choose the new tax regime?
- Anyone with a salary up to ₹12.75 lakh: tax is nil, and no deduction bundle can beat nil
- Salaried employees at ₹13–20 lakh without a home loan or without a large HRA claim
- People who do not pay rent (own house, living with parents) and so have no HRA exemption
- Freelancers and consultants with no employer benefits to structure
- Anyone who wants no proof submission and no Form 12BB chase in January
Who should choose the old tax regime?
- Salary of ₹15 lakh or more with a self-occupied home loan claiming the full ₹2 lakh under Section 24(b)
- Paying high metro rent with a salary structure that gives a large HRA exemption
- Already investing the full ₹1.5 lakh in 80C through EPF, PPF, ELSS or children's tuition
- Paying health insurance for parents (80D up to ₹50,000 for senior-citizen parents)
- Contributing the extra ₹50,000 to NPS under 80CCD(1B)
In practice the old regime now suits a narrow group: higher earners who tick most of these boxes at once. Add up your deductions first, then compare against the break-even table above.
How do you switch between regimes?
- Default: the new regime applies unless you opt out. Your employer will deduct TDS on new-regime slabs if you say nothing.
- At work: tell your employer your choice at the start of the financial year (April). Employers collect this under CBDT's TDS guidance for Section 192.
- At ITR filing: salaried taxpayers with no business income can pick either regime in the return, whatever the employer deducted. Refunds or balance tax settle the difference.
- Business or professional income: opting out of the new regime needs Form 10-IEA, and you can return to the new regime only once in your lifetime.
Related Guides You Might Find Useful
Frequently Asked Questions
What is the tax-free limit in the new tax regime for FY 2025-26?
Taxable income up to ₹12 lakh is tax-free under the new regime because the Section 87A rebate (up to ₹60,000) cancels the full slab tax. A salaried employee also gets the ₹75,000 standard deduction, so a gross salary of up to ₹12.75 lakh pays zero tax. Marginal relief applies just above this so that tax never exceeds the income earned over ₹12 lakh.
Which tax regime is better for a ₹12 lakh salary?
The new regime. A ₹12 lakh salary pays zero tax in the new regime for FY 2025-26. In the old regime you would need ₹6.5 lakh of deductions on top of the ₹50,000 standard deduction just to match that, which is far more than a typical home loan, HRA and 80C bundle provides. With a realistic ₹6.05 lakh of deductions the old regime still charges ₹22,360.
Which tax regime is better for a ₹15 lakh salary?
It depends on your deductions. New-regime tax on a ₹15 lakh salary is ₹97,500 including cess. The old regime beats this only if your deductions (excluding the standard deduction) exceed ₹5,43,750. With a ₹2 lakh home-loan interest claim, full 80C, ₹2.4 lakh HRA exemption, 80D and NPS, the old regime saves about ₹25,220. Without the home loan, the new regime is cheaper.
Can I switch between the old and new tax regime every year?
Yes, if you are salaried with no business or professional income. You can choose either regime each year when you file your ITR, regardless of what you told your employer. Taxpayers with business or professional income must opt out of the new regime using Form 10-IEA and can switch back to the new regime only once.
Is 80C available in the new tax regime?
No. Section 80C (EPF, PPF, ELSS, life insurance premiums, tuition fees, home-loan principal), 80D health insurance, HRA, LTA, Section 24(b) home-loan interest and the extra ₹50,000 NPS deduction under 80CCD(1B) are all unavailable in the new regime. The new regime allows the ₹75,000 standard deduction and the employer's NPS contribution under Section 80CCD(2), up to 14% of basic plus DA for private-sector employees.
Do the new Income Tax Act 2025 or Budget 2026 change these slabs?
The Income Tax Act 2025, effective 1 April 2026, replaces the 1961 Act and re-numbers sections, but it does not change the FY 2025-26 slabs, rates or the ₹12 lakh rebate set by the Finance Act 2025. Any Budget 2026 changes apply from FY 2026-27 onwards, so check the current year's rates on incometaxindia.gov.in before you decide.
Confused Which Regime Saves More for Your Salary?
The advisors at Hatlet Ventures, Tiruppur will work out your tax under both regimes with your actual salary structure and deductions, and help you plan the investments that fit your goals. Free, personalised guidance.
Read next: What changes under the new Income Tax Act, 2025.
Disclaimer: This article is for education only and is not investment, tax or legal advice. Figures and rules are stated as understood on the date shown and can change. Return figures are illustrative or historical, not guaranteed; past performance does not guarantee future results. Mutual fund investments are subject to market risks; read all scheme-related documents carefully. Insurance is the subject matter of solicitation. Hatlet Ventures is an AMFI-registered mutual fund distributor (ARN-345155), not a SEBI-registered investment adviser.
