New Tax Regime

What it means

The new tax regime is the default income tax system for individuals, HUFs and certain others. It offers lower slab rates and a large rebate, but removes most deductions and exemptions. Unless you actively choose the old regime, your tax is calculated under the new one. Under the Income-tax Act, 2025, which applies from 1 April 2026, it continues as the default, and the year is now called the “tax year”.

How it works

Slab rates from FY 2025-26 onward:

• 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%

Health and education cess of 4% is added. Resident individuals get a rebate under section 87A of up to ₹60,000, so tax is nil if taxable income is up to ₹12 lakh (not counting special-rate income such as capital gains). Salaried people and pensioners get a standard deduction of ₹75,000. Most deductions such as 80C, 80D, HRA, LTA and home loan interest on a self-occupied house are not allowed, though employer contribution to NPS (80CCD(2)) is still allowed.

Example

Priya earns a salary of ₹15,00,000 a year.

1. Less standard deduction: ₹15,00,000 minus ₹75,000 = ₹14,25,000 taxable income.

2. Tax on ₹4,00,000 to ₹8,00,000 at 5% = ₹20,000.

3. Tax on ₹8,00,000 to ₹12,00,000 at 10% = ₹40,000.

4. Tax on ₹12,00,000 to ₹14,25,000 at 15% = ₹33,750.

5. Total tax: ₹93,750. Add cess 4% = ₹3,750. Total payable: ₹97,500.

If Priya’s salary were ₹12,75,000, taxable income after standard deduction would be ₹12,00,000 and her tax would be nil after the rebate.

Key points to remember

• The new regime applies automatically; tell your employer early in the year if you want the old regime for TDS.

• Just above ₹12 lakh, marginal relief ensures tax does not exceed the income above ₹12 lakh.

• Capital gains taxed at special rates do not get the 87A rebate.

• Compare both regimes each year using your actual deductions before deciding.