CA Palak BathejaEvery April, salaried employees across India are asked the same question by their employer: “New regime or old?” Many tick a box without running the numbers. With the Income-tax Act, 2025 in force from 1 April 2026 and a much wider tax-free band under the new regime, the answer has changed for most people. This guide walks through the current rates and some worked examples, so you can check which regime gives the lower tax for your own figures.
What changed in the law on 1 April 2026
The Income-tax Act, 2025 replaced the Income-tax Act, 1961 with effect from 1 April 2026. Two changes matter most for individuals:
- “Tax year” replaces “previous year” and “assessment year”. Income earned from 1 April 2026 to 31 March 2027 is “Tax Year 2026-27”. The old “FY / AY” labels continue only for earlier years.
- Sections are renumbered, but the substance of the regimes is largely the same. The new (default) regime, earlier section 115BAC, is now section 202. The rebate, earlier section 87A, is now section 156.
Income for FY 2025-26 (AY 2026-27), filed during 2026, is still governed by the 1961 Act. The slab rates for that year and for Tax Year 2026-27 are the same, so the comparison below applies to both.
Tax slabs at a glance
New regime (default)
| Taxable income | 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% |
Resident individuals with taxable income up to ₹12,00,000 get a rebate of up to ₹60,000, so their tax is nil. Salaried individuals and pensioners also get a standard deduction of ₹75,000. In practice, a salary of up to ₹12,75,000 bears no tax under the new regime (special-rate income such as capital gains is treated separately).
Old regime (by choice)
| Taxable income (individual below 60) | 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% |
Under the old regime the standard deduction is ₹50,000 and the rebate is up to ₹12,500 for income up to ₹5,00,000. Its appeal is the long list of deductions and exemptions: PPF, ELSS, life insurance and home-loan principal (the familiar ₹1.5 lakh “80C” basket), health insurance, HRA, home-loan interest on a self-occupied house, and more. Most of these are not available under the new regime. Employer contribution to NPS and the standard deduction are notable exceptions. Health and education cess of 4% applies under both regimes.
Worked examples with real numbers
The examples assume a resident individual below 60 with salary income only and no surcharge.
Example 1 – Salary ₹12,75,000
New regime: ₹12,75,000 − ₹75,000 = ₹12,00,000 taxable. Slab tax is ₹60,000, fully covered by the rebate. Tax: Nil.
Old regime (standard deduction ₹50,000 + 80C ₹1,50,000 + health insurance ₹25,000): taxable ₹10,50,000. Tax ₹1,27,500 + cess = ₹1,32,600.
Example 2 – Salary ₹15,00,000
New regime: taxable ₹14,25,000. Tax ₹20,000 + ₹40,000 + ₹33,750 = ₹93,750 + cess = ₹97,500.
Old regime with ₹3,25,000 of deductions (including HRA exemption of ₹1,00,000): taxable ₹11,75,000. Tax ₹1,65,000 + cess = ₹1,71,600. The new regime saves about ₹74,000.
Example 3 – Salary ₹30,00,000 with heavy deductions
Old regime with ₹8,25,000 of deductions (standard ₹50,000, 80C ₹1,50,000, health insurance for self and parents ₹75,000, home-loan interest ₹2,00,000, HRA ₹3,00,000, additional NPS ₹50,000): taxable ₹21,75,000. Tax ₹4,65,000 + cess = ₹4,83,600.
New regime: taxable ₹29,25,000. Tax ₹4,57,500 + cess = ₹4,75,800. Even with more than ₹8 lakh of deductions, the new regime is still marginally lower.
The pattern is clear. Since the 2025 rate cut, the old regime wins only when deductions are very large relative to income, and the breakeven point differs for every income level. That is why a side-by-side calculation is better than a rule of thumb.
Marginal relief just above ₹12 lakh
Suppose taxable income under the new regime is ₹12,10,000. Normal slab tax would be ₹61,500, and the rebate is lost because income crossed ₹12 lakh. Marginal relief caps the tax at the amount by which income exceeds ₹12 lakh, here ₹10,000 (plus cess). So earning slightly more never leaves you worse off after tax. Marginal relief is available only under the new regime.
Who may still prefer the old regime
- Taxpayers paying high rent in a metro with a large HRA exemption, who also use the full 80C limit and have home-loan interest.
- Those with large health-insurance premiums for senior-citizen parents plus other deductions.
- People in specific situations, such as large donations eligible for deduction. These are best tested case by case.
How and when you can switch
- Salaried, pensioners and others without business income can choose afresh every year, at the time of filing the return. The declaration given to the employer only affects TDS, and you can still choose differently in the return.
- Taxpayers with business or professional income (shopkeepers, doctors, consultants, freelancers) face tighter limits. Opting out of the new regime is permitted only once, with one return to it, and the option must be exercised by the return due date. Plan before choosing.
- Return due dates matter: a regime choice made in a belated return may not be valid where a prescribed form is required.
Points for NRIs and overseas readers
Non-residents with Indian income (rent, interest, capital gains) can also choose either regime. However, the ₹60,000 rebate is available only to residents, so an NRI with ₹10 lakh of Indian income will pay tax even under the new regime. NRIs should also check TDS deducted at higher rates, relief under the relevant Double Taxation Avoidance Agreement, and whether a lower-deduction certificate is useful.
A simple 4-step check before you decide
- List your gross income for the year, including salary, interest, rent and other sources.
- Add up the deductions you will actually claim under the old regime. Do not count investments you only plan to make.
- Compute tax under both regimes, including cess and, for residents, the rebate. You can use the calculators on our home page or the official Income Tax Department calculator.
- Choose the lower figure, and tell your employer early so TDS matches your final choice.
Frequently asked questions
Is the new tax regime the default for Tax Year 2026-27?
Yes. The new regime (section 202 of the Income-tax Act, 2025, earlier section 115BAC) applies unless you opt for the old regime in the manner and within the time prescribed.
Is income up to ₹12 lakh really tax-free?
For resident individuals under the new regime, tax on taxable income up to ₹12,00,000 is fully covered by a rebate of up to ₹60,000. Income taxed at special rates, such as certain capital gains, is not covered by the rebate.
I am salaried. Can I choose a different regime in my return than I told my employer?
Yes. The employer declaration is used only for TDS. Individuals without business income can choose either regime when filing the return by the due date.
Can an NRI opt for the new regime?
Yes. NRIs can choose either regime, but the rebate is available only to residents, so tax may be payable even below ₹12 lakh.
Does the new Act change my return for FY 2025-26?
No. Income of FY 2025-26 (AY 2026-27) continues under the Income-tax Act, 1961. The new Act applies from Tax Year 2026-27 onwards.
Disclaimer: This article is for general educational purposes only, based on the law as understood on the date of last update. It is not professional advice or an offer of services. Tax laws and rates change; please verify the current position and consult a qualified professional for your specific facts. Palak Batheja & Co. accepts no liability for actions taken on the basis of this article.