For FY 2025–26 (AY 2026–27), the new tax regime has 7 slabs with zero tax up to ₹12 lakh (₹12.75 lakh for salaried, due to ₹75,000 standard deduction). The old regime slabs remain the same (with senior/super-senior concessions). A 4% Health & Education Cess continues to apply. The Section 87A rebate is now ₹60,000 in the new regime and is available only to resident individuals; NRIs cannot claim it. (Press Information Bureau, India Budget, Income Tax India, Income Tax India)
Why this matters
Choosing between the old vs new tax regime can materially change your post-tax returns, SIP capacity, and asset allocation. This guide explains the latest slabs, rebates, standard deductions, and a simple way to decide which regime could be better for you.
New Tax Regime: FY 2025–26 slabs (default)
| Total Income (₹) | Rate |
|---|---|
| 0 – 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% |
Key benefits (FY 2025–26):
- No tax up to ₹12 lakh (due to enhanced rebate under Section 87A). For salaried, no tax up to ₹12.75 lakh because the standard deduction is ₹75,000. (Press Information Bureau, Income Tax India)
- Marginal relief ensures tax just above ₹12 lakh doesn’t jump disproportionately (example for ₹12,10,000 income shown by CBDT). (Income Tax India)
- New regime remains the default unless you opt out. (Income Tax India)
Important nuance: The 87A rebate under the new regime does not apply to income taxed at special rates (e.g., certain capital gains); only regular slab income qualifies. (Income Tax India, The Economic Times)
Old Tax Regime: FY 2025–26 slabs (unchanged)
Individuals (<60 years):
- ₹0–2,50,000: Nil
- ₹2,50,001–5,00,000: 5%
- ₹5,00,001–10,00,000: 20%
- Above ₹10,00,000: 30% (Income Tax India)
Senior citizens (60–<80 years):
- ₹0–3,00,000: Nil
- ₹3,00,001–5,00,000: 5%
- ₹5,00,001–10,00,000: 20%
- Above ₹10,00,000: 30% (The Economic Times)
Super senior citizens (≥80 years):
- ₹0–5,00,000: Nil
- ₹5,00,001–10,00,000: 20%
- Above ₹10,00,000: 30% (Income Tax India)
Standard deduction (Salaried/Pensioners):
- Old regime: ₹50,000
- New regime: ₹75,000 (clarified by CBDT) (Income Tax India)
Cess & Surcharge: Health & Education Cess @ 4% continues (over tax + surcharge). Surcharge slabs unchanged; highest surcharge structure remains per Finance Bill. (India Budget, KPMG)
NRI vs Resident: What changes?
- 87A rebate is only for resident individuals. NRIs are not eligible for the rebate (either regime). (Income Tax India)
- Senior citizen higher exemption limits apply only to residents (not NRIs). (See old-regime slabs cited above.) (The Economic Times)
What’s allowed (and not) under the new regime?
- Allowed (examples):
- Standard deduction on salary: ₹75,000; family pension standard deduction continues.
- Employer’s contribution to NPS u/s 80CCD(2) (limits apply).
- House property interest for let-out property is permitted in computing that head; special set-off rules apply.
- No change to 4% cess. (Income Tax India, Tax2win, The Economic Times, India Budget)
- Not allowed (examples):
- Popular deductions/exemptions under 80C/80D, HRA, etc., are generally not available in the new regime. (Income Tax India, The Economic Times)
Worked examples (salaried, resident, <60; no special-rate income)
- ₹12,00,000 (new regime):
- After slabs + 87A rebate → Nil tax. (Old regime would still pay tax unless net taxable ≤ ₹5 lakh.) (Income Tax India)
- ₹12,75,000 (salaried, new regime):
- Gross ₹12.75L – ₹75k std. deduction = ₹12L taxable → Nil tax. (Press Information Bureau)
- ₹12,10,000 (new regime):
- Slab tax = ₹61,500; marginal relief limits tax to ₹10,000 (before cess), as illustrated by CBDT. (Income Tax India)
Old vs New: When does the old regime still win?
With zero tax up to ₹12L in the new regime (₹12.75L for salaried), you now need much larger deductions to make the old regime competitive at middle incomes.
Indicative break-even extra deductions (beyond the old-regime ₹50,000 standard deduction), computed for salaried residents with only salary income:
- Gross ₹15L: requires roughly ₹2.7–₹2.8 lakh of extra deductions in the old regime to match new.
- Gross ₹20L: requires roughly ₹3.8–₹4.0 lakh.
- Gross ₹30L: requires roughly ₹5.7–₹5.9 lakh.
(See downloadable calculator output above for exact figures.)
Rule of thumb: If your total claimable deductions/exemptions (80C, 80D, HRA/home loan, etc.) under the old regime are modest, the new regime will usually be superior for FY 2025–26. Conversely, high deduction households (e.g., sizeable HRA, large home-loan interest on a let-out unit, sizeable 80C/80D/80CCD(1B)) may still find the old regime efficient at higher incomes.
FAQs
1) What exactly changed in Budget 2025 for individuals?
The new regime slabs were expanded (seven slabs) and 87A rebate was enhanced so that no tax is payable up to ₹12 lakh (₹12.75 lakh for salaried with standard deduction). The standard deduction was clarified at ₹75,000 in the new regime; ₹50,000 remains in the old regime. Cess 4% continues. (Press Information Bureau, India Budget, Income Tax India)
2) Can NRIs claim the ₹12–12.75 lakh no-tax benefit?
No. The 87A rebate (which creates the zero-tax outcome) applies only to resident individuals. NRIs cannot claim 87A. (Income Tax India)
3) Do senior citizens get higher basic exemption under the old regime?
Yes: ₹3 lakh (60–<80) and ₹5 lakh (≥80). This concession is only for residents. (The Economic Times)
4) Is HRA exemption available in the new regime?
No. HRA exemption is not available under the new regime. (The Economic Times)
5) What cess/surcharge applies?
Health & Education Cess @ 4% continues; surcharge slabs are unchanged from earlier guidance. (India Budget, KPMG)
How to choose: a simple 3-step framework
- Check income mix: If you have special-rate income (e.g., certain equity capital gains), remember 87A rebate on the new regime won’t apply to that portion. (Income Tax India)
- Estimate deductions: Sum realistic old-regime deductions/exemptions (80C/80D/80CCD(1B), HRA, home-loan interest rules, etc.).
- Compare outcomes: Run both regimes including standard deductions (₹50k vs ₹75k), rebate, and cess. Our downloadable tables help you estimate break-evens quickly.
Sources (key official references)
- PIB & Budget Speech: Revised slabs; zero tax up to ₹12L (₹12.75L salaried) and standard deduction clarification. (Press Information Bureau, India Budget)
- Finance Bill, 2025: 87A amendment (₹12L limit; ₹60k rebate); cess @ 4%. (India Budget)
- CBDT FAQ (Budget 2025): Standard deduction ₹75k (new), ₹50k (old); marginal relief illustrations; new regime default. (Income Tax India)
- Income Tax Dept (rates pages): Old-regime slabs incl. senior/super-senior. (Income Tax India, The Economic Times)
IT Dept FAQ (ITR-2): 87A is resident-only (not for NRIs). (Income Tax India)