1. New Tax Regime: The Default for FY 2025-26
Effective from FY 2023-24, the New Tax Regime under Section 115BAC became the default tax structure for individual taxpayers. For FY 2025-26 (Assessment Year 2026-27), the government has made several revisions to make the new regime more attractive, including revised slab rates and an increased standard deduction.
Salaried employees and pensioners now receive a standard deduction of ₹75,000 under the new regime (up from ₹50,000 in prior years). This means if your total income is ₹12.75 lakh or less, your tax liability is effectively zero after the standard deduction and the rebate under Section 87A.
2. Revised Tax Slabs for FY 2025-26 (New Regime)
| Income Range | Tax Rate |
|---|---|
| Up to ₹3,00,000 | Nil |
| ₹3,00,001 – ₹6,00,000 | 5% |
| ₹6,00,001 – ₹9,00,000 | 10% |
| ₹9,00,001 – ₹12,00,000 | 15% |
| ₹12,00,001 – ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
Additional levies: A health and education cess of 4% is added to the total tax amount. Marginal relief is available for taxpayers whose income marginally exceeds ₹12 lakh (the rebate threshold).
3. Rebate Under Section 87A
Under the new regime, the Section 87A rebate provides zero tax liability for residents with total income up to ₹12,00,000 (after claiming the standard deduction). This is a significant increase from the earlier ₹7 lakh rebate threshold.
How it works: If your taxable income (after standard deduction) is ₹12 lakh or less, the entire tax computed on your income is rebated, bringing your tax to zero. If your income exceeds ₹12 lakh by a small margin, marginal relief ensures you don't pay more tax than the excess income amount.
4. Standard Deduction Details
For salaried individuals and pensioners under the new regime:
- Standard deduction: ₹75,000 (increased from ₹50,000 in the old regime)
- Family pension deduction: ₹25,000 or 1/3rd of the pension, whichever is lower
- Employer's NPS contribution (Section 80CCD(2)): Allowed up to 14% of basic salary (for central government employees) or 10% for others
5. Deductions NOT Available in the New Regime
If you opt for the new regime, you cannot claim these popular deductions:
- Section 80C: Investments in PPF, ELSS, life insurance, EPF, etc. (up to ₹1.5L)
- Section 80D: Health insurance premiums
- Section 24(b): Interest on home loan (up to ₹2L)
- Section 80G: Donations to charitable trusts
- Section 80E: Education loan interest
- Section 80TTA/TTB: Savings account interest
- HRA exemption (House Rent Allowance)
- LTA (Leave Travel Allowance)
- Food coupons / meal vouchers
6. Old Regime vs New Regime: Which is Better?
The decision depends on how many deductions you can claim. Here's a quick comparison:
| Factor | Old Regime | New Regime |
|---|---|---|
| Tax slabs | 5 brackets up to 30% | 6 brackets up to 30% (wider base exemption) |
| Standard deduction | ₹50,000 | ₹75,000 |
| 80C deductions | Up to ₹1,50,000 | Not available |
| 80D health insurance | Up to ₹25,000–50,000 | Not available |
| Home loan interest | Up to ₹2,00,000 | Not available |
| HRA exemption | Available | Not available |
| 87A rebate threshold | ₹5,00,000 | ₹12,00,000 |
General rule of thumb: If you claim more than ₹3–4 lakh in deductions and exemptions each year, the old regime may still be better. Otherwise, the new regime with its lower rates and higher rebate is usually more favourable.
7. Worked Example: Salaried Employee with ₹15 Lakh Income
Scenario: Ramesh earns ₹15,00,000 per year (gross salary). He invests ₹1,50,000 in 80C instruments and pays ₹25,000 in health insurance premiums (80D). He does not claim HRA or home loan benefits.
New Regime Calculation:
- Gross income: ₹15,00,000
- Standard deduction: -₹75,000
- Taxable income: ₹14,25,000
- Tax: 0 on first 3L + 5% of 3L (₹15,000) + 10% of 3L (₹30,000) + 15% of 3L (₹45,000) + 20% of 2.25L (₹45,000) = ₹1,35,000
- Cess (4%): ₹5,400
- Total tax: ₹1,40,400
Old Regime Calculation:
- Gross income: ₹15,00,000
- Standard deduction: -₹50,000
- 80C deduction: -₹1,50,000
- 80D deduction: -₹25,000
- Taxable income: ₹12,75,000
- Tax (old slabs): 0 on first 2.5L + 5% of 2.5L (₹12,500) + 20% of 5L (₹1,00,000) + 30% of 2.75L (₹82,500) = ₹1,95,000
- Cess (4%): ₹7,800
- Total tax: ₹2,02,800
Verdict: The new regime saves Ramesh approximately ₹62,400 in taxes.
📈 Calculate Your Own Tax
Use the SmartUtilz Income Tax Calculator to compare old vs new regime for your specific income and deductions. It takes just 2 minutes.
Open Tax Calculator →8. How to Opt for the New Regime
For FY 2025-26, here's how to choose your tax regime:
- Salaried employees: Your employer will ask you to declare your chosen regime at the start of the financial year. Submit Form 12BAC if you wish to opt out of the new regime.
- Business/professional income: File Form 10-IEA before the filing due date to opt out of the new regime.
- Default: If you don't make a choice, the new regime applies automatically.
- Switching: You can switch between regimes each year (except for business income, where the choice is more restrictive).
9. Common Mistakes to Avoid
- Forgetting to claim the standard deduction of ₹75,000 (it's automatically allowed for salaried taxpayers)
- Assuming all deductions from the old regime are carried forward to the new regime
- Not factoring in the 4% health and education cess when estimating total tax
- Overlooking marginal relief when income exceeds ₹12 lakh by a small amount
- Not comparing both regimes before making a choice
10. Conclusion
The New Tax Regime for FY 2025-26 offers significantly lower taxes for most taxpayers, especially those who do not claim substantial deductions and exemptions. With a ₹12 lakh rebate threshold and ₹75,000 standard deduction, salaried employees earning up to ₹12.75 lakh pay zero tax. Use the SmartUtilz Income Tax Calculator to run your own comparison and make an informed choice.