India’s income-tax system allows eligible individual taxpayers to choose between the new and old tax regimes. The new regime is the default option and offers lower slab rates with fewer deductions. The old regime retains several familiar exemptions and deductions but applies comparatively higher rates.

The applicable financial year is FY 2025–26, covering income earned between 1 April 2025 and 31 March 2026. The corresponding return will generally be filed for Assessment Year 2026–27.

Understanding this distinction is important because tax rates frequently change from one financial year to another.

New Tax Regime Slabs for FY 2025–26

The revised tax slabs under the new regime are:

These are progressive slabs. Therefore, reaching a higher slab does not mean the higher rate applies to the taxpayer’s entire income. Each rate applies only to the portion of taxable income falling within that slab.

For example, if taxable income is ₹14 lakh, the 15% rate applies only to the amount exceeding ₹12 lakh.

Is Income Up to ₹12 Lakh Tax-Free?

A resident individual with normal taxable income of up to ₹12 lakh may have no income tax payable under the new regime because of the rebate available under Section 87A.

This should not be confused with a ₹12 lakh basic exemption. Tax is first calculated according to the applicable slabs. An eligible rebate of up to ₹60,000 then reduces the calculated tax.

Income taxed at special rates may not receive the same rebate treatment. This can include certain short-term or long-term capital gains, lottery winnings and other specified income. Taxpayers with such income should calculate their liability separately or consult a qualified tax professional.

Benefit for Salaried Taxpayers

Salaried individuals and eligible pensioners can claim a standard deduction of up to ₹75,000 under the new regime for FY 2025–26.

Consequently, a salaried person with gross salary income of up to ₹12.75 lakh may potentially have no tax payable under the new regime, provided:

• The income is eligible for the standard deduction.
• Taxable income after the deduction does not exceed ₹12 lakh.
• The person satisfies the conditions for the Section 87A rebate.
• There is no income subject to tax at a special rate that creates a separate liability.

This is a simplified illustration. Salary components, capital gains, rental income, deductions and other sources can change the final calculation.

Old Tax Regime Slabs

For an individual below 60 years of age, the old-regime slabs are:

Resident senior citizens aged 60 years or more but below 80 receive a higher basic exemption of ₹3 lakh. Resident super senior citizens aged 80 or more have a basic exemption of ₹5 lakh under the old regime, subject to applicable conditions.

Under Section 87A, an eligible resident individual choosing the old regime can receive a rebate of up to ₹12,500 when total income does not exceed ₹5 lakh.

Common Deductions Under the Old Regime

The old regime may remain useful for taxpayers who claim substantial deductions and exemptions, including:

• Section 80C deductions for eligible investments and expenses.
• Section 80D deduction for qualifying health-insurance premiums.
• House Rent Allowance exemption, subject to conditions.
• Leave Travel Allowance, where eligible.
• Interest deduction on a qualifying housing loan.
• Eligible deductions for donations, education loans or specified medical expenses.
• Standard deduction available to eligible salaried individuals and pensioners.

These benefits are governed by separate rules and limits. An investment should not be selected solely to reduce tax; its risk, cost, lock-in period and suitability also matter.

Example Under the New Tax Regime

Suppose an individual has normal taxable income of ₹14 lakh after eligible deductions:

• Tax on the first ₹4 lakh: Nil
• Tax on the next ₹4 lakh at 5%: ₹20,000
• Tax on the next ₹4 lakh at 10%: ₹40,000
• Tax on the remaining ₹2 lakh at 15%: ₹30,000

The total tax before cess is ₹90,000. Health and Education Cess at 4% adds ₹3,600, bringing the total to ₹93,600, assuming no surcharge, marginal relief or special-rate income.

Because taxable income exceeds ₹12 lakh, the standard Section 87A rebate cannot ordinarily eliminate the complete liability. Marginal relief may be available when income is slightly above the rebate threshold, subject to statutory conditions.

Which Tax Regime Should You Choose?

The new regime may be suitable when a taxpayer has limited exemptions and deductions and prefers a simpler calculation. The old regime may produce a lower liability when the taxpayer has substantial HRA exemption, housing-loan interest and Chapter VI-A deductions.

There is no single regime that is best for every taxpayer. Compare both options using the same income figures before filing your return. Taxpayers with business or professional income should also review the rules governing how often they can switch between the two regimes.

You can compare your estimated liability using the LiveWorldMarket Income Tax Calculator.

Final Takeaway

For FY 2025–26, the new regime provides wider slabs, a Section 87A rebate for eligible resident individuals with normal taxable income up to ₹12 lakh and a ₹75,000 standard deduction for eligible salaried taxpayers and pensioners.

The old regime continues to offer numerous exemptions and deductions. The correct choice depends on income sources, age, salary structure, investments, housing-loan interest and available deductions.

This article is intended for general educational purposes and does not constitute tax, legal or investment advice. Tax provisions can involve exceptions and individual circumstances. Verify your calculation through the Income Tax Department or consult a qualified tax professional before filing.