New Tax Regime FY 2025-26

Given below are the income tax slabs and the tax rate as per the new tax regime:

The progressive tax regime ensures a gradual increase in tax with rising income. This ensures that higher tax is payable by those with higher income while individuals with lower income would have a lower tax burden.

The surcharge rate for different income ranges under the new income tax regime is as follows:

The new tax regime has capped the surcharge rate at 25%, down from 37% under the old regime, benefiting high-net-worth individuals. Moreover, the Health and Education Cess of 4% applies to the total tax and surcharge under both regimes.

Check out the detailed comparison of the income tax slab rate rate for common income brackets before and after the rebate applied under the new tax regime:

The table highlights a major benefit that income up to ₹12.75 lakh is taxed at zero due to a rebate under Section 87A. As income rises, the effective rate increases gradually, making the income tax new regime both predictable and transparent for taxpayers.

Under Section 87A of the new tax regime, a resident individual with total income up to ₹12 lakh is eligible for a tax rebate equal to 100% of the income tax payable, capped at ₹60,000. It means that even if your calculated tax as per the income tax slab rates is ₹60,000 or less, your final tax liability becomes zero, thereby increasing your disposable income.

Moreover, the rebate benefit stretched further for salaried individuals. By including the standard deduction of ₹75,000, your gross income can increase up to ₹12.75 lakh, while keeping the taxable income within the ₹12 lakh bracket, resulting in zero tax liability.

It is essential to note that the rebate benefit does not apply to income subject to special tax rates. It includes:

• Long-Term Capital Gains (LTCG) on Equity under Section 112A at 12.5%
• Short-Term Capital Gains (STCG) on Equity under Section 111A at 20%

For example, if your total income is ₹12 lakh, including ₹2 lakh of LTCG, the rebate will apply only to the remaining ₹10 lakh. Thus, the LTCG portion of the income will be taxed separately. It is essential to consider this distinction while filing the income tax return.

Without marginal relief, the taxpayer would be liable to pay tax on the entire slab structure even if the income exceeds ₹12 lakh by a small amount. It means that a person earning ₹12,10,000 would pay tax on the entire tax slab structure at ₹61,500, while the person earning ₹12 lakh would pay zero tax.

Marginal relief under the new tax regime solves this cliff-edge issue. It ensures that additional tax payable cannot exceed the income above ₹12 lakh. Let us understand the cocept and impact of marginal relief through an example:

Suppose Priya has the following income structure:

• Income: ₹12.1 lakh
• Normal Tax Payable: ₹61,500
• Excess Income: ₹10,000
• Tax Payable after Marginal Relief: ₹10,000

Thus, Priya would have to pay tax only on the income exceeding ₹12 lakh, rather than the total income for the tax year. This prevents a sharp jump in tax liability for a relatively small increase in annual income.

Marginal relief continues until the point where the regular slab tax equals the excess income. This typically occurs around ₹12.75 lakh. Check out the applicable taxes on income between ₹12.1 lakh and ₹13 lakh:



Beyond this threshold, standard slab rates apply without marginal relief. Marginal Relief can help you maximise Section 87A rebate benefits and get the benefit of net zero tax.

The standard deduction of ₹75,000 under the new tax regime is available to the following individuals:

• Salaried Employees, including Government Employees
• Pensioners Receiving Pension from a Former Employer

However, the standard deduction of ₹75,000 under the new tax regime is not available to the following individuals:

• Self-Employed Professionals
• Business Owners
• Family Pensioners (They get a separate ₹25,000 deduction under Section 57(iia), which has been increased from ₹15,000)

Check out the major differences in the standard deduction threshold under the old tax regime and the new tax regime:



For a salaried taxpayer in the 30% income tax slab, this additional ₹25,000 deduction translates to ₹7,500 in tax savings and ₹7,800 in cess savings purely from opting for the new tax regime.

Understanding how the standard deduction and rebate benefit work together is essential to understanding the key details of income tax rules. If your salary is ₹12,75,000, subtracting ₹75,000 standard deduction brings your taxable income to ₹12 lakh. This amount is covered under the Section 87A rebate, resulting in zero tax liability.

Therefore, ₹12.75 lakh becomes a major threshold for salaried individuals under the new tax regime, as it is eligible for zero tax liability.

The new tax regime deductions are available for salaried employees and pensioners with a maximum limit of ₹75,000. You are not required to submit any proof of expenditure or documentation to claim this standard deduction. It is directly deducted from your total taxable income, making it the simplest deduction available in the new tax regime.

Employer’s contribution made towards the NPS is one of the most powerful and often underutilised deductions in the new tax regime. Employers can claim NPS tax benefits under Section 80CCD(2) for contributions made towards the NPS up to:

• 14% of the salary, including basic salary and dearness allowance for government employees.
• 10% or up to 14% as per the latest provisions for private employees.

The NPS benefit is over and above your salary, making it one of the best deductions available in the new tax regime for long-term savings.

Contributions made towards the Agniveer Corpus Fund by the individuals enrolled under the Agnipath scheme are eligible for deduction in the new tax regime. Both employee and government contributions are eligible for deduction, offering tax relief to the taxpayers.

Businesses or professionals can claim tax deductions equal to 30% of the additional employee cost for three consecutive years. This tax deduction provision encourages job creation and is one of the key new tax regime deductions available to employers.

Individuals receiving family pension are eligible to claim a deduction of ₹25,000 or 1/3rd of the pension received, whichever is lower. The enhanced limit for the family pension deduction makes it a useful option in the new tax regime for pensioners.

Gratuity received by employees is fully exempt for government employees and exempt up to ₹20 lakh for private sector employees. Thus, the gratuity exemption remains one of the key deductions available under the new tax regime, especially upon retirement.

Employees in the non-government sector are eligible for tax exemption up to ₹25 lakh on leave encashment received at the time of retirement. Moreover, government employees are eligible for full exemption from leave encashment.

Compensation received under the Voluntary Retirement Scheme (VRS) is exempt up to a ₹5 lakh limit, making it an essential deduction in the new tax regime.

Compensation received during the retrenchment is tax-exempt up to the prescribed limits under the applicable labour laws.

Commuted pension received by government employees is fully exempt from taxation, while it is partially exempt up to 1/3rd for non-government employees under the new tax regime.

Persons with Disabilities (PwD) can claim deductions for transport allowance up to ₹3,200 per month.

The actual amount spent on official travel is exempt from taxation under the new tax regime.

Individuals can claim exemption on the daily allowance on tour or transfer to the extent actually incurred.

Interest paid on home loans for rented properties is completely deductible under the new tax regime with no upper limit prescribed. However, interest on self-occupied property is not allowed under the new regime.

Under the new tax regime, a National Pension System (NPS) withdrawal of up to 60% of the corpus as a lump sum is completely tax-free at retirement.

Although individuals cannot claim donations in the new tax regime, corporate taxpayers can still avail themselves of deductions for eligible donations.

The list of deductions is shorter under the new tax regime. However, there are still meaningful deductions in the new tax regime that can significantly reduce your taxable income. Strategically using these deductions allowed in the new tax regime, taxpayers can make the most of the simple tax structure without sacrificing tax efficiency.

A significant portion of deductions under Chapter VI-A is not available under the new tax regime. These are some of the commonly used deductions that are no longer available under the new tax regime:

• Section 80C: Deduction up to ₹1.5 lakh on investments like LIC premiums, PPF (Public Provident Fund), EPF (Employees' Provident Fund), NSC (National Savings Certificate), ELSS (Equity Linked Savings Scheme), home loan principal repayment, tuition fees, ULIPs (Unit Linked Insurance Plans), tax-saver FD , and Sukanya Samriddhi Yojana.
• Section 80CCC: Deduction for pension fund contributions (earlier part of 80C limit).
• Section 80CCD(1) & 80CCD(1B): Deduction for self-contribution to National Pension System up to ₹1.5 lakh and additional ₹50,000.
• Section 80D: Health insurance premium deduction up to ₹25,000 for self/family and ₹50,000 for senior citizen parents.
• Section 80DD: Expenses for the maintenance of a dependent with disability.
• Section 80DDB: Medical expenses for specified diseases.
• Section 80E: Interest paid on education loans.
• Section 80EE, 80EEA, 80EEB: Additional interest deductions for home loans on affordable housing and electric vehicle loans.
• Section 80G: Individual donations to charitable institutions.
• Section 80GG: Rent paid when HRA (House Rent Allowance) is not received.
• Section 80GGA / 80GGB / 80GGC: Donations made to scientific research and political parties.
• Section 80TTA / 80TTB: Deduction on savings account interest up to ₹10,000 for individuals and ₹50,000 for senior citizens.
• Section 80U: Deduction can be availed by individuals with various disabilities.

These new tax regime exemptions significantly affect individuals who claim tax benefits from multiple tax-saving investments and insurance.

Several common salary components are not eligible for tax-exemption under the new tax regime, such as:

• Section 10(13A): House Rent Allowance (HRA)
• Section 10(5): Leave Travel Allowance (LTA)
• Children's Education Allowance up to ₹100 per month per child
• Hostel Expenditure Allowance up to ₹300 per month per child
• Professional Tax Deduction
• Free Meals, Food Coupons, or Sodexo Benefits
• Entertainment Allowance for Government Employees

Thus, most of your salary structure becomes largely taxable under the new tax regime, reducing the flexibility to reduce your overall taxable income through salary allowances.

Suppose Rakesh is a salaried employee who earns a gross income of ₹10 lakh and pays ₹1.5 lakh under Section 80C, ₹25,000 under Section 80D, and no House Rent Allowance. In this situation, the applicable tax under the old tax regime and the new tax regime will be as follows:

• Old Regime:
  
  Taxable income = ₹10 lakh - ₹50,000 - ₹1.5 lakh - ₹25,000 = ₹7.75 lakh
  Tax = ₹67,500 + 4% cess = ₹70,200
• New Regime:
  
  Taxable Income = ₹10 lakh - ₹75,000 = ₹9.25 lakh
  Tax Before Rebate = ₹42,500
  Since income is below ₹12 lakh, the rebate applies to the taxable income, resulting in a total tax liability of zero.

Winner: New tax regime saves ₹70,200, as the total tax liability is zero.

Suppose Seema is a salaried employee who earns ₹18 lakh; she pays ₹1.5 lakh under Section 80C, ₹50,000 under Section 80D, ₹2.4 lakh as House Rent Allowance, and ₹2 lakh for a home loan. In this case, the applicable tax under the old tax regime and the new tax regime will be calculated as follows:

• Old Regime:
  
  Taxable Income = ₹18 lakh - ₹50,000 - ₹1.5 lakh - ₹50,000 - ₹2.4 lakh - ₹2 lakh = ₹11.6 lakh
  
  Tax = ₹1,60,500 + cess = ₹1,66,920
• New Regime:
  
  Taxable Income = ₹18 lakh - ₹75,000 = ₹17.25 lakh
  
  Tax = ₹1,91,250 + cess = ₹1,98,900

Winner: The old tax regime yields a higher tax saving in this scenario, at ₹31,980. Therefore, the old tax regime works better when deductions are between ₹4 lakh and ₹4.5 lakh.

Suppose Surbhi is a salaried employee who earns ₹30 lakh in income and invests or spends most of the salary towards maximum eligible deductions. Here, the applicable tax liability under the old tax regime and the new tax regime will be as follows:

• Old Regime:
  
  Taxable Income = ₹30 lakh - ₹50,000 - ₹1.5 lakh - ₹50,000 - ₹2.4 lakh - ₹2 lakh = ₹23.1 lakh
  
  Tax = ₹4,93,000 + cess = ₹5,12,720
• New Regime:
  
  Taxable Income = ₹30 lakh - ₹75,000 = ₹29.25 lakh
  
  Tax = ₹4,53,750 + cess = ₹4,71,900

Winner: The new tax regime is better in this scenario as it saves ₹40,820 in tax on the income. Thus, the lower slab rates in the new tax regime offset the deductions at higher incomes.

Refer to the comprehensive analysis of the break-even deduction amount applicable under both regimes, and determine which one is better:

The difference between the old and the new tax regimes follows a simple rule:

• Opt for the new tax regime if you have low or no deductions.
• Opt for the new tax regime if you have low or no deductions.

Thus, a quick calculation based on your income and applicable deductions will help you choose the most tax-efficient regime.

The new tax regime is suitable for individuals with the following conditions:

• Your gross salary is up to ₹12.75 lakh because you will be eligible for zero tax.
• You have minimal tax-saving investments, usually less than ₹2 lakh, available for deductions.
• You do not claim House Rent Allowance (HRA) or home loan interest.
• You prefer simple tax filing over tracking multiple deductions.
• You are a pensioner with no investments under Section 80C.
• You are a high-income earner, preferably above ₹5 crore, with a 25% surcharge cap, lower than the old regime’s 37%.
• Your employer contributes to NPS under Section 80CCD(2) as this benefit is allowed under both regimes.

Thus, the new tax regime is ideal for young professionals, freelancers, or anyone who does not want to lock money into tax-saving instruments.

You can choose the old tax regime to file your income tax return in the following situations:

• You can fully utilise ₹1.5 lakh under Section 80C by investing in tax-saving instruments such as insurance premiums, PPF , ELSS, and home loan principal.
• You invest between ₹25,000 and ₹75,000 in health insurance premiums under Section 80D .
• You receive significant House Rent Allowance (HRA) and live in a metro city.
• You have a home loan with up to ₹2 lakh interest deduction on a self-occupied property.
• You claim education loan interest under Section 80E .
• Your total deductions and exemptions exceed ₹4.5 lakh, which is usually the break-even point.
• You are comfortable maintaining proofs and documentation of investments.

Thus, the old tax regime is suitable for salaried individuals who have structured finances and multiple financial commitments.

The 80% rule of thumb states that for nearly 80% of taxpayers, the new tax regime is usually more beneficial if your total deductions are less than 30% of your gross income. However, the remaining 20% of taxpayers may still benefit from the old regime, as they spend most of their income on home loans, HRA, and deductions.

The best way to decide between the old and new tax regimes is to calculate your tax liability under both regimes with an income tax calculator before filing your return and choosing the most tax-efficient option.

From the financial year 2023-24 onwards, the new tax regime is considered the default regime when filing the income tax return. It means you do not need to take any action, and your taxes are automatically calculated under the new tax regime.

If you wish to continue filing your income tax return under the old tax regime to claim deductions and exemptions, you must actively opt out of the new tax regime by filing Form 10-IEA (effective from the annual year 2024-25). It means that if you fail to opt out of the new tax regime, you will be taxed under it by default.

If you are a salaried individual with no business or professional income, you will have the full flexibility to choose between the old and new tax regimes. You can opt for the new tax regime or switch back to the old tax regime every financial year while filing the income tax return.

There is no need to submit Form 10-IEA. It means you can simply choose your preferred regime directly in ITR-1 or ITR-2 when filing your return. It allows you to compare tax outcomes annually and choose the most tax-efficient regime.

For individuals or Hindu Undivided Families (HUFs) with business or professional income, the switching rules are stricter. Follow these rules to switch between the old and new tax regimes if you have a business or professional income:

• if you want to opt for the old tax regime, you must mandatorily fill Form 10-IEA before the income tax return due date.
• If you opt out of the new tax regime, you can switch back only once in your lifetime.
• After switching back to the new tax regime, you cannot return to the old tax regime unless your business or professional income ceases.

Follow the given step-by-step procedure to fill Form 10-IEA to opt out of the new tax regime and continue your income tax return filing under the old tax regime:

• Step 1: Log in to the Income Tax Portal
  
  Visit the official Income Tax website on incometax.gov.in and log in using your PAN account credentials.
• Step 2: Navigate to e-File
  
  Go to the e-File option, search for the Income Tax Forms, and choose the File Income Tax Forms.
• Step 3: Select Form 10-IEA
  
  Select the Form 10-IEA under “Persons with Business/Profession Income”.
• Step 4: Fill Details
  
  Enter the assessment year, select opt-in or opt-out, and complete the declaration.
• Step 5: Submit
  
  Submit the form by verifying using the digital signature or EVC (Electronic Verification Code), and take note of the acknowledgement number.
• Step 6: File Income Tax Return
  
  Complete the ITR-3 or ITR-4 by entering the acknowledgement number.

You can efficiently manage and switch your tax regime based on your preferences by following these steps.

Section 80CCD(2) allows for deductions made by your employer towards the National Pension System (NPS). It is the most powerful yet underutilised tax-saving tool available under the new tax regime. Ask your employer to include the NPS contribution in your CTC. Employers can contribute up to 10% of basic salary and dearness allowance (for the private sector) or 14% of basic salary and dearness allowance (for government employees). This contribution is fully deductive under Section 80CCD(2).

For example, if your basic salary and dearness allowance are ₹50,000 per month, a 14% employer contribution to NPS equals ₹7,000 per month or ₹84,000 per year. If you fall in the 30% tax slab, this means tax saving of ₹26,208 annually. As per current Income Tax rules, this benefit applies even if you do not invest in NPS personally.

The basic salary, including the dearness allowance, must be at least 50% of your CTC under the Labour Code, 2025. A higher basic salary increases the base for employer NPS contribution and gratuity calculations. It directly enhances your tax-saving potential under Section CCD(2). A higher basic salary leads to a higher eligible NPS contribution, leading to better tax efficiency.

Salaried employees enjoy a major advantage in choosing between the old and new tax regimes every year. You can select the old tax regime in the years when you claim large deductions, such as home loan interest, medical insurance deductions, or lump-sum ELSS investments, as the old regime will offer better tax-saving procedures. In contrast, you can revert to the new tax regime in lower-deduction years to save on taxes.

Several retirement-related benefits are tax-exempt under both tax regimes. Some of these retirement benefits include a gratuity of up to ₹20 lakh, leave encashment of up to ₹25 lakh, VRS benefits of up to ₹5 lakh, and a 60% NPS lump-sum withdrawal. This ensures tax efficient retirement planning and help reduce your lifetime tax burden from these investments.

Life insurance is an essential tax-saving tool. Maturity benefits received under life insurance plans are tax-free under Section 10(10D , subject to conditions such as the premium not exceeding 10% of the sum assured. Moreover, products such as term insurance and guaranteed income plans can help you combine protection with tax-efficient returns, regardless of the regime you select.

The new tax regime 2025 focuses on simplicity, lower tax rates, and minimal compliance efforts. When evaluating the difference between the old and new tax regimes, the choice would be influenced in part by your current financial situation. If you are able to maximise deductions and exemptions, the old regime may be a better fit. But if you prefer a simpler system with predictable tax outcomes, the new regime is often the better option.

Therefore neither option can meet the needs of every category of tax payer in India. So, take the time to assess your income, deductions allowed and the tax payable under each tax regime before choosing one. A quick comparison can ensure you consistently choose the most tax-efficient option between the new and old tax regimes.