New Tax Regime
TaxNew Tax Regime (Section 115BAC)
An optional income tax structure introduced in Budget 2020 with lower slab rates but without most exemptions and deductions. From FY 2023-24, it became the default regime for all taxpayers.
Definition
The New Tax Regime (Section 115BAC of the Income Tax Act) is an alternative income tax structure introduced in Budget 2020 that offers lower slab rates but removes most exemptions and deductions available under the Old Tax Regime.
From FY 2023-24, the new tax regime became the default for all individual taxpayers. Those wishing to claim deductions like Section 80C, HRA, Section 80D, and Section 24(b) must explicitly opt for the Old Tax Regime.
Budget 2025 enhanced the new regime significantly ā the Section 87A rebate was raised to make income up to ā¹12 lakh effectively tax-free, and the standard deduction was increased to ā¹75,000.
Formula
New Regime Tax = Tax as per new slab rates ā Section 87A Rebate (if applicable)
FY 2025-26 New Tax Regime slabs:
| Income Slab | Rate |
|---|---|
| Up to ā¹4,00,000 | Nil |
| ā¹4,00,001 ā ā¹8,00,000 | 5% |
| ā¹8,00,001 ā ā¹12,00,000 | 10% |
| ā¹12,00,001 ā ā¹16,00,000 | 15% |
| ā¹16,00,001 ā ā¹20,00,000 | 20% |
| ā¹20,00,001 ā ā¹24,00,000 | 25% |
| Above ā¹24,00,000 | 30% |
Section 87A rebate: Tax is nil if total income ā¤ ā¹12 lakh (new regime). Income above ā¹12 lakh is taxed in full from the first rupee of the applicable slab.
Worked Example
Priya earns ā¹15,00,000 per annum and has: ā¹1.5L in 80C, ā¹24,000 in 80D, and ā¹60,000 HRA exemption.
Old Tax Regime:
- Gross income: ā¹15,00,000
- Less: Standard deduction ā¹50,000, 80C ā¹1,50,000, 80D ā¹24,000, HRA ā¹60,000
- Taxable income: ā¹12,16,000
- Tax ā ā¹1,87,000 (including cess)
New Tax Regime:
- Gross income: ā¹15,00,000
- Less: Standard deduction ā¹75,000
- Taxable income: ā¹14,25,000
- Tax ā ā¹1,56,000 (including cess)
New regime saves ā¹31,000 in this case. Use the old vs new tax regime calculator to compare your specific situation.
Key Things to Know
- The ā¹12 lakh zero-tax threshold: Under the new regime, if your total income (after standard deduction) is ā¹12 lakh or less, the Section 87A rebate wipes out all tax. This is a major advantage for those earning under ā¹12 lakh with few deductions.
- Break-even point: The old regime typically wins if your total deductions exceed roughly ā¹3.75ā4.5 lakh (80C + HRA + 80D + home loan interest combined). Below this level of deductions, the new regime usually results in lower tax.
- TDS and regime selection: Inform your employer of your regime choice at the start of the year. If you don't declare, the employer defaults to the new regime for TDS deduction. You can correct this at ITR filing.
- NPS employer contribution still deductible: Even under the new regime, your employer's contribution to your NPS account (up to 10% of basic salary) remains deductible under Section 80CCD(2). This is a significant benefit for those with employer NPS.
- Standard deduction increased: Budget 2025 increased the standard deduction in the new regime from ā¹50,000 to ā¹75,000. This alone saves ā¹7,500 in tax for someone in the 30% bracket.