New vs Old Tax Regime (FY 2025-26)

Which Indian income tax regime saves you more — with the ₹12 lakh rebate, the ₹75,000 standard deduction, and a break-even comparison.

Since the Finance Act 2025, the new tax regime is the default. For FY 2025-26 (assessment year 2026-27) a resident individual with taxable income up to ₹12 lakh pays no tax, because the Section 87A rebate rose to ₹60,000 — enough to wipe out the liability entirely. Add the ₹75,000 standard deduction and a salaried person can earn roughly ₹12.75 lakh gross tax-free. The old regime still exists and still wins for some people; this page shows how to tell which group you are in.

New Regime Slabs for FY 2025-26

The basic exemption limit under the new regime is ₹4 lakh, against ₹2.5 lakh in the old regime. These are the slab rates before the Section 87A rebate is applied.

Taxable income	Rate
Up to ₹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%

The ₹12 Lakh Rebate Is a Rebate, Not an Exemption

This distinction causes more confusion than any other part of the rule, and getting it wrong leads to a nasty surprise at filing time.

Tax is still computed on the full amount using the slabs above — the rebate then cancels it out
The rebate is up to ₹60,000, or the total tax payable, whichever is lower
It applies only to income taxed at normal slab rates — NOT to capital gains or lottery/gaming income
Cross ₹12 lakh of taxable income by even ₹1 and the rebate disappears entirely, so tax applies from ₹4 lakh upward
Marginal relief exists just above ₹12 lakh to soften that cliff, but the principle holds: this is a threshold, not a floor

What You Give Up in the New Regime

The new regime buys lower rates by removing most deductions. If you were claiming a lot of them, the old regime may still be cheaper.

Section 80C (₹1.5 lakh: ELSS, PPF, EPF, life insurance, principal on home loan) — not available
Section 80D health insurance premium — not available
HRA and LTA exemptions — not available
Interest on a self-occupied home loan under Section 24(b) — not available
Still allowed: ₹75,000 standard deduction, employer NPS contribution under 80CCD(2), and PPF interest and maturity remain exempt

How to Decide Which Regime Suits You

The break-even depends entirely on how much you actually deduct — not on how much you could theoretically deduct. Add up what you genuinely claim, then compare.

Claiming little or nothing beyond the standard deduction: the new regime almost always wins
Claiming the full 80C plus 80D plus significant HRA: run both calculations before deciding
A rough guide: above roughly ₹3.5–4 lakh of total deductions, the old regime starts to compete at higher incomes
Salaried employees may switch regimes each year; those with business income face far stricter switching rules
Do the arithmetic annually — a change in rent, a home loan ending, or a salary rise can flip the answer

💡 Pro Tip: Work out your total genuine deductions first. If they come to less than about ₹3.5 lakh, the new regime is very likely cheaper and you can stop there — no detailed comparison needed.

⚠️ Important: Capital gains are excluded from the Section 87A rebate. Someone with ₹10 lakh salary and ₹3 lakh of equity LTCG does not get a tax-free outcome — the gains are taxed at their own rate regardless of the rebate.

Key Takeaways

✓The new regime is the default from FY 2025-26; you must actively opt out to use the old one
✓₹12 lakh taxable income means zero tax via the ₹60,000 Section 87A rebate — about ₹12.75 lakh gross for a salaried person
✓It is a rebate, not an exemption: exceed the threshold and tax applies from ₹4 lakh up
✓The rebate does not cover capital gains, which are taxed separately at their own rates
✓The old regime can still win if your real deductions are large — compute both, do not assume