New Tax Regime India: Slabs, ₹12 Lakh Rebate, and Deductions

India’s new tax regime under Section 115BAC is now the default income tax system for individuals and Hindu Undivided Families from AY 2024-25 onward.1Income Tax Department. FAQs on New Tax vs Old Tax Regime It offers lower slab rates in exchange for the removal of most traditional deductions and exemptions. If you file your return without actively opting for the old regime, these rules apply to you automatically. Following Union Budget 2025, the slab structure, the Section 87A rebate threshold, and several deduction limits changed substantially for FY 2025-26 (AY 2026-27).

Income Tax Slabs for AY 2026-27

Budget 2025 restructured the new regime into seven brackets, raising the tax-free threshold from ₹3 lakh to ₹4 lakh and widening every band above it.2Income Tax Department. Salaried Individuals for AY 2026-27

  • Up to ₹4,00,000: Nil
  • ₹4,00,001 to ₹8,00,000: 5%
  • ₹8,00,001 to ₹12,00,000: 10%
  • ₹12,00,001 to ₹16,00,000: 15%
  • ₹16,00,001 to ₹20,00,000: 20%
  • ₹20,00,001 to ₹24,00,000: 25%
  • Above ₹24,00,000: 30%

The rates are progressive. You pay each percentage only on the slice of income that falls inside that band, never on your whole income. Someone earning ₹10,00,000 pays nothing on the first ₹4 lakh, 5% on the next ₹4 lakh (₹20,000), and 10% on the remaining ₹2 lakh (₹20,000). That comes to ₹40,000 before any rebate, surcharge, or cess.

The ₹12 Lakh Rebate and Zero-Tax Threshold

Under the revised Section 87A, resident individuals with taxable income up to ₹12,00,000 receive a full rebate of up to ₹60,000, which wipes out the entire tax liability. If your taxable income is ₹12 lakh or less, you owe nothing.

For salaried employees, this effectively lifts the zero-tax point to a gross salary of ₹12,75,000. The ₹75,000 standard deduction brings taxable income down to ₹12,00,000, and the rebate covers the rest. This is the single most useful feature of the new regime for most working people, and it’s why a large share of the salaried workforce will pay no income tax at all.

Marginal Relief Just Above ₹12 Lakh

If your taxable income is only a little above ₹12 lakh, you don’t suddenly face a large bill. Marginal relief caps your total tax at the amount by which your income exceeds ₹12,00,000. On taxable income of ₹12,10,000, the most you would owe is ₹10,000, even though the calculated slab tax would be higher. Earning one extra rupee cannot cost you thousands.

Deductions You Can Still Claim

The new regime removes most deductions, but a handful survive. These directly reduce taxable income, so getting them right matters.

  • Standard deduction of ₹75,000 for salaried employees and pensioners. No receipts needed. It’s applied against gross salary or pension income and is the reason the effective zero-tax threshold for salaried individuals sits at ₹12.75 lakh rather than ₹12 lakh.
  • Employer NPS contribution under Section 80CCD(2), deductible up to 14% of salary. This is the most valuable deduction still available in the new regime, and the 14% limit applies to all employees, not just those in government roles.3National Pension System Trust. Tax Benefits under NPS
  • Family pension deduction: legal heirs can deduct the lower of one-third of the pension or ₹25,000. Under the old regime the cap is ₹15,000, so the new regime is more generous on this point.4Income Tax Department. Income from Pension
  • Section 80CCH: individuals enrolled in the Agnipath Scheme can deduct contributions to the Agniveer Corpus Fund; the government’s matching contribution and the final SevaNidhi payout are also exempt.1Income Tax Department. FAQs on New Tax vs Old Tax Regime
  • Section 80JJAA: employers can claim a deduction for additional employee costs related to new hires.

Beyond these, the cupboard is essentially bare.

What the New Regime Does Not Allow

The trade-off for lower rates is the loss of nearly every Chapter VI-A deduction and several popular exemptions.1Income Tax Department. FAQs on New Tax vs Old Tax Regime The commonly missed ones:

  • Section 80C: no deduction for life insurance premiums, PPF, ELSS, tuition fees, or home loan principal repayment.
  • Section 80D: no deduction for health insurance premiums or preventive health check-ups.
  • House Rent Allowance under Section 10(13A): completely unavailable. If you rent your home and your salary has an HRA component, the whole amount is taxable.
  • Leave Travel Allowance: not available.
  • Home loan interest for self-occupied property: cannot be deducted from house property income.
  • Other Chapter VI-A deductions such as 80DD (disability), 80G (donations), 80E (education loan interest), and 80TTA (savings interest) are all off limits.

This is where the old-versus-new choice becomes a math problem. If the deductions you would actually claim under the old regime save you more than the lower new-regime slab rates, opt out of the default. For salaried employees who don’t stack 80C investments or pay significant rent, the new regime usually costs less without any planning at all.

Surcharge and Cess on Top of Slab Tax

The slab rates alone don’t give you your final bill. Two charges sit on top.

Surcharge on High Incomes

If your total income exceeds ₹50 lakh, a surcharge applies as a percentage of your calculated income tax:2Income Tax Department. Salaried Individuals for AY 2026-27

  • ₹50 lakh to ₹1 crore: 10%
  • ₹1 crore to ₹2 crore: 15%
  • ₹2 crore to ₹5 crore: 25%
  • Above ₹5 crore: 25%

The old regime charges 37% on income above ₹5 crore, so the new regime’s 25% cap is a meaningful reduction for the highest earners. Marginal relief also applies at each surcharge threshold, so crossing ₹50 lakh or ₹1 crore by a small amount does not push your combined tax and surcharge into a much higher bracket in one jump.

Health and Education Cess

A flat 4% cess is levied on your total tax liability after any applicable surcharge. It applies to everyone under both the old and new regimes at the same rate.

To get your final bill: start with slab tax, subtract any Section 87A rebate, add surcharge if it applies, then apply the 4% cess on the combined figure.

Switching Between the Old and New Regimes

The switching rules split sharply based on whether you have business or professional income, and this is the part of the system where taxpayers most often trip themselves up.

Salaried Individuals Without Business Income

You can switch between old and new every year. The choice is made directly in your ITR form at the time of filing. Change your mind next year with no restrictions and no separate form to submit.

Taxpayers With Business or Professional Income

The rules are far more rigid. The new regime is still the default, but choosing the old regime requires filing Form 10-IEA on the e-filing portal before the Section 139(1) due date for your return. File it late and it’s invalid.5Income Tax Department. Form 10-IEA FAQ

Once you opt into the old regime and later want to return to the new regime, you can switch back only once, by filing Form 10-IEA with the “Re-enter” option. After that you are permanently locked into the new regime and cannot go back to the old system unless you stop earning business or professional income entirely.5Income Tax Department. Form 10-IEA FAQ Think carefully before switching if you have business income; you have limited chances to change your mind.

Filing Your Return Under the New Regime

Because the new regime is the default, filing is straightforward if you’re not switching. Salaried individuals should start with Form 16, which shows gross salary, TDS deducted, and employer NPS contributions. Collect bank statements for interest income, capital gains statements from your broker if relevant, and any rental income records. Verify the exact employer NPS contribution so you can correctly claim the 80CCD(2) deduction.3National Pension System Trust. Tax Benefits under NPS

ITR-1 (Sahaj) works for most salaried individuals with income from salary, one house property, and other sources like interest. You cannot use ITR-1 if you have business income, short-term capital gains, long-term capital gains above ₹1.25 lakh under Section 112A, income from more than one house property, or lottery winnings.6Income Tax Department. File ITR-1 (Sahaj) Online FAQs If any of those apply, use ITR-2, which covers individuals and HUFs without business or professional income.7Income Tax Department. File ITR-2 Online FAQs

After uploading your return, e-verify within 30 days. If you miss that window, the date you eventually verify becomes your filing date, which can trigger late-filing consequences. Never verify at all and the return is treated as invalid.8Income Tax Department. FAQs on 30 Days Timeline for E-verification of Returns Options include Aadhaar OTP, a pre-validated bank or demat account, net banking, or a Digital Signature Certificate.9Income Tax Department. e-Filing – e-Verify Your Return FAQ

Penalties If You Miss the Deadline

Filing your return after the due date (typically July 31 for non-audit cases) attracts a flat fee under Section 234F: ₹5,000 for most taxpayers, ₹1,000 if your total income does not exceed ₹5 lakh. The fee applies whether or not you owe tax.

Interest also accrues on unpaid tax at 1% per month (simple) under three separate provisions. Section 234A charges interest from the due date to the actual filing date on outstanding tax. Section 234B applies if you didn’t pay at least 90% of your total liability as advance tax during the year, and runs from April 1 of the assessment year until you pay. Section 234C is triggered when you miss quarterly advance tax installments and applies for three months per missed installment. All three can hit the same return.

Advance tax obligations kick in if your total tax liability for the year after TDS exceeds ₹10,000. The installments are due June 15 (at least 15% of the estimate), September 15 (45% cumulative), December 15 (75% cumulative), and March 15 (100%). Most salaried employees don’t need to worry because their employer’s TDS covers it, but freelance income, rent, or capital gains that push residual tax above ₹10,000 bring advance tax into play, and missing the dates means 234C interest.