India’s new tax regime is the default income tax system under Section 115BAC, offering lower slab rates in exchange for giving up most traditional exemptions and deductions. For Assessment Year 2026–27 (Financial Year 2025–26), it uses seven income brackets starting at nil up to ₹4 lakh and topping out at 30 percent above ₹24 lakh, with a rebate that zeroes out tax for resident individuals earning up to ₹12 lakh. Since FY 2023–24, every taxpayer is automatically placed in this regime unless they actively choose the old one.
Slabs and Rates for AY 2026–27
The Union Budget 2025 rewrote the Section 115BAC slab structure. The nil-rate bracket widened and a new 25 percent tier was added between 20 and 30 percent. The current rates:
- Up to ₹4,00,000: Nil
- ₹4,00,001 to ₹8,00,000: 5 percent
- ₹8,00,001 to ₹12,00,000: 10 percent
- ₹12,00,001 to ₹16,00,000: 15 percent
- ₹16,00,001 to ₹20,00,000: 20 percent
- ₹20,00,001 to ₹24,00,000: 25 percent
- Above ₹24,00,000: 30 percent
Each rate applies only to income falling within that bracket. Someone earning ₹14,00,000 pays nothing on the first ₹4 lakh, 5 percent on the next ₹4 lakh, 10 percent on the next ₹4 lakh, and 15 percent only on the final ₹2 lakh above ₹12 lakh.1Income Tax Department. Returns and Forms Applicable for Senior Citizens and Super Senior Citizens for AY 2026-27 After the slab tax is computed, add a 4 percent health and education cess on the total tax amount. The cess applies to every taxpayer regardless of income level.
Why the ₹12 Lakh Zero-Tax Figure Works
The Section 87A rebate is what makes the ₹12 lakh headline possible. Resident individuals with net taxable income up to ₹12,00,000 get a rebate of up to ₹60,000, which cancels the entire tax owed on that income. If your taxable income after the standard deduction is ₹12 lakh or less, the bill is zero.2Livemint. Income-Tax Returns: Taxpayers Get Rebate Under Section 87A – Check Here for Eligibility, Limit and Rules, Explained
For salaried people, the ₹75,000 standard deduction pushes the effective ceiling higher. A gross salary up to ₹12,75,000 can still land you at zero tax after the deduction is applied.
Marginal relief kicks in just above ₹12 lakh so a small increase in income does not produce a disproportionate tax jump. At a taxable income of ₹12,10,000, for example, the tax works out to ₹10,000 rather than the full slab-computed figure. You never lose more to tax than you gained in income by crossing the line.
Two boundaries matter. The rebate is only for resident individuals, so NRIs do not get it. And capital gains are excluded from the rebate calculation entirely; they are taxed at their own separate rates regardless of where the rest of your income sits.
Deductions That Still Apply
Most Chapter VI-A deductions are gone under the new regime, but a few survived and they are worth knowing about before you compare regimes.
Every salaried individual and pensioner gets a flat ₹75,000 standard deduction from gross salary or pension for AY 2026–27. No receipts, no proof. It applies automatically.
Family pensioners, meaning spouses or dependents receiving pension after an employee’s death, can deduct ₹25,000 or one-third of the pension, whichever is lower. That is higher than the ₹15,000 limit under the old regime.3Income Tax Department. Income from Pension
Employer contributions to the National Pension System under Section 80CCD(2) remain deductible up to 14 percent of salary (basic plus dearness allowance) for all employees.4National Pension System Trust. Tax Benefits Under NPS Note that this covers the employer’s contribution only; your own NPS contributions no longer produce a deduction under this regime.
Agniveers can deduct their full contribution to the Agniveer Corpus Fund under Section 80CCH. The Central Government’s matching contribution is treated as salary income but is simultaneously deductible, so neither portion ends up taxed.5Income Tax Department. Deductions
What You Give Up
The tradeoff for the lower slabs is losing deductions many taxpayers have built their finances around. If you have significant investments or salary allowances geared to the old system, this is where the comparison usually decides itself.
All other Chapter VI-A deductions are off the table. The biggest losses are Section 80C (up to ₹1,50,000 for PPF, ELSS, life insurance, and similar instruments), Section 80D (health insurance premiums), and Section 80E (interest on education loans).6Income Tax Department. FAQs on New Tax vs Old Tax Regime
Salary exemptions take a hit too. House Rent Allowance cannot be claimed. Leave Travel Allowance for domestic travel is excluded. These components may still show up on your payslip, but they do nothing for your tax bill under this regime.
Home loan interest is treated very differently. For a self-occupied property, no deduction for interest on borrowed capital is allowed at all.6Income Tax Department. FAQs on New Tax vs Old Tax Regime For a let-out property, interest can still be deducted against the rental income, but if the interest is larger than the rent and creates a loss, that loss cannot be set off against salary or other income, and it cannot be carried forward. Under the old regime, up to ₹2,00,000 of house property loss could offset other income, which made home loans meaningfully cheaper after tax. This is one of the most underappreciated costs of the new regime for anyone carrying a large housing loan.
Surcharges Above ₹50 Lakh
Taxable income above ₹50 lakh triggers a surcharge on the computed income tax (before cess):
- ₹50 lakh to ₹1 crore: 10 percent
- ₹1 crore to ₹2 crore: 15 percent
- ₹2 crore to ₹5 crore: 25 percent
- Above ₹5 crore: 25 percent
The new regime caps the top surcharge at 25 percent even above ₹5 crore. Under the old regime, the same income faces a 37 percent surcharge, a real advantage at the top end. Marginal relief operates at each threshold so that crossing ₹50 lakh, ₹1 crore, or ₹2 crore by a small amount never costs more in surcharge than the extra income earned. The calculation runs automatically when you file.7Income Tax Department. Salaried Individuals for AY 2026-27
Choosing or Switching Regimes
The new regime is the default for individuals, Hindu Undivided Families, Associations of Persons (other than cooperative societies), Bodies of Individuals, and Artificial Juridical Persons. Every return filed through the e-filing portal is processed under these rules unless you actively opt out.8Income Tax Department. Association of Persons (AOP) / Body of Individuals (BOI) / Trust / Artificial Juridical Person (AJP) for AY 2026-27 How you opt out depends on whether you have business income.
Salaried and Non-Business Taxpayers
You can switch between old and new every single year. No separate form. Just pick your regime when filing your return before the Section 139(1) due date. Tell your employer at the start of the financial year so payroll applies the correct TDS slabs, but you can still change your mind at filing time even if your employer used the other regime for TDS.9Income Tax Department. Form 10-IEA FAQ
Business and Professional Income
The rules tighten sharply here. To choose the old regime, you must file Form 10-IEA on the e-filing portal before the return due date. That form can be filed only twice in your lifetime: once to move out of the new regime, and once to move back in.10Income Tax Department. Form 10-IEA – User Manual and FAQs Once you use both opportunities and return to the new regime, you cannot go back to the old one unless you stop earning business or professional income entirely. Missing the Form 10-IEA deadline locks you into whichever regime you were already in for that year.9Income Tax Department. Form 10-IEA FAQ
NRIs Under the New Regime
Non-Resident Indians are eligible for the new regime, and the same slabs and default status apply. NRIs can opt out the same way residents do. The difference that matters: NRIs cannot claim the Section 87A rebate, so tax is owed on income below ₹12 lakh even when a resident with the same income would owe nothing.11Income Tax Department. Non-Resident Individual for AY 2026-2027