Last updated: July 2026 · For FY 2025-26 (AY 2026-27)

Choosing between the old and new tax regime is the single biggest tax decision most salaried Indians make each year — and after the Budget 2025 overhaul, the maths has changed dramatically. The new regime is now so generous that a salary of up to ₹12.75 lakh can be completely tax-free. So is the old regime still worth the paperwork? For some people, absolutely. This guide breaks down both regimes for FY 2025-26 (AY 2026-27), with correct slabs, real worked examples, and a simple way to find your break-even point. Prefer to start from your salary package? Try our CTC calculator first.

Quick note: The Union Budget 2026 made no changes to these slabs or the rebate, so everything below also applies to FY 2026-27.

Key Takeaways

• The new tax regime is the default and now offers zero tax up to ₹12 lakh of taxable income (₹12.75 lakh for salaried, after the ₹75,000 standard deduction).
• The old regime is unchanged — same slabs, ₹50,000 standard deduction, and the full menu of deductions (80C, 80D, HRA, home loan interest).
• For most people with modest deductions, the new regime wins. The old regime only pulls ahead when your total deductions are large (typically ₹4.5–5 lakh+ at higher incomes).
• You can switch regimes every year if you're salaried; business-income earners face tighter rules.
• The only reliable way to be sure is to compute both — use a calculator with your actual numbers.

Income Tax Slabs for FY 2025-26 (AY 2026-27)

New Tax Regime (default)

Taxable income	Tax 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%

Key features:

• Standard deduction of ₹75,000 for salaried individuals and pensioners.
• Section 87A rebate up to ₹60,000 — this wipes out tax entirely for taxable income up to ₹12 lakh.
• Employer's NPS contribution under Section 80CCD(2) is still deductible (up to 14% of basic).
• No deductions for 80C investments, HRA, LIC, home loan interest, etc.
• Surcharge is capped at 25% for the highest incomes (vs 37% in the old regime), plus 4% health & education cess.

Old Tax Regime

Taxable income	Tax rate
Up to ₹2,50,000	Nil
₹2,50,001 – ₹5,00,000	5%
₹5,00,001 – ₹10,00,000	20%
Above ₹10,00,000	30%

Key features:

• Standard deduction of ₹50,000.
• Full deductions: Section 80C (up to ₹1.5 lakh), 80D (health insurance), HRA exemption, home loan interest (up to ₹2 lakh), 80CCD(1B) NPS (extra ₹50,000), and more. Learn more in our guide to Section 80C, 80D & other deductions.
• Section 87A rebate of ₹12,500, making income up to ₹5 lakh tax-free.

How the ₹12.75 Lakh "Zero Tax" Actually Works

This is the headline change, so it's worth being precise:

1. Start with your gross salary — say ₹12,75,000.
2. Subtract the ₹75,000 standard deduction → taxable income ₹12,00,000.
3. Calculated tax on ₹12,00,000 is ₹60,000, but the Section 87A rebate of ₹60,000 cancels it out.
4. Final tax payable: ₹0.

Earn a rupee more and you cross the rebate threshold — but marginal relief ensures your extra tax never exceeds your extra income, so there's no sudden cliff.

Comparing Tax Liability: Worked Examples (FY 2025-26)

All figures include 4% cess. New-regime taxable income is after the ₹75,000 standard deduction; old-regime examples assume the ₹50,000 standard deduction plus the stated deductions. To check your own take-home, use our in-hand salary calculator.

Case 1 — ₹9 lakh salary, minimal deductions

	Old regime	New regime
Deductions applied	₹50,000 (standard)	₹75,000 (standard)
Taxable income	₹8,50,000	₹8,25,000
Tax + cess	₹85,800	₹23,400

Verdict: New regime saves ~₹62,400. ✅

Case 2 — ₹12.75 lakh salary

	Old regime (₹2L deductions)	New regime
Taxable income	₹10,25,000	₹12,00,000
Tax + cess	₹1,24,800	₹0 (rebate)

Verdict: New regime is dramatically better — you'd need enormous old-regime deductions just to match zero. ✅

Case 3 — ₹15 lakh salary, high deductions

	Old regime (₹6.25L deductions*)	New regime
Taxable income	₹8,75,000	₹14,25,000
Tax + cess	₹91,000	₹97,500

*Deductions: ₹50k standard + ₹1.5L (80C) + ₹25k (80D) + ₹2L (HRA) + ₹2L (home loan interest).

Verdict: Old regime wins — but only by ~₹6,500, and only because deductions are near-maximal. ✅

The pattern is clear: the old regime now needs a lot of deductions to win.

The Break-Even Question: How Many Deductions Do You Need?

A useful rule of thumb for FY 2025-26 — the approximate total deductions (including the standard deduction) at which the old regime starts to beat the new. For a visual side-by-side, see our tax comparison chart:

Gross salary	Approx. break-even deductions
₹10 lakh	~₹2.75 lakh
₹12.75 lakh	Old regime can't beat ₹0 tax — new wins
₹15 lakh	~₹4.25–4.5 lakh
₹20 lakh	~₹5–5.5 lakh
₹25 lakh+	~₹6.25 lakh+

If your realistic deductions fall short of these numbers, the new regime is almost always the better choice.

Pros and Cons

New regime

• ✅ Lower rates, huge ₹12 lakh rebate, minimal paperwork, ₹75,000 standard deduction, lower surcharge cap.
• ❌ No reward for saving/investing via 80C, no HRA or home-loan-interest benefit.

Old regime

• ✅ Rewards disciplined tax-planning; ideal if you have a home loan, high rent (HRA), and maxed 80C/80D.
• ❌ Higher rates, more documentation, and now a high bar to actually come out ahead.

How to Choose: A Simple 4-Step Checklist

1. Add up your realistic deductions — 80C, 80D, HRA, home loan interest, NPS.
2. Compare against the break-even table for your salary band.
3. Run both regimes through a calculator with your exact figures (never estimate for a filing decision) — try our regime tax calculator.
4. Re-check every year — your deductions, rent, and loan balance change, and so can the right regime.

How to Switch Between Regimes

• Salaried employees declare a preferred regime to their employer at the start of the year for TDS, and can still change it while filing the ITR. You can switch every year.
• Business or professional income earners must file Form 10-IEA to opt for the old regime, and can generally switch back only once.
• If you do nothing, you're taxed under the new regime by default (Section 115BAC).

Common Mistakes to Avoid

• Assuming the old regime is always cheaper — post-2025 that's rarely true.
• Forgetting the standard deduction in the new regime (it's ₹75,000, not zero).
• Counting deductions you won't actually claim — only include what you can prove.
• Locking a regime with your employer and forgetting you can still change it at ITR time.
• Ignoring marginal relief and panicking about income just above ₹12 lakh.

Expert Tips

• If your income is at or below ₹12.75 lakh and you're salaried, the new regime is almost certainly your answer — take the zero tax.
• Have a home loan plus high rent? Model the old regime carefully; you may still win.
• Employer NPS (80CCD(2)) works in both regimes — use it to boost retirement savings tax-efficiently even on the new regime. Explore more tax-saving investment options and our tax planning tools.
• Don't chase 80C investments just for tax if you're on the new regime — invest for goals, not deductions.

Frequently Asked Questions

How much salary is tax-free under the new regime in FY 2025-26?

Up to ₹12 lakh of taxable income is tax-free thanks to the ₹60,000 Section 87A rebate. For salaried individuals, the ₹75,000 standard deduction raises the tax-free ceiling to ₹12.75 lakh.

Is the old or new tax regime better?

It depends on your deductions. With modest deductions, the new regime almost always wins. The old regime pulls ahead only when your total deductions are large (roughly ₹4.5 lakh+ at higher incomes).

Which regime is the default?

The new regime is the default under Section 115BAC. You must actively opt for the old regime.

Can I switch regimes every year?

Salaried individuals can choose afresh each year. Those with business/professional income can switch back only once and must file Form 10-IEA.

Did Budget 2026 change anything?

No. The slabs and the ₹60,000 rebate introduced in Budget 2025 continue unchanged for FY 2026-27.

Does the old regime's ₹2.5 lakh exemption still apply?

Yes — the old regime is unchanged, including the ₹2.5 lakh basic exemption and the ₹12,500 rebate for income up to ₹5 lakh.

Summary

For FY 2025-26, the new tax regime has become the smart default for most salaried Indians — zero tax up to ₹12.75 lakh and far less paperwork. The old regime still makes sense if you have substantial deductions, especially a home loan and high rent. Don't guess: add up your deductions, check the break-even table, and run both regimes through a calculator before you decide.

Ready to find your number? Use our free tools to compare both regimes in seconds and see your exact take-home pay.