Since the new tax regime became the default under Section 115BAC, many taxpayers assume the decision is made for them. It is not. For FY 2025-26 the new regime makes income up to Rs 12 lakh effectively tax-free, which is hard to beat, yet the old regime still wins for people with large deductions.
This guide lays out the latest slabs for both regimes, shows where each one wins, and gives you a simple way to decide. It pairs with our main guide on how to file your ITR for AY 2026-27.
Quick answers
Which regime is the default?
The new regime under Section 115BAC. You must actively opt for the old one.
How much income is tax-free in the new regime?
Up to Rs 12 lakh of taxable income, through the enhanced Section 87A rebate.
What is the salaried zero-tax point?
About Rs 12.75 lakh, after the Rs 75,000 standard deduction.
When is the old regime better?
When your total deductions are large enough to push taxable income well below the new-regime advantage.
Did Budget 2026 change the slabs?
No. The FY 2025-26 slabs continue for FY 2026-27 under both regimes.
Can I switch every year?
Salaried filers can switch each year; business income has tighter rules and may need Form 10-IEA.
What are the two tax regimes?
India offers two ways to compute personal income tax under the Income Tax Act, 1961: the new regime under Section 115BAC, with lower rates but almost no deductions, and the old regime, with higher rates but a wide set of deductions and exemptions. The new regime is the default for AY 2026-27.
The choice is purely arithmetic. You pay tax under whichever regime gives the lower liability for your income and deduction profile, so the right answer differs from person to person.
New regime slabs for FY 2025-26
| Taxable income | Rate |
|---|---|
| Up to Rs 4 lakh | Nil |
| Rs 4 lakh to Rs 8 lakh | 5% |
| Rs 8 lakh to Rs 12 lakh | 10% |
| Rs 12 lakh to Rs 16 lakh | 15% |
| Rs 16 lakh to Rs 20 lakh | 20% |
| Rs 20 lakh to Rs 24 lakh | 25% |
| Above Rs 24 lakh | 30% |
The basic exemption is Rs 4 lakh. The enhanced Section 87A rebate of up to Rs 60,000 makes taxable income up to Rs 12 lakh tax-free, and with the Rs 75,000 standard deduction a salaried person pays no tax up to about Rs 12.75 lakh. A health and education cess of 4 percent applies on the tax.
Old regime slabs for FY 2025-26
| Taxable income | Rate |
|---|---|
| Up to Rs 2.5 lakh | Nil |
| Rs 2.5 lakh to Rs 5 lakh | 5% |
| Rs 5 lakh to Rs 10 lakh | 20% |
| Above Rs 10 lakh | 30% |
The basic exemption is Rs 2.5 lakh (higher for senior and super senior citizens). The Section 87A rebate stays at Rs 12,500, making income up to Rs 5 lakh tax-free, and the salaried standard deduction is Rs 50,000. The trade-off is access to deductions the new regime does not allow.
Key terms explained
- Section 115BAC: the provision that defines the new tax regime and makes it the default.
- Section 87A rebate: a rebate that reduces tax to zero up to a threshold (Rs 12 lakh new, Rs 5 lakh old).
- Standard deduction: a flat salary deduction (Rs 75,000 new, Rs 50,000 old).
- Chapter VI-A deductions: old-regime deductions such as 80C, 80D, and 80CCD(1B).
- Surcharge: an extra charge on high incomes, with the new regime's top surcharge capped at 25 percent.
What the old regime still lets you claim
- Section 80C investments up to Rs 1.5 lakh (PF, ELSS, life insurance, tuition fees).
- Section 80D health insurance premiums.
- House Rent Allowance and Leave Travel Allowance exemptions.
- Home loan interest under Section 24(b).
- Section 80CCD(1B) additional Rs 50,000 for the National Pension System.
How to decide, step by step
- Total your income. Add salary and all other taxable income for the year.
- Add up your real deductions. Count only deductions you actually claim, not ones you might.
- Compute tax under the new regime. Apply the new slabs and the Rs 75,000 standard deduction.
- Compute tax under the old regime. Apply the old slabs after subtracting your deductions and the Rs 50,000 standard deduction.
- Compare and choose the lower figure. Pick the regime that leaves you paying less.
- Record your choice correctly. Salaried filers select the regime while filing; business income may require Form 10-IEA to opt for the old regime.
Worked comparison at common income levels
| Taxable income | New regime | Old regime (with full deductions) |
|---|---|---|
| Rs 12 lakh (salaried) | Zero tax (rebate) | Tax payable, even after deductions |
| Rs 15 lakh | Lower in most cases | Can win only with very large deductions |
| Rs 20 lakh | Competitive | Wins when deductions are substantial |
Common mistakes when choosing a regime
- Picking a regime out of habit. You may overpay. Recompute every year, because slabs and your deductions change.
- Counting deductions you do not actually make. The old regime looks better on paper than in reality. Use only deductions you genuinely claim.
- Missing the opt-out step. You stay on the default new regime by accident. Actively select the old regime, and file Form 10-IEA if you have business income.
Penalties and timing consequences
Salaried taxpayers can switch regimes each year only if they file by the due date under Section 139(1); filing late can restrict the choice to the default new regime.
A belated return for AY 2026-27 still attracts the Section 234F late fee of Rs 5,000 (Rs 1,000 where income is up to Rs 5 lakh), so timing affects both your regime choice and your cost.
How the pieces interact
Section 115BAC sets the new regime as the default, while the enhanced Section 87A rebate is what drives the Rs 12 lakh zero-tax outcome, so the two operate together.
For taxpayers with business income, Form 10-IEA governs the opt-out to the old regime, and once exercised the switching flexibility is more limited than it is for salaried filers.
Key takeaways
- The new regime under Section 115BAC is the default for AY 2026-27.
- The enhanced Section 87A rebate makes taxable income up to Rs 12 lakh tax-free in the new regime.
- A salaried filer pays no tax up to roughly Rs 12.75 lakh after the Rs 75,000 standard deduction.
- The old regime wins only when your genuine deductions are large.
- Recompute the comparison every year rather than repeating last year's choice.
Frequently asked questions
Which regime is better for a salaried person?
For most salaried filers with modest deductions the new regime costs less, but if you claim large 80C, 80D, HRA, and home loan interest deductions, run both calculations before deciding.
Is income up to Rs 12 lakh really tax-free?
Under the new regime, the enhanced Section 87A rebate reduces the tax to nil up to Rs 12 lakh of taxable income, and to roughly Rs 12.75 lakh for salaried filers after the standard deduction.
Can I switch between regimes every year?
Salaried taxpayers without business income can choose each year while filing on time. Those with business or professional income face tighter rules and use Form 10-IEA.
What is Form 10-IEA?
It is the form taxpayers with business or professional income file to opt out of the default new regime and into the old regime.
Does the old regime still exist?
Yes. The old regime remains available, but it is now opt-in rather than the default.
Are the slabs changing for FY 2026-27?
No. The FY 2025-26 slabs continue for FY 2026-27 under both regimes.
Is the standard deduction available in the new regime?
Yes. Salaried taxpayers get a Rs 75,000 standard deduction in the new regime and Rs 50,000 in the old regime.
Want the comparison run on your actual numbers?
The break-even between the two regimes depends on deductions you actually claim, and getting it wrong costs real money every year. You can read how the Regikart team handles this on our income tax filing page, or contact us / WhatsApp +91 70444 94804 (Mon-Sat, 9 am-7 pm IST).
About the author
Regikart CA Team
Chartered Accountants at Regikart. Want to discuss this in the context of your business?
