## The Two Tax Regimes

The **Finance Act, 2020** introduced an optional new tax regime under **Section 115BAC of the Income Tax Act, 1961**. The **Finance Act, 2023** made the new regime the **default** from AY 2024-25.

## Tax Slabs — FY 2025-26 (AY 2026-27)

### New Regime (Section 115BAC)
| Income Slab | 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% |

*Rates: s.115BAC(1A)(iii), Income-tax Act, 1961, for AY 2026-27 onwards.*

> **Section 87A rebate:** under the new regime, a resident individual whose total income does not exceed ₹12,00,000 gets a rebate equal to the tax, up to ₹60,000, so tax is nil (s.87A first proviso, Income-tax Act, 1961, as amended w.e.f. 1 April 2026). With the ₹75,000 standard deduction, salary up to ₹12,75,000 attracts zero tax.

### Old Regime
| Income Slab | 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% |

*Old-regime rates for an individual below 60: Finance Act, 2026, First Schedule, Part I, Paragraph A (I) (AY 2026-27).*

## What You Give Up in the New Regime

Section 80C (₹1.5 lakh), Section 80D (health insurance), Section 80CCD(1B) (₹50,000 NPS), Section 24(b) (interest on a self-occupied home loan, up to ₹2 lakh), HRA exemption under Section 10(13A), and LTA exemption under Section 10(5).

## Break-Even Analysis

### Example 1 — ₹12 Lakh Salary, No Home Loan
**Old regime** (standard deduction ₹50,000 + 80C ₹1,50,000 + 80D ₹25,000): taxable ₹9,75,000. Tax ₹12,500 + 20% of ₹4,75,000 = ₹1,07,500; plus 4% cess = **₹1,11,800**.
**New regime** (standard deduction ₹75,000 only): taxable ₹11,25,000. Tax ₹52,500, fully rebated under s.87A because total income is below ₹12,00,000 = **Nil**.
**Save ₹1,11,800 under the new regime.**

### Example 2 — ₹20 Lakh Salary, Large Home Loan
**Old regime** (deductions totalling ₹4.75 lakh, including the standard deduction): taxable ₹15,25,000. Tax ₹1,12,500 + 30% of ₹5,25,000 = ₹2,70,000; plus 4% cess = **₹2,80,800**.
**New regime** (standard deduction ₹75,000 only): taxable ₹19,25,000. Tax ₹1,85,000; plus 4% cess = **₹1,92,400**.
**Save ₹88,400 under the new regime.** At ₹20 lakh, the old regime wins only if total deductions (including the ₹50,000 standard deduction) exceed about ₹7.58 lakh.

*Surcharge ignored (income below ₹50 lakh). Worked from the rate tables above; check your own figures before choosing.*

## Surcharge and Cess
4% Health and Education Cess on all income tax. Surcharge: 10% for income ₹50 lakh–₹1 crore; 15% for ₹1–2 crore.

## When to Switch Regimes

Salaried employees can switch every year at filing. With business or professional income, the option must be exercised by the s.139(1) due date and, once exercised, can be withdrawn only once (proviso to Section 115BAC(6)).

**Choose new regime if:** limited deductions, young professional just starting out.

**Choose old regime if:** large home loan, substantial health insurance for parents, maximum 80C investments.

Use our free [Income Tax Calculator](/tools/income-tax-calculator) to see your exact break-even point.

## Frequently Asked Questions

### Which is better — old or new tax regime for FY 2025-26?

It depends on your deduction profile. The old regime wins only when your deductions are large: at ₹20 lakh salary, total deductions (including the ₹50,000 standard deduction) need to exceed about ₹7.58 lakh (see Example 2), and up to ₹12.75 lakh salary the new regime is nil-tax. The new regime under Section 115BAC is better if your deductions are minimal — its lower slab rates and ₹12 lakh rebate threshold make it advantageous for taxpayers who don't utilise exemptions.

### What is the standard deduction under the new regime?

From FY 2024-25, the standard deduction for salaried individuals under the new regime is ₹75,000 (increased from ₹50,000 by the Finance (No. 2) Act, 2024). This is a flat deduction from gross salary — no receipts or proof required.

### Can I claim HRA exemption under the new tax regime?

No. HRA exemption under Section 10(13A) is not available under the new regime. If rent is a significant expense (typically in metro cities), this single exemption can make the old regime more beneficial. Calculate the HRA exemption using the three-way minimum formula before deciding.

### What is the rebate under Section 87A in the new regime?

For FY 2025-26, individuals with taxable income up to ₹12 lakh (₹12.75 lakh for salaried after standard deduction) pay zero tax under Section 87A in the new regime. The rebate equals the full tax liability, with marginal relief for income slightly above ₹12 lakh to prevent a sudden jump.

### How do I switch from the new regime to the old regime?

Salaried individuals without business income choose the old regime in the return itself, each year (s.115BAC(6)(ii)). Those with business or professional income exercise the option on or before the s.139(1) due date (s.115BAC(6)(i)); it then applies to later years and can be withdrawn only once.

I'm CA Harun Raaj, Visakhapatnam. If any of this affects you or your business, reach out — I'd be glad to help.

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## See Also

- [Advance Tax — Who Must Pay, How to Calculate, and Due Dates for FY 2025-26](https://www.harunraaj.com/blog/advance-tax-calculation-payment-fy-2025-26)
- [TDS Rates and Sections for FY 2025-26 — Complete Reference Guide](https://www.harunraaj.com/blog/tds-rates-sections-fy-2025-26)
- [Old Tax Regime vs New Tax Regime AY 2025-26: Which Is Better for You?](https://www.harunraaj.com/blog/old-regime-vs-new-regime-2025-26)

Canonical: https://www.harunraaj.com/blog/new-vs-old-tax-regime-fy-2025-26