Introduction
The Government of India introduced the New Tax Regime to simplify the income tax system and reduce tax rates for individuals and Hindu Undivided Families (HUFs). This regime offers lower tax rates compared to the old regime but removes most exemptions and deductions such as HRA, 80C, and 80D.
From the financial year 2025-26 onwards, the New Tax Regime is considered the default tax system, meaning taxpayers will automatically fall under it unless they choose the old regime.
Key Highlights of the New Tax Regime 2025-26
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Basic exemption limit increased to ₹4 lakh.
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Zero tax for individuals earning up to ₹12 lakh after considering rebate and standard deduction.
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Same tax slabs for all age groups (no separate slabs for senior citizens).
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Standard deduction of ₹75,000 available for salaried individuals and pensioners.
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Rebate under Section 87A increased for incomes up to ₹12 lakh.
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Simplified tax filing process with fewer deductions to claim.
New Income Tax Slabs under New Tax Regime (FY 2025-26 / AY 2026-27)
| Taxable Annual Income (₹) | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil (No Tax) |
| ₹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% |
Example:
If your total income is ₹10 lakh:
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Income up to ₹4 lakh → No tax
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Next ₹4 lakh (₹4L–₹8L) @ 5% → ₹20,000
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Remaining ₹2 lakh (₹8L–₹10L) @ 10% → ₹20,000
Total Tax = ₹40,000 (before rebate or deductions)
Rebate and Deductions under the New Tax Regime
Although the new regime removes most deductions, some benefits still remain available:
| Particulars | Details |
|---|---|
| Standard Deduction | ₹75,000 (for salaried/pensioners) |
| Section 87A Rebate | Up to ₹12 lakh – Full rebate (No tax payable) |
| Employer’s NPS Contribution | Allowed up to 10% of salary |
| Agniveer Corpus Fund Deduction | 100% deductible |
| Family Pension Deduction | Up to ₹15,000 |
With these provisions, individuals earning up to ₹12 lakh (and around ₹12.75 lakh for salaried persons) effectively pay zero tax under the new regime.
Comparison – New Regime vs Old Regime
| Particulars | New Tax Regime | Old Tax Regime |
|---|---|---|
| Basic Exemption Limit | ₹4 lakh | ₹2.5 lakh (₹3 lakh for senior citizens) |
| Rebate (Section 87A) | Up to ₹12 lakh | Up to ₹5 lakh |
| Standard Deduction | ₹75,000 | ₹50,000 |
| Deductions (80C, 80D, etc.) | Not applicable (mostly removed) | Available |
| Complexity | Simple | Requires calculations for deductions |
| Best for | Individuals with fewer investments | Individuals with multiple tax-saving options |
Advantages of the New Tax Regime
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Simplified filing process – Fewer documents and deductions to claim.
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Lower tax rates – Especially beneficial for middle-income earners.
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Zero tax liability up to ₹12 lakh – After rebate and deductions.
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Transparent system – Reduces dependency on tax-saving instruments.
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Same slabs for all – Easy to understand for individuals and HUFs.
Disadvantages of the New Tax Regime
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No major deductions allowed like 80C, 80D, 80E, or HRA.
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Not suitable for individuals who invest heavily in tax-saving schemes.
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No home loan interest exemption for self-occupied properties.
How to Choose Between Old and New Regime
Before filing your ITR, you can compare both regimes. Follow these simple steps:
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Calculate your total income for the year.
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Apply deductions and exemptions available under the old regime.
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Check your tax liability under both regimes using the respective slab rates.
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Choose the regime where your total tax liability is lower.
If you’re a salaried employee, you can inform your employer which regime you want to follow at the start of the financial year.
Quick Summary Table
| Income Range (₹) | Effective Tax Rate (New Regime) | Tax Status |
|---|---|---|
| Up to 4 lakh | 0% | Fully exempt |
| 4 – 8 lakh | 5% | Low tax |
| 8 – 12 lakh | 10% | Medium tax, but zero after rebate |
| 12 – 16 lakh | 15% | Moderate |
| 16 – 20 lakh | 20% | High income |
| 20 – 24 lakh | 25% | Upper income |
| Above 24 lakh | 30% | Highest bracket |
Conclusion
The New Tax Regime for FY 2025-26 offers a simplified and transparent tax system with a higher exemption limit and zero tax up to ₹12 lakh. It benefits salaried individuals and those with fewer investments in tax-saving instruments. However, if you have multiple deductions under the old regime, it’s best to calculate both options before filing your return.
Choosing the right regime depends on your income structure, lifestyle, and long-term investment goals — so always compare before you decide.
