Complete Master Guide to Income Tax in India (FY 2025-26 / AY 2026-27)
The Indian taxation structure offers taxpayers a choice between two distinct tax frameworks: the New Tax Regime (Section 115BAC) and the traditional Old Tax Regime. Budget 2024 introduced major taxpayer-friendly enhancements to the New Tax Regime, including an increased standard deduction of ₹75,000 and wider tax slab brackets.
New Tax Regime vs Old Tax Regime Slabs (FY 2025-26)
| Income Slab Range | New Tax Regime Rates (Sec 115BAC) | Old Tax Regime Rates |
|---|---|---|
| ₹0 to ₹2,50,000 | NIL | NIL |
| ₹2,50,001 to ₹3,00,000 | NIL | 5% (Tax rebate u/s 87A) |
| ₹3,00,001 to ₹5,00,000 | 5% (Rebate u/s 87A up to ₹7L) | 5% |
| ₹5,00,001 to ₹7,00,000 | 5% (Rebate u/s 87A) | 20% |
| ₹7,00,001 to ₹10,00,000 | 10% | 20% |
| ₹10,00,001 to ₹12,00,000 | 15% | 30% |
| ₹12,00,001 to ₹15,00,000 | 20% | 30% |
| Above ₹15,00,000 | 30% | 30% |
Key Differences: Deductions & Exemptions Allowed
- Standard Deduction: ₹75,000 under the New Regime vs ₹50,000 under the Old Regime for salaried employees.
- Section 87A Tax Rebate: Zero tax on taxable income up to ₹7,00,000 under New Regime vs ₹5,00,000 under Old Regime.
- Chapter VI-A Deductions: Section 80C (up to ₹1.5L), Section 80D (Health Insurance up to ₹1L), Section 24(b) (Home Loan Interest up to ₹2L), and HRA exemptions are ONLY available in the Old Tax Regime.
- Employer NPS Contribution: Deduction under Section 80CCD(2) up to 14% of salary is allowed in BOTH regimes.
Frequently Asked Questions (FAQs)
Which tax regime is better for salaried employees: Old or New?
The New Tax Regime is generally more beneficial for individuals with gross income up to ₹12-15 Lakhs who do not have substantial home loan interest or high Chapter VI-A deductions (80C, 80D, HRA). If your total tax-saving deductions exceed ₹3.75 to ₹4.25 Lakhs, the Old Tax Regime may offer greater tax savings.
What is the standard deduction under the New Tax Regime for FY 2025-26?
Union Budget 2024 increased the standard deduction under the New Tax Regime from ₹50,000 to ₹75,000 for salaried employees and pensioners. Under the Old Tax Regime, the standard deduction remains ₹50,000.
How does the Section 87A tax rebate work under the New Tax Regime?
Under Section 87A for the New Tax Regime, resident individuals with total taxable income up to ₹7,00,000 pay ZERO income tax (maximum rebate of ₹25,000). With the ₹75,000 standard deduction, a salaried employee earning up to ₹7,75,000 pays zero tax.
Can I switch between Old and New Tax Regimes every year?
Salaried individuals without business income can freely switch between the Old and New Tax Regimes every financial year at the time of filing their ITR. Individuals with business or professional income (ITR-3 / ITR-4) can switch out of the New Regime only ONCE in their lifetime.
