What Is the New Tax Regime?
The new tax regime is a simplified income tax structure introduced in Budget 2020 by the Government of India that offers lower slab rates in exchange for removing most deductions and exemptions. It became the default tax regime for all taxpayers from FY 2023-24.
Under the new regime, the standard deduction of Rs 75,000 (from FY 2025-26) is the only major deduction available to salaried employees. Deductions that were available under the old regime including Section 80C (PPF, ELSS, EPF, life insurance), Section 80D (health insurance), HRA exemption under Section 10(13A), home loan interest under Section 24(b), and Leave Travel Allowance (LTA) are not available.
The new regime uses a seven-slab rate structure with rates from 0 per cent to 30 per cent. For FY 2025-26 and FY 2026-27, the Section 87A rebate makes income tax completely nil for individuals with taxable income up to Rs 12,00,000. This means a salaried employee with gross salary up to Rs 12,75,000 pays zero income tax after accounting for the standard deduction.
New Tax Regime Slabs FY 2026-27
The new tax regime slabs for FY 2026-27 structure tax rates starting from 0% for income up to Rs 4 lakh, rising to 30% for income above Rs 24 lakh.
| Income Slab | Tax Rate | Tax on Slab (cumulative) |
|---|---|---|
| Rs 0 to Rs 4,00,000 | 0% | Nil |
| Rs 4,00,001 to Rs 8,00,000 | 5% | Rs 20,000 |
| Rs 8,00,001 to Rs 12,00,000 | 10% | Rs 60,000 |
| Rs 12,00,001 to Rs 16,00,000 | 15% | Rs 1,20,000 |
| Rs 16,00,001 to Rs 20,00,000 | 20% | Rs 2,00,000 |
| Rs 20,00,001 to Rs 24,00,000 | 25% | Rs 3,00,000 |
| Above Rs 24,00,000 | 30% | Rs 3,00,000 + 30% of income above Rs 24,00,000 |
Standard deduction of Rs 75,000 is available for salaried employees. Section 87A rebate makes tax nil for taxable income up to Rs 12,00,000. Surcharge applies above Rs 50,00,000. All tax amounts are before adding 4 per cent health and education cess.
Section 87A Rebate Under the New Regime
The Section 87A rebate under the new tax regime provides up to Rs 60,000 in tax relief, making taxable income up to Rs 12 lakh completely tax-free for FY 2026-27.
For a salaried employee, this means gross income up to Rs 12,75,000 is effectively tax-free. The standard deduction of Rs 75,000 reduces the taxable income to Rs 12,00,000, and the Section 87A rebate eliminates the tax entirely. Marginal relief applies for taxpayers with taxable income just above Rs 12,00,000 to prevent a cliff effect.
Example: Taxable income of Rs 12,10,000. Slab tax is Rs 61,500 (Rs 60,000 on income up to Rs 12 lakh plus Rs 1,500 on the next Rs 10,000 at 15 per cent). Since income exceeds Rs 12 lakh, the full rebate does not apply. However, marginal relief limits the tax to the excess income over Rs 12 lakh, which is Rs 10,000. Total tax payable: Rs 10,000 plus 4 per cent cess (Rs 400) = Rs 10,400.
Standard Deduction Under the New Regime
The standard deduction of Rs 75,000 is available to salaried employees and pensioners under the new tax regime from FY 2025-26 onwards. It was increased from Rs 50,000 in the Budget 2025. This is a flat deduction that reduces gross salary to arrive at taxable income.
Self-employed individuals and business owners cannot claim the standard deduction under either regime. For them, the Section 87A rebate threshold of Rs 12,00,000 applies directly to gross total income after business expenses. This is a key difference between salaried and self-employed taxation under the new regime.
How Tax Is Calculated Under the New Regime
Taxable Income = Gross Total Income minus Standard Deduction (Rs 75,000) minus NPS Employer contributionTax under the new regime is calculated by applying progressive slab rates to your taxable income after subtracting the standard deduction of Rs 75,000.
Step 1: Calculate total income by adding gross salary, rental income, and other income.
Step 2: Subtract standard deduction of Rs 75,000 (salaried only) and NPS employer deduction u/s 80CCD(2) to arrive at taxable income.
Step 3: Apply slab rates progressively to taxable income.
Step 4: Apply Section 87A rebate if taxable income is Rs 12,00,000 or less (tax becomes zero).
Step 5: Apply marginal relief if taxable income is slightly above Rs 12,00,000.
Step 6: Add surcharge for income above Rs 50,00,000 (capped at 25% under the new regime).
Step 7: Add 4 per cent health and education cess on tax plus surcharge.
Tax on Different Salary Levels Under the New Regime
Under the new tax regime, a gross salary of Rs 12.75 lakh incurs zero tax after the standard deduction, while higher salaries like Rs 15 lakh and Rs 20 lakh incur taxes of Rs 97,500 and Rs 1,92,400 respectively.
| Gross Salary | Taxable Income | Slab Tax | Cess (4%) | Total Tax | Effective Rate |
|---|---|---|---|---|---|
| Rs 9,00,000 | Rs 8,25,000 | Rs 21,250 | Rs 850 | Rs 22,100 | 2.5% |
| Rs 12,00,000 | Rs 11,25,000 | Rs 52,500 | Rs 0 | Rs 0 (87A) | 0.0% |
| Rs 15,00,000 | Rs 14,25,000 | Rs 93,750 | Rs 3,750 | Rs 97,500 | 6.5% |
| Rs 18,00,000 | Rs 17,25,000 | Rs 1,45,000 | Rs 5,800 | Rs 1,50,800 | 8.4% |
| Rs 20,00,000 | Rs 19,25,000 | Rs 1,85,000 | Rs 7,400 | Rs 1,92,400 | 9.6% |
| Rs 25,00,000 | Rs 24,25,000 | Rs 3,07,500 | Rs 12,300 | Rs 3,19,800 | 12.8% |
| Rs 30,00,000 | Rs 29,25,000 | Rs 4,57,500 | Rs 18,300 | Rs 4,75,800 | 15.9% |
All figures for FY 2026-27. Surcharge is not applicable below Rs 50 lakh. The effective rate increases with income as higher slab rates apply to larger portions of income.
New Tax Regime vs Old Tax Regime
The key difference between the new and old tax regimes is that the new regime offers lower slab rates but no deductions, whereas the old regime has higher rates but allows deductions like Section 80C and HRA.
| Aspect | New Regime | Old Regime |
|---|---|---|
| Number of Slabs | 7 slabs | 4 slabs |
| Maximum Rate | 30% (above Rs 24L) | 30% (above Rs 10L) |
| Standard Deduction | Rs 75,000 | Rs 50,000 |
| Section 80C (max Rs 1.5L) | Not available | Available |
| Section 80D (Health Insurance) | Not available | Available |
| HRA Exemption | Not available | Available |
| Home Loan Interest (Sec 24b) | Not available | Available (up to Rs 2L) |
| Section 87A Rebate | Up to Rs 12L income tax-free | Up to Rs 5L income tax-free |
| Surcharge Structure | Capped at 25% | Goes up to 37% |
Use the Old vs New Tax Regime Calculator to compare both regimes side by side with your specific income and deduction amounts. The Tax Saving Calculator can help you identify which deductions you might be missing under the old regime.
Surcharge Under the New Regime
Surcharge is an additional tax levied on the income tax amount when total income exceeds Rs 50,00,000. It is calculated as a percentage of the tax after rebate, before adding the 4 per cent health and education cess. The surcharge rates under the new regime are capped at 25 per cent.
| Total Income Range | Surcharge Rate | Effective Tax Increase |
|---|---|---|
| Rs 50 lakh to Rs 1 crore | 10% | Marginal (~10.4% after cess) |
| Rs 1 crore to Rs 2 crore | 15% | Significant (~15.6% after cess) |
| Above Rs 2 crore | 25% | Maximum (~26% after cess) |
Deductions Not Available in the New Tax Regime
The primary deductions and exemptions unavailable in the new tax regime include Section 80C, Section 80D, HRA exemption, and home loan interest under Section 24(b).
| Deduction / Exemption | Maximum Benefit (Old Regime) | Common Use |
|---|---|---|
| Section 80C | Rs 1,50,000 | PPF, ELSS, EPF, life insurance, tax-saving FD, NSC |
| Section 80D | Rs 25,000 (self) / Rs 50,000 (senior) | Health insurance premiums for self and family |
| Section 24(b) Home Loan Interest | Rs 2,00,000 | Interest paid on home loan for self-occupied property |
| HRA Exemption (Sec 10/13A) | Actual HRA or 50% of basic | House rent allowance for salaried employees |
| Section 80G | 50% or 100% of donation | Charitable donations to approved funds |
| Section 80E | No upper limit | Education loan interest (up to 8 years) |
| Leave Travel Allowance (LTA) | Actual travel cost | Domestic travel for employee and family |
| Standard Deduction | Rs 75,000 | Available in both regimes for salaried employees |
The only deduction available under the new regime besides the standard deduction is employer NPS contribution under Section 80CCD(2). If you rely heavily on these deductions to reduce your tax bill, you may be better off under the old regime. Use the Income Tax Calculator to compute your tax under both regimes.
How to Use the New Tax Regime Calculator
To use the new tax regime calculator, enter your annual gross salary, add other income, select your age category and financial year, and view the final tax liability breakdown.
- Enter your gross annual salary: use the slider or click the value button to type your total annual salary including basic, allowances, bonuses, and perquisites.
- Add rental income: enter gross rental income received from house property, if applicable.
- Employer NPS contribution: input employer contribution to NPS under Section 80CCD(2), which is allowed under the new tax regime.
- Add other income: enter income from other sources such as interest on savings accounts and fixed deposits, or capital gains.
- Select age and financial year: choose your age category and the applicable financial year. Slabs adjust automatically.
Click any input value to type a precise number. The currency selector converts amounts to USD, EUR, GBP, or other currencies for NRIs. Your inputs are saved automatically and restored the next time you visit.
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Frequently Asked Questions
Disclaimer: All calculations on this page are indicative only. Tax liability depends on individual circumstances, applicable exemptions, and specific provisions of the Income Tax Act, 1961. This calculator is for educational and planning purposes only and does not constitute financial advice. Consult a SEBI-registered investment adviser or a qualified chartered accountant before making tax decisions.
CAs can generate detailed Tax Optimization Reports for clients at ca.fermor.in.