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 income tax slab rates under the new tax regime for FY 2026-27 are as follows. These rates apply equally to all age groups.
| 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
Section 87A of the Income Tax Act provides a full rebate on tax payable for individuals with taxable income below a specified threshold. Under the new regime, the Section 87A rebate applies when taxable income does not exceed Rs 12,00,000 for FY 2025-26 and FY 2026-27. The rebate amount is the lower of tax payable and Rs 60,000.
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)Step 1: Calculate total income by adding gross salary and other income (interest, rental income, capital gains, etc.).
Step 2: Subtract the standard deduction of Rs 75,000 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 (10 per cent to 37 per cent of tax).
Step 7: Add 4 per cent health and education cess on tax plus surcharge.
Worked example: Gross salary Rs 18,00,000 per year with no other income. Taxable income after standard deduction: Rs 17,25,000. Tax on Rs 0-4 lakh: nil. Tax on Rs 4-8 lakh: Rs 20,000. Tax on Rs 8-12 lakh: Rs 40,000. Tax on Rs 12-16 lakh: Rs 60,000. Tax on Rs 16-17.25 lakh: Rs 25,000 (Rs 1,25,000 at 20 per cent). Total slab tax: Rs 1,45,000. No Section 87A rebate (income exceeds Rs 12 lakh). No surcharge (income below Rs 50 lakh). Cess at 4 per cent: Rs 5,800. Total tax: Rs 1,50,800. Effective tax rate: 8.4 per cent.
Tax on Different Salary Levels Under the New Regime
The table below shows the total tax liability under the new regime for different salary levels, assuming no other income and only the standard deduction.
| 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 two regimes lies in the trade-off between lower rates and the ability to claim deductions.
| 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 | Same for both regimes | Same for both regimes |
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 identical to those under the old regime.
| 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) |
| Rs 2 crore to Rs 5 crore | 25% | Large (~26% after cess) |
| Above Rs 5 crore | 37% | Maximum (~38.5% after cess) |
Surcharge is not applicable on specified income such as capital gains, dividends, or income from business referred to in Section 111A and 112A, making it important to consider the composition of your total income when estimating surcharge liability.
Deductions Not Available in the New Tax Regime
The following major deductions and exemptions that are available under the old regime cannot be claimed under the new tax regime:
| 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
- 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 other income: enter income from other sources such as interest on savings accounts and fixed deposits, rental income, capital gains, or freelance earnings.
- Select age and financial year: choose your age category and the applicable financial year. The calculator adjusts the standard deduction and slabs accordingly.
- Review the complete breakdown: the result panel shows total tax, effective tax rate, taxable income, Section 87A rebate, surcharge, cess, monthly TDS, and a slab-by-slab breakdown with colour-coded bars.
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. For a detailed comparison with the old regime including all deductions, use the Old vs New Tax Regime Calculator.
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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.
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