Income Tax Slabs 2026: New Regime vs Old Regime

If you are a salaried employee in India, the question is no longer simply, “How much tax will I pay?” The more important question is which tax regime should I choose?

For the financial year 2025-26, taxpayers can choose between the new tax regime and the old tax regime. The new regime is the default regime, but eligible taxpayers can opt for the old regime instead.

The new regime received a significant change from 2025-26 onwards. The tax slabs were widened, and the Section 87A rebate was increased. As a result, a resident individual with taxable income up to ₹12 lakh can potentially have zero income tax under the new regime, subject to the conditions for the rebate. For salaried taxpayers, the ₹75,000 standard deduction means salary income up to ₹12.75 lakh can potentially result in zero tax under the new regime.

That does not automatically make the new regime better for everyone. A person with substantial deductions such as home-loan interest, eligible investments, insurance premiums and other deductions may find the old regime worth comparing.

First, understand the year

There is often confusion around terms such as “FY 2025-26” and “AY 2026-27”.

For income earned between 1 April 2025 and 31 March 2026, the relevant financial year is FY 2025-26 and the corresponding assessment year is AY 2026-27.

Therefore, when people search for “income tax slabs 2026”, they are generally referring to the tax rules applicable to income earned during FY 2025-26 and the return filed for AY 2026-27.

The slabs below are for an individual taxpayer below 60 years of age. Senior citizens have different basic exemption limits under the old regime.

Income Tax Slabs 2026 Under the New Tax Regime

The new tax regime has seven income slabs:

These are progressive slabs. Moving into a higher slab does not mean your entire income is suddenly taxed at the higher rate. Only the income falling within that slab is taxed at that rate.

For example, if your taxable income is ₹15 lakh, you do not pay 15% on the entire ₹15 lakh. The first ₹4 lakh is taxed at 0%, the next ₹4 lakh at 5%, the next ₹4 lakh at 10%, and only the remaining ₹3 lakh falls into the 15% slab.

That distinction is important when estimating your tax.

Income Tax Slabs 2026 Under the Old Tax Regime

For an individual below 60 years of age, the old regime continues to use the following slabs:

The old regime also provides a wider range of deductions and exemptions than the new regime.

For senior citizens, the old regime has higher basic exemption limits. A resident individual aged 60 to below 80 years has a basic exemption limit of ₹3 lakh, while a resident individual aged 80 years or above has a basic exemption limit of ₹5 lakh.

The ₹12 Lakh Zero-Tax Benefit Under the New Regime

This is one of the most important changes taxpayers need to understand.

For AY 2026-27, the Section 87A rebate under the new regime has been increased to ₹60,000 for eligible resident individuals whose taxable income does not exceed ₹12 lakh.

This means that a resident individual with taxable income of ₹12 lakh can have their calculated income tax effectively reduced to zero through the rebate.

But there is an important distinction:

₹12 lakh refers to taxable income, not necessarily gross salary.

For a salaried employee, the standard deduction under the new regime is ₹75,000. Therefore, a salary of ₹12.75 lakh, assuming no other taxable income or special-rate income, can result in taxable income of ₹12 lakh before considering the rebate. The Union Budget 2025 specifically stated the ₹12.75 lakh effective threshold for salaried taxpayers because of the ₹75,000 standard deduction.

This is why saying “there is no tax up to ₹12 lakh salary” can be misleading.

What Happens If Your Income Is Slightly Above ₹12 Lakh?

This is another area where taxpayers can become confused.

The ₹12 lakh rebate is not a blanket exemption from tax on all income. It is a rebate against income tax for eligible resident individuals meeting the specified taxable-income condition.

There is also a marginal-relief provision around the rebate threshold. Therefore, the tax calculation for income just above ₹12 lakh should not be interpreted simply as “₹1 more income means ₹60,000 more tax.”

For practical tax planning, it is better to calculate the complete liability rather than relying on a single threshold.

Standard Deduction: New vs Old Regime

For salaried taxpayers, the standard deduction is particularly important.

Under the new regime, the standard deduction for salaried individuals and pensioners is ₹75,000. The Union Budget 2024 increased it from ₹50,000 to ₹75,000 under the new regime.

Under the old regime, the standard deduction is ₹50,000. CBDT's AY 2026-27 validation rules also specify the ₹50,000 limit for employees choosing the old regime.

So a salaried employee earning ₹15 lakh, for example, would generally start with:

• New regime: ₹15,00,000 − ₹75,000 = ₹14,25,000 taxable income before other applicable adjustments.
• Old regime: ₹15,00,000 − ₹50,000 = ₹14,50,000 before considering other deductions and exemptions.

The final taxable income can be considerably different under the old regime if the taxpayer has eligible deductions.

New Regime vs Old Regime: What Is Actually Different?

The simplest way to think about the two systems is this:

New regime: Lower and more numerous tax slabs, but fewer deductions and exemptions.

Old regime: Higher tax rates at several income levels, but significantly more deductions and exemptions are available.

The Income Tax Department itself advises taxpayers to compare their liability under both regimes rather than assuming that one regime is universally better.

Common deductions and exemptions that can matter

Depending on eligibility and the applicable rules, the old regime may be more attractive for someone who uses benefits such as:

• Section 80C deductions
• Employee provident fund contributions
• PPF investments
• Eligible life-insurance premiums
• ELSS investments
• Eligible children's tuition fees
• Certain home-loan interest deductions
• Health-insurance deductions under Section 80D
• HRA exemption, where applicable
• Certain NPS-related deductions
• Other eligible deductions and exemptions

The important point is that having a deduction available does not automatically make the old regime better. The value of that deduction needs to be compared with the additional tax that may arise because of the old regime's higher rates.

A Simple Example: ₹15 Lakh Salary

Consider a fictional salaried employee earning ₹15 lakh a year.

Suppose the employee has no additional deductions or exemptions other than the applicable standard deduction.

Under the new regime

Salary: ₹15,00,000

Less standard deduction: ₹75,000

Taxable income: ₹14,25,000

The slab-wise tax is:

• ₹0–₹4 lakh: Nil
• ₹4–₹8 lakh: ₹20,000
• ₹8–₹12 lakh: ₹40,000
• ₹12–₹14.25 lakh: ₹33,750

Total income tax before cess: ₹93,750

After 4% Health and Education Cess: approximately ₹97,500.

Under the old regime

Salary: ₹15,00,000

Less standard deduction: ₹50,000

Taxable income before other deductions: ₹14,50,000

The tax works out to:

• ₹0–₹2.5 lakh: Nil
• ₹2.5–₹5 lakh: ₹12,500
• ₹5–₹10 lakh: ₹1,00,000
• ₹10–₹14.5 lakh: ₹1,35,000

Total income tax before cess: ₹2,47,500

After 4% Health and Education Cess: approximately ₹2,57,400.

This example is deliberately simplified. A taxpayer choosing the old regime may have substantial eligible deductions and exemptions that reduce taxable income. The calculation therefore should not be interpreted as a universal comparison for every person.

The 4% Health and Education Cess applies to income tax plus applicable surcharge in both regimes.

What If You Earn ₹10 Lakh, ₹20 Lakh or ₹25 Lakh?

A rough comparison can help show how the regimes behave.

Assuming a salaried individual with only the applicable standard deduction and no other deductions or special-rate income:

*Old-regime figures assume only the ₹50,000 standard deduction and no other deductions or exemptions.

These figures are illustrations, not personalised tax calculations. The actual liability can change because of deductions, exemptions, special-rate income, surcharge, marginal relief and other provisions.

The table also demonstrates why a person should not compare the two regimes only by looking at the headline slab rates.

When Can the Old Tax Regime Make Sense?

The old regime deserves a serious calculation if you have substantial deductions and exemptions.

For example, imagine a salaried employee who:

• pays significant rent and qualifies for HRA exemption,
• has a home loan,
• invests regularly in PPF or other eligible Section 80C instruments,
• pays eligible health-insurance premiums,
• contributes to NPS, and
• has other eligible deductions.

Such a taxpayer may be able to reduce taxable income substantially under the old regime.

The question is not whether these deductions exist. The question is whether the total tax saving created by them is large enough to offset the higher slab rates of the old regime.

That is why two employees earning the same ₹18 lakh salary can rationally choose different regimes.

When Does the New Tax Regime Usually Become Attractive?

The new regime can be particularly straightforward for taxpayers who do not claim many deductions.

Consider a young IT professional living in Bengaluru, Hyderabad, Pune or Gurgaon. Suppose their salary comes mainly from employment, they take the standard deduction, invest in mutual funds but do not have enough eligible deductions to materially reduce taxable income under the old regime.

For such a person, the new regime may offer a simpler calculation and potentially lower tax.

It can also be attractive for employees who have moved jobs and do not want their tax planning to revolve around accumulating deductions merely to justify the old regime.

However, “new regime is better for young employees” is not a tax rule. Your actual income composition and deductions still matter.

Is the New Tax Regime Mandatory?

No.

The new regime is the default regime, but eligible taxpayers can choose the old regime.

For taxpayers without business or professional income, the choice can generally be made each year while filing the income-tax return.

Employees should also communicate their intended regime to their employer for TDS purposes. If an employee does not intimate the employer, the employer generally deducts tax according to the default new regime.

This is important because your employer's TDS calculation is not necessarily the final tax liability. The final liability is determined when your income-tax return is filed.

A Common Mistake: Confusing TDS With Final Tax

Suppose your employer deducts ₹1.5 lakh as TDS during the year.

That does not necessarily mean your final tax is exactly ₹1.5 lakh.

TDS is a mechanism for collecting tax during the year. When you file your ITR, your actual income, deductions, exemptions, tax credits and other applicable provisions are considered.

You may therefore receive a refund if excess tax was deducted, or you may need to pay additional tax if the TDS was insufficient.

This is particularly relevant after a job switch, because your new employer may not have complete information about salary and TDS from your previous employer unless you provide it.

Do Investments Automatically Reduce Your Tax Under the New Regime?

No.

This is one of the most important differences between tax planning and investment planning.

Suppose you invest ₹1.5 lakh in an eligible Section 80C investment. The investment itself may be useful for your financial goals, but you should not assume that the entire amount will automatically reduce your taxable income under the new regime.

The new regime has fewer deductions and exemptions than the old regime.

Therefore, do not buy an investment product purely because someone says it will “save tax”. First determine whether the deduction is actually available under the regime you have selected and whether the investment makes sense for your financial goals.

How Should a Salaried Employee Choose?

A practical approach is to calculate your tax under both regimes before making the decision.

Start with your annual income rather than your monthly salary.

Then account for:

1. Salary and other taxable income.
2. Standard deduction applicable to your chosen regime.
3. Eligible deductions and exemptions.
4. Taxable income.
5. Slab-wise tax.
6. Section 87A rebate, where applicable.
7. Surcharge, if applicable.
8. 4% Health and Education Cess.
9. TDS already deducted during the year.

Then compare the final tax liability.

Do not choose the old regime simply because you have an LIC policy or a PPF account. Similarly, do not choose the new regime simply because a colleague told you that “new regime is always cheaper.”

Your numbers should make the decision.

New Regime vs Old Regime at a Glance

The slab rates and rebate provisions are based on the Income Tax Department's AY 2026-27 guidance.

What About Senior Citizens?

The old regime provides age-based basic exemption limits.

For a resident individual aged 60 to below 80, the old-regime basic exemption limit is ₹3 lakh. For a resident individual aged 80 or above, it is ₹5 lakh.

The new regime does not provide the same age-based slab structure; its slabs apply according to the new-regime framework.

Senior citizens should therefore compare both regimes based on their pension, interest income, rental income, deductions and other sources of income rather than applying the rules used by salaried employees below 60.

Don't Forget Health and Education Cess

The slab rate is not always the final amount you pay.

A 4% Health and Education Cess is levied on income tax plus applicable surcharge under both regimes.

For example, if your calculated income tax is ₹1,00,000 and no surcharge applies, the cess would be ₹4,000, making the total ₹1,04,000 before considering any TDS already paid.

This is why a tax calculator should generally display both the basic tax and the final liability after cess.

The Tax Regime Should Fit Your Financial Life

Tax planning should not happen in isolation.

For an employee earning ₹8 lakh, the priority may be building an emergency fund and getting adequate health insurance.

For someone earning ₹18 lakh and supporting parents while paying rent, the decision may depend heavily on deductions and the actual structure of their salary.

For a person earning ₹30 lakh with a home loan and substantial eligible deductions, the old regime may deserve a detailed comparison even though the new regime has lower rates across several slabs.

The right choice can change as your salary, investments, home loan, family responsibilities and income sources change.

Final Thoughts

The biggest change in the 2026 tax landscape is not simply another set of tax slabs. It is the growing importance of comparing the entire tax calculation rather than focusing on one rate or one deduction.

For FY 2025-26, the new regime has a much wider slab structure and a ₹60,000 Section 87A rebate for eligible resident individuals with taxable income up to ₹12 lakh. The ₹75,000 standard deduction also means a salaried taxpayer can potentially have zero tax at salary income of up to ₹12.75 lakh, assuming the relevant conditions are met and there is no special-rate income.

The old regime remains available and can still be relevant when a taxpayer has substantial eligible deductions and exemptions.

So rather than asking, “Which tax regime is better?”, ask a more useful question:

“Which regime results in lower tax for my actual income, deductions and financial situation?”

That is the comparison that should drive your decision.

Important Note: This article is intended for general educational purposes and should not be considered personalised tax, financial, investment or legal advice. Tax rules can change, and the actual tax liability depends on your income, deductions, exemptions, residential status and other applicable provisions. Consider the latest Income Tax Department guidance or consult a qualified tax professional for advice specific to your situation.