Last reviewed: 25 September 2026. The new tax regime remains the default under the Income-tax Act, 2025 - and after the enhanced rebate it is more attractive than ever for most taxpayers. This guide in our series explains the current slabs, the Rs 12 lakh zero-tax point, the standard deduction, and how to opt for the old regime if it suits you better. It applies from tax year 2026-27 (1 April 2026 onward). Returns for FY 2025-26 (AY 2026-27) are still filed under section 115BAC of the 1961 Act, with the same slabs.
At a glance
Where the regime sits: 1961 Act vs 2025 Act
| Provision | 1961 Act (to FY 2025-26) | 2025 Act (tax year 2026-27 onward) |
|---|---|---|
| New tax regime and its slabs | Section 115BAC | Section 202; the default in section 202(1) |
| Rebate (nil tax up to Rs 12 lakh) | Section 87A | Section 156(2): up to Rs 60,000 |
| Employer contribution to NPS | Section 80CCD(2) | Section 124; the 14% limit for the new regime in section 124(2) |
| Standard deduction for salary | Section 16(ia) | Salary chapter of the 2025 Act; confirm the exact provision before citing it |
| Option form to leave the new regime (business income) | Form 10-IEA | Successor form under the Income-tax Rules, 2026; verify the number on the e-filing portal |
The new regime slabs
| Taxable income | Rate |
|---|---|
| Up to Rs 4,00,000 | Nil |
| Rs 4,00,001 - 8,00,000 | 5% |
| Rs 8,00,001 - 12,00,000 | 10% |
| Rs 12,00,001 - 16,00,000 | 15% |
| Rs 16,00,001 - 20,00,000 | 20% |
| Rs 20,00,001 - 24,00,000 | 25% |
| Above Rs 24,00,000 | 30% |
The Finance Act, 2026 left these rates unchanged for tax year 2026-27; the Memorandum to the Finance Bill, 2026 confirms that the section 202 rates stay as enacted. With the rebate under section 156(2), tax is nil up to Rs 12 lakh of taxable income for a resident individual, and the Rs 75,000 standard deduction takes the effective tax-free salary to about Rs 12.75 lakh. A 4% cess and any surcharge apply above that.
Three worked examples
1. Taxable income of Rs 12.5 lakh: marginal relief
Slab tax on Rs 12,50,000 is Rs 20,000 + Rs 40,000 + Rs 7,500 = Rs 67,500. Because income exceeds Rs 12 lakh by only Rs 50,000, marginal relief caps the tax at Rs 50,000. With 4% cess, the bill is Rs 52,000. The relief stops mattering at about Rs 12.71 lakh, where slab tax equals the excess over Rs 12 lakh.
2. Salary of Rs 18 lakh: new regime vs old regime with Rs 3.5 lakh of deductions
| New regime | Old regime | |
|---|---|---|
| Gross salary | Rs 18,00,000 | Rs 18,00,000 |
| Standard deduction | Rs 75,000 | Rs 50,000 |
| Other deductions (80C Rs 1.5 lakh, home-loan interest Rs 2 lakh) | Not allowed | Rs 3,50,000 |
| Taxable income | Rs 17,25,000 | Rs 14,00,000 |
| Tax before cess | Rs 1,45,000 | Rs 2,32,500 |
| Tax with 4% cess | Rs 1,50,800 | Rs 2,41,800 |
The new regime saves Rs 91,000. At this salary, the old regime only wins once deductions beyond the standard deduction exceed about Rs 6.4 lakh.
3. The rebate does not cover special-rate income
A resident has taxable salary of Rs 9 lakh (after standard deduction) and long-term gains on listed shares of Rs 3 lakh under section 198 (old 112A). Total income is Rs 12 lakh, so the section 156(2) rebate is available, but only against the Rs 30,000 slab tax on salary. Tax on the gains, 12.5% of Rs 1.75 lakh after the Rs 1.25 lakh exemption, is Rs 21,875 and stays payable: Rs 22,750 with cess. The same applies to short-term gains taxed under section 196 (old 111A). Our rebate and STCG guide covers the FY 2025-26 position.
Non-residents: no rebate
The section 156 rebate (old 87A) is only for resident individuals. An NRI with Rs 10 lakh of taxable Indian income, such as rent and NRO interest, pays slab tax of Rs 40,000 plus cess under the new regime, while a resident with the same income pays nothing. NRIs should run both regimes on their actual Indian income and check TDS already deducted. Our NRI ITR filing checklist covers the return itself, and our CA for NRIs service handles filing and repatriation.
Choosing between the regimes
The new regime removes most deductions, so it usually wins unless your old-regime deductions - home-loan interest, full 80C, 80D, HRA - are large enough to cross the break-even. Salaried taxpayers can choose each year; business and professional taxpayers must file the prescribed option form (Form 10-IEA under the 1961 Rules; confirm its successor under the Income-tax Rules, 2026) to use the old regime, and switching back is restricted. For the exact break-even maths, see our old-vs-new regime guide.
Frequently asked questions
Is the new tax regime the default under the Income-tax Act, 2025?
Yes. The new regime continues as the default under the 2025 Act, with the option to choose the old regime where you are eligible.
What are the new regime slabs?
For tax year 2026-27: nil up to Rs 4 lakh, 5% from Rs 4-8 lakh, 10% from Rs 8-12 lakh, 15% from Rs 12-16 lakh, 20% from Rs 16-20 lakh, 25% from Rs 20-24 lakh and 30% above Rs 24 lakh. The Finance Act, 2026 made no change to these rates.
Up to what income is tax nil in the new regime?
Nil tax applies up to Rs 12 lakh of taxable income for resident individuals through the rebate under section 156(2) (old 87A), and for salaried taxpayers the Rs 75,000 standard deduction extends the effective tax-free salary to about Rs 12.75 lakh. The rebate does not cover tax on special-rate income such as capital gains.
What is the standard deduction in the new regime?
Rs 75,000 for salaried individuals and pensioners under the new regime.
Can I still choose the old regime?
Yes, where eligible. Salaried taxpayers can choose each year; those with business or professional income must file the prescribed option form (Form 10-IEA under the 1961 Rules; confirm its successor under the Income-tax Rules, 2026 before filing) to opt out, and switching back is restricted.
Does the new Act change the regime substantively?
The 2025 Act carries the default new regime forward with its structure; the main effect of the Act is consolidation and clearer drafting rather than a fresh change in the regime itself.
Which regime should I pick?
Compute both. The new regime usually wins unless you have large deductions - home-loan interest, full 80C, significant 80D and HRA - that cross the break-even point for your income.
Where is the new regime dealt with in the new Act?
The new regime is Section 202 of the Income-tax Act, 2025 (old 115BAC), with the default in section 202(1); the rebate is in Section 156(2) (old 87A); and the employer NPS deduction is in Section 124 (old 80CCD(2)), with the 14% limit for the new regime in section 124(2).
Can an NRI use the Rs 12 lakh rebate?
No. The rebate under section 156 (old 87A) is available only to resident individuals. A non-resident with Rs 10 lakh of taxable Indian income under the new regime pays slab tax on it, even though a resident with the same income would pay nothing.
What is marginal relief just above Rs 12 lakh?
Where taxable income slightly exceeds Rs 12 lakh, the tax payable is capped at the amount by which income exceeds Rs 12 lakh. At Rs 12.5 lakh, slab tax of Rs 67,500 is limited to Rs 50,000 plus cess. The relief runs out at about Rs 12.71 lakh of taxable income.
We compute both regimes on your actual numbers and file in the option that is correct for you.
Income Tax FilingIncome Tax Notice ManagementTalk to CA Somesh Chandak & Associates - we optimise and file your regime choice.
WhatsAppLinkedInSchedule a callDisclaimer: This article is for general guidance only. Section references under the new Act evolve as forms are notified; please confirm the current position before relying on it.