Income Tax India FY 2025-26 — Complete Guide (Old vs New Regime)

New regime FY 2025-26 — slabs and rebate u/s 87A

Budget 2025 revised the new regime slabs. The key change: the rebate under Section 87A was increased so that individuals with taxable income up to ₹12 lakh pay zero tax. The standard deduction of ₹75,000 for salaried taxpayers effectively pushes the zero-tax threshold to ₹12.75 lakh for those with salary income.

The Section 87A rebate under the new regime: if your total income (after standard deduction) is ≤ ₹12 lakh, your full tax liability is rebated to zero. Above ₹12 lakh, the rebate does not apply and you pay full tax at slab rates on your entire income. This creates a marginal-rate cliff at ₹12 lakh — earning ₹12.01 lakh results in higher effective tax than earning exactly ₹12 lakh, so it is worth checking your exact position.

In the new regime you can still claim the standard deduction (₹75,000 for salaried / pensioners), and employer NPS contribution u/s 80CCD(2) is deductible. You cannot claim 80C, 80D, HRA exemption, Section 24 home-loan interest, or most other deductions.

Old regime FY 2025-26 — slabs and rebate u/s 87A

The old regime has not changed from FY 2023-24. Slab rates are higher, but you can claim the full suite of deductions.

Section 87A rebate under the old regime: if your taxable income (after all deductions) is ≤ ₹5 lakh, your tax is rebated to zero. The rebate is ₹12,500 or the actual tax, whichever is lower. Above ₹5 lakh, you pay tax at the applicable slab rates on the full income after deductions.

The old regime is only worthwhile if your deductions are large enough to bring your taxable income significantly below what the new regime would tax. For most salaried individuals earning under ₹15 lakh with modest investments, the new regime now offers lower tax.

Which regime to pick — decision rules

The breakeven depends on your total deductions. Calculate:

1. Compute tax under new regime: gross income − ₹75,000 standard deduction = taxable income. Apply new regime slabs. Apply 87A rebate if ≤ ₹12L.
2. Compute tax under old regime: gross income − standard deduction − all 80C/80D/HRA/Section 24 deductions = taxable income. Apply old regime slabs. Apply 87A rebate if ≤ ₹5L.
3. Choose whichever gives lower tax.

As a rough rule of thumb: if your total deductions (excluding standard deduction) exceed approximately ₹3.75 lakh for income around ₹15L, the old regime may be better. Use our free income tax calculator to get an exact comparison in under 30 seconds.

Important note for salaried employees: you must inform your employer of your regime choice at the start of the financial year (April). Your employer will deduct TDS accordingly. You can change the regime when filing your ITR (you can switch to old regime at ITR-filing time, but only if you do not have business/professional income).

Section 80C deductions — ₹1.5 lakh cap

Section 80C is the most widely used tax deduction in India, available only under the old regime. The combined limit across all 80C instruments is ₹1.5 lakh per financial year.

Many salaried Indians already have their ₹1.5 lakh used up by EPF contributions alone. If your EPF deduction ≥ ₹1.5 lakh, additional 80C investments provide zero extra benefit under the old regime.

Section 80D — health insurance deduction

Section 80D allows deduction for health insurance premiums paid for yourself, spouse, children, and parents.

• Self + family (below 60): up to ₹25,000 per year
• Self + family (60+, senior citizen): up to ₹50,000 per year
• Parents (below 60): additional ₹25,000
• Parents (60+): additional ₹50,000
• Maximum possible deduction: ₹1 lakh (if both you and your parents are 60+)

Preventive health check-up expenses (up to ₹5,000 within the above limits) are also deductible, even if paid in cash. Health insurance premiums must be paid by any mode other than cash to qualify for the deduction.

Section 80CCD(1B) — NPS extra ₹50,000

Beyond the ₹1.5 lakh Section 80C limit, you can claim an additional ₹50,000 deduction under Section 80CCD(1B) for contributions to the National Pension System (NPS) Tier I account. This is exclusively available under the old regime.

Combined with 80C, this takes your total deduction potential to ₹2 lakh, saving ₹62,400 in tax at the 30% bracket (including 4% cess). NPS has a partial equity allocation (up to 75% in the Active Choice tier, or auto-managed via the lifecycle fund). The trade-off is limited liquidity: you can only withdraw 60% of the corpus tax-free at retirement; the remaining 40% must be used to buy an annuity.

Capital gains tax — STCG vs LTCG, equity vs debt

Capital gains tax is the same under both regimes (you cannot avoid it by choosing old or new).

Note: the Finance Act 2024 removed the indexation benefit for real estate LTCG for properties acquired after 23 July 2024. Properties purchased before that date can still claim indexation under the old rate of 20% with indexation if it results in lower tax.

Surcharge brackets — income above ₹50 lakh

Surcharge is levied on the income-tax amount (not on income) for high-income taxpayers. The rates are:

The new regime caps the surcharge at 25% for all income levels — making it significantly better than the old regime for taxpayers earning above ₹5 crore (where the old regime surcharge of 37% pushed the effective rate above 42%). Add 4% Health and Education Cess on the tax + surcharge.