What is the New Tax Regime for FY 2025-26?
The New Tax Regime, introduced in Budget 2020 and significantly revamped in Budget 2023 and 2024, is now the default regime for salaried individuals from FY 2024-25 onwards. For FY 2025-26 (AY 2026-27), the slabs offer lower rates but do not allow most deductions.
The key benefit for salaried employees is a standard deduction of ₹75,000 (increased from ₹50,000 in Budget 2024) and the Section 87A rebate of up to ₹60,000, which effectively makes income up to ₹12,75,000 tax-free for salaried individuals (₹12,00,000 taxable income + ₹75,000 standard deduction = ₹12,75,000 gross salary).
The new regime is particularly beneficial for those who do not have significant investments under 80C, are not paying rent (no HRA), or do not have a home loan. It simplifies tax filing and reduces paperwork.
New vs Old Tax Regime — Which is Better?
The answer depends entirely on your deductions. The old regime rewards those who invest heavily in tax-saving instruments. The new regime is simpler and often better for those who claim fewer deductions.
| Feature | New Regime | Old Regime |
|---|---|---|
| Standard Deduction | ₹75,000 | ₹50,000 |
| Section 80C (ELSS, PPF, etc.) | Not allowed | Up to ₹1,50,000 |
| Section 80D (Health Insurance) | Not allowed | Up to ₹1,00,000 |
| HRA Exemption | Not allowed | Allowed |
| Home Loan Interest 24(b) | Not allowed | Up to ₹2,00,000 |
| NPS Employer 80CCD(2) | Allowed (14% of salary) | Allowed (10% of salary) |
| Section 87A Rebate | Up to ₹60,000 (income ≤ ₹12L) | Up to ₹12,500 (income ≤ ₹5L) |
| Best suited for | Lower deductions / simple filers | High deductions / investors |
As a general rule of thumb: if your total eligible deductions (80C + 80D + HRA + home loan interest + others) exceed approximately ₹3.75 lakh for a ₹15L salary, the old regime may be better. Use this calculator to find out exactly.
How is Income Tax Calculated in India?
India follows a progressive tax system. Here is the step-by-step process for a salaried individual:
- Start with Gross Salary — your total annual CTC or compensation before any deductions.
- Subtract Standard Deduction — ₹75,000 (new regime) or ₹50,000 (old regime).
- Subtract eligible deductions — 80C, 80D, HRA, home loan interest, etc. (old regime only).
- Arrive at Taxable Income — the income on which tax slabs are applied.
- Apply slab rates — each portion of income is taxed at the corresponding rate (not the whole income at the top rate).
- Apply Section 87A rebate — if applicable, tax reduces to zero.
- Add surcharge — applicable on high incomes (above ₹50 lakh).
- Add Health & Education Cess — 4% on (income tax + surcharge).
- Final tax payable = income tax + surcharge + cess.
Section 87A Rebate Explained
Section 87A provides a tax rebate to individuals with modest incomes, effectively making their tax liability zero:
- New Tax Regime: If your taxable income is ₹12,00,000 or less, you get a rebate of up to ₹60,000. Since the tax on ₹12,00,000 under new regime slabs is exactly ₹60,000 (0 + 20,000 + 40,000), the effective tax becomes ₹0.
- Old Tax Regime: If your taxable income is ₹5,00,000 or less, you get a rebate of up to ₹12,500. The tax on ₹5,00,000 under old regime slabs (below 60) is ₹12,500, so tax becomes ₹0.
Important ITR Filing Deadlines FY 2025-26
Missing the ITR filing deadline attracts penalties and interest. Here are the key dates for FY 2025-26 (AY 2026-27):
- 31 July 2026 — Salaried individuals, pensioners (ITR-1 / ITR-2, non-audit)
- 31 August 2026 — Business/Profession (ITR-3 / ITR-4, non-audit)
- 31 October 2026 — Audit cases (Sec 44AB)
- 31 December 2026 — Belated return (penalty up to ₹5,000 under Sec 234F)
- 31 March 2027 — Revised return (if you filed on time but made an error)
Penalty for late filing: Under Section 234F, a fee of ₹5,000 applies if total income exceeds ₹5,00,000. For income below ₹5,00,000, the fee is ₹1,000. No penalty if income is below the basic exemption limit.
Note: CBDT has historically extended deadlines. For AY 2025-26, the original July 31, 2025 deadline was extended to September 15, 2025. Always check incometax.gov.in for the most current dates.