With the New Income Tax Act, 2025 in force from April 1, 2026 and the new regime as default, the old '₹3.5 lakh deductions' rule of thumb is outdated. Here's the current math with worked examples.
Zero tax up to ₹12 lakh taxable income via Section 87A rebate (₹60,000); ₹75,000 standard deduction for salaried → effectively ₹12.75 lakh tax-free; 7 slabs 0–30% (30% only above ₹24 lakh); 4% cess; default regime; same slabs for all ages.
Lower exemption (₹2.5 lakh) but all deductions allowed: 80C (₹1.5L), 80D, HRA, home loan interest, NPS 80CCD(1B) ₹50k; ₹50,000 standard deduction; age-based slabs.
New regime: taxable ₹11.25L → within 87A limit → tax ₹0. Old regime with ₹2L deductions: taxable ₹9.5L → tax ~₹1,02,500 + cess. Winner: new regime by over ₹1 lakh.
New regime: taxable ₹24.25L → ~₹3,19,800 with cess. Old regime (HRA ₹3L + 80C ₹1.5L + home loan interest ₹2L + 80D ₹50k + NPS ₹50k + more): taxable ₹16L → ~₹3,04,200. Winner: old regime by ~₹15,600 — note deductions had to exceed ₹8 lakh.
Income ≤ ₹12.75L (salaried): new regime, almost always. ₹13–20L: new regime usually wins. ₹20L+: compare — old wins only with very large deductions (~₹7–8L+: big-city HRA + home loan interest + 80C + 80D + NPS). No deductions at all: new regime, no contest.
The new regime is right for the vast majority. The old regime is now a specialist tool for heavy HRA + home loan interest + 80C combos. Do the 5-minute math — it could be worth lakhs.
Tax regime: Frequently Asked Questions
Which is better, old or new tax regime in FY 2026-27?
What are the new tax regime slabs for FY 2026-27?
Is the new tax regime the default option?
Can I switch between regimes every year?
What changed with the New Income Tax Act, 2025?
Does the ₹12 lakh zero-tax benefit apply to capital gains?
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