New regime is the default — but not always the winner
From FY 2023-24 onward, new tax regime is the default for many individuals unless they opt out. For AY 2026-27 (FY 2025-26), new regime features lower slab rates, higher [standard deduction on salary](/glossary/standard-deduction-u-s-16-ia) (₹75,000), and limited deductions — plus an enhanced [rebate u/s 87A](/learn/87a-rebate-new-regime) for middle incomes.
This article explains slabs and arithmetic — not generic "new is better" advice. Always compare with old regime using your Form 16, rent, 80C, and 80D — see old vs new regime guide.
New regime slab rates (AY 2026-27)
For individuals (non-senior baseline — senior/super-senior slabs differ slightly):
| Income slab (₹) | Tax rate |
|---|---|
| Up to 3,00,000 | Nil |
| 3,00,001 – 7,00,000 | 5% |
| 7,00,001 – 10,00,000 | 10% |
| 10,00,001 – 12,00,000 | 15% |
| 12,00,001 – 15,00,000 | 20% |
| Above 15,00,000 | 30% |
Verify exact slabs in Finance Act / budget for AY 2026-27 — rates above reflect the consolidated new regime structure commonly applicable; adjust if notifications change.
Standard deduction on salary
Salaried employees and pensioners get [standard deduction u/s 16(ia)](/glossary/standard-deduction-u-s-16-ia) of ₹75,000 under new regime (AY 2026-27 per current law).
This reduces salary income only — not interest or capital gains.
Example: Taxable salary ₹8,00,000 → after standard deduction ₹7,25,000 before other income.
What you generally cannot claim in new regime
Most Chapter VI-A deductions are not available, including:
- Section 80C (PPF, ELSS, LIC, etc.)
- Section 80D health insurance
- HRA exemption under old rules
- Home loan interest set-off in many cases (old regime benefit)
Exceptions exist — e.g., [employer NPS 80CCD(2)](/glossary/section-80ccd-2) may still help in new regime within limits.
Rebate u/s 87A in new regime
Tax rebate can reduce liability to zero for many middle-income filers — see dedicated 87A rebate guide. Rebate affects final tax, not slab labels on Form 16.
Surcharge and cess
After base tax:
- Surcharge applies at higher incomes (10%, 15%, 25%, 37% bands — with marginal relief rules)
- Health and education cess 4% on tax plus surcharge (health & education cess)
Form 16 TDS may not perfectly reflect surcharge — reconcile in return.
Worked example 1: ₹10 lakh taxable salary (no other income)
Assume taxable salary after employer exemptions = ₹10,00,000.
Less standard deduction ₹75,000 → net ₹9,25,000.
Approximate base tax (new regime slabs):
- 3L @ 0% = 0
- 4L @ 5% = 20,000
- 3L @ 10% = 30,000
- 2.25L @ 15% = 33,750
Tax before cess ≈ ₹83,750 (illustrative — run exact calculator).
Compare with old regime if you have ₹1.5L 80C + ₹25k 80D + HRA benefit — old may win.
Worked example 2: ₹12 lakh with only standard deduction
Taxable salary ₹12,00,000 − ₹75,000 = ₹11,25,000.
Slabs push into 15% and 20% bands. 87A rebate may still apply depending on taxable income definition for rebate — check current threshold (up to ₹12 lakh taxable income story in recent budgets).
Use precise computation — blog examples round for clarity.
Worked example 3: Salary plus FD interest
Salary ₹9,00,000 (after std ded) + FD interest ₹50,000 (no 80TTA in new regime for most) = higher slab fill.
AIS often reveals this interest — download AIS before choosing regime.
When new regime often wins
- Moderate salary, few deductions, no HRA benefit
- Rent but no HRA component (cannot claim 80GG easily if you have house in city)
- Young filer with minimal 80C investments
- Rebate-eligible income under ~₹12 lakh taxable (verify current law)
When old regime often wins
- High 80C + 80D + HRA exemption combined
- Home loan interest on self-occupied property (old regime)
- Significant deductions exceeding ~₹2–2.5 lakh equivalent tax benefit
Opting out of new regime
Salaried employees can communicate opt-out to employer for TDS — or choose at filing if permitted. See opt out of new tax regime.
Mismatch between employer TDS (new) and filing choice (old) creates tax payable — budget challan payment.
Form 16 and new regime
Employers may compute TDS assuming new regime. Your Form 16 is not final tax — filing choice matters.
Import Form 16 and compare both regimes side-by-side: free estimate.
FAQ
Is new regime mandatory? Default, not mandatory — eligible taxpayers can opt for old regime subject to rules.
Do seniors use same slabs? Senior citizens have higher basic exemption in old regime; check new regime senior slabs separately.
Are capital gains taxed differently? Special rates on listed equity etc. apply regardless of regime choice for those gains — complexity in ITR-2.
Can I switch regime every year? Many individuals can choose each year — business/profession cases have lock-in rules.
Marginal relief and high income
For incomes slightly above ₹12 lakh in new regime, marginal relief rules (when notified) prevent disproportionate tax spikes — compute in official utility rather than mental math. High earners above ₹15 lakh face 30% slab on incremental income — 87A rebate typically does not apply at those levels.
Interaction with house property in new regime
Let-out property income still enters gross total income. Standard deduction on salary does not offset rental income. Many salaried + one let-out owners find regime choice nuanced — model both.
Payroll TDS vs annual true liability
Employers project annual income from April — mid-year raise, bonus, or RSU vest can make March TDS catch-up insufficient. AIS in June reveals interest and capital gains payroll never saw. Budget self-assessment tax before filing to reduce interest u/s 234B/234C exposure where applicable.
New regime and capital gains (reminder)
Equity LTCG/STCG rates follow special provisions — regime choice affects salary and many ordinary incomes differently. Mixed-income filers should not pick regime based on salary alone; read ITR-1 vs ITR-2 if brokers reported sales.
Slab indexing over time
Slabs and rebate limits change in Union Budget. For AY 2026-27 always use that year's schedule — do not reuse last year's Excel template without updating rates, standard deduction, and 87A thresholds.
Cess always applies last
Even when slabs look friendly, 4% health and education cess applies on tax plus surcharge. Micro-calculators on blogs sometimes forget cess — official utility includes it.
Comparing regimes at identical gross salary
Take identical ₹9,00,000 gross salary with ₹1,80,000 80C and ₹30,000 80D in old regime vs zero VI-A in new regime with ₹75,000 standard deduction — the winner depends on HRA and metro rent. Spreadsheets that ignore HRA mislead renters; use personalised comparison tied to Form 16.
Document sources for audit trail
Save the Finance Act slab table or ITD instruction PDF you relied on — not required to attach to ITR, but useful personal record when law changes year to year.
Employer communication on regime
If new regime wins in your comparison but employer deducted on old assumptions (or reverse), payroll may not re-run — pay differential via challan at filing and document regime choice in return.
Slab literacy for team discussions
Share this article with payroll or HR only for awareness — final regime choice remains individual at ITR filing for most salaried cases.