New Tax Regime Rates for FY 2025-26
The government has made the New Tax Regime the default option from FY 2023-24 onwards and has further improved it in Budget 2025. The new regime offers lower tax rates but does not allow most deductions and exemptions. This simplified approach is designed to benefit taxpayers who don't have significant investments in tax-saving instruments.
Here are the revised tax slab rates under the new regime for FY 2025-26 (Assessment Year 2026-27):
| Income Slab | Tax Rate |
|---|---|
| Up to ₹3,00,000 | NIL (0%) |
| ₹3,00,001 to ₹7,00,000 | 5% |
| ₹7,00,001 to ₹10,00,000 | 10% |
| ₹10,00,001 to ₹12,00,000 | 15% |
| ₹12,00,001 to ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
Understanding Each Tax Slab in Detail
Let's break down each tax slab and understand its practical implications:
Slab 1: Up to ₹3,00,000 - NIL Tax
This is the basic exemption limit increased from ₹2.5 lakh in the previous years. Any income up to ₹3 lakh is completely tax-free. This benefits low-income earners significantly and provides relief to all taxpayers on their initial income. The increase of ₹50,000 in basic exemption means an automatic tax saving of at least ₹2,500 to ₹12,500 depending on your total income.
Slab 2: ₹3,00,001 to ₹7,00,000 - 5% Tax
Income between ₹3 lakh and ₹7 lakh is taxed at just 5%. This is significantly lower than the old regime's 20% rate on this income bracket. The maximum tax on this ₹4 lakh income band would be ₹20,000. However, combined with the rebate under Section 87A (which gives full tax refund for income up to ₹7 lakh), taxpayers earning up to ₹7 lakh (after standard deduction) effectively pay zero tax!
Slab 3: Rs 7,00,001 to Rs 10,00,000 - 10% Tax
Income between Rs 7 lakh and Rs 10 lakh attracts 10% tax. This is a middle-income bracket where the new regime typically offers better savings compared to the old regime unless you have substantial deductions exceeding Rs 2 lakhs. For this Rs 3 lakh income band, you'll pay a maximum of Rs 30,000 in taxes.
Slab 4: Rs 10,00,001 to Rs 12,00,000 - 15% Tax
This is a newly introduced slab at 15% that helps in gradual tax progression. Earlier in the new tax regime, there was a direct jump from 10% to 20%, which has now been smoothened out with this intermediate slab. This benefits taxpayers in the Rs 10-12 lakh income bracket with savings of up to Rs 10,000.
Slab 5: Rs 12,00,001 to Rs 15,00,000 - 20% Tax
Income in this bracket is taxed at 20%. At this income level, you need to carefully calculate which regime works better for you based on your available deductions. If you have home loans, significant 80C investments, and other deductions, the old regime might still be beneficial.
Slab 6: Above Rs 15,00,000 - 30% Tax
The highest tax rate of 30% applies to income above Rs 15 lakh, same as the old regime. Additionally, surcharge and cess will be applicable based on total income levels. High-income earners need comprehensive tax planning to optimize their liability.
Old Tax Regime Rates (Optional Choice)
Taxpayers can still opt for the old tax regime if it's more beneficial for them based on their deductions and exemptions. The old regime is particularly advantageous for those with significant investments in tax-saving instruments, home loans, or those claiming HRA and LTA exemptions.
Here are the tax slabs under the old regime:
| Income Slab | Tax Rate |
|---|---|
| Up to ₹2,50,000 | NIL (0%) |
| ₹2,50,001 to ₹5,00,000 | 5% |
| ₹5,00,001 to ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Important Note
In the old regime, you can claim various deductions like Section 80C (up to ₹1.5L), 80D (health insurance up to ₹75K), 80E (education loan interest - no limit), home loan interest (up to ₹2L), and exemptions like HRA, LTA, etc. However, the standard deduction of ₹50,000 is NOT available in the old regime.
New vs Old Tax Regime: Detailed Comparison
Choosing between the new and old tax regime is one of the most important financial decisions you'll make each year. Let's understand both options comprehensively:
✨ New Tax Regime
- ✅ Lower tax rates across all slabs
- ✅ Standard deduction ₹50,000 available
- ✅ Simple & hassle-free - minimal documentation
- ✅ Default option from FY 2023-24
- ✅ No need to track investments for tax savings
- ❌ No deductions under Chapter VI-A (80C, 80D, 80E, etc.)
- ❌ No HRA exemption even if paying rent
- ❌ No LTA (Leave Travel Allowance) exemption
- ❌ Cannot claim home loan interest beyond standard deduction
📊 Old Tax Regime
- ✅ All deductions under 80C, 80D, 80E available
- ✅ HRA exemption (can save ₹50K-2L+ annually)
- ✅ LTA exemption for travel expenses
- ✅ Home loan interest up to ₹2 lakh deductible
- ✅ Good for those with high investments
- ❌ Higher tax rates in initial slabs
- ❌ Complex calculations and documentation needed
- ❌ Need to opt-in explicitly every year
- ❌ No standard deduction of ₹50,000
Detailed Tax Calculation Examples
Nothing beats real-world examples to understand tax calculations. Let's look at five different income scenarios to help you make an informed decision:
Example 1: Income ₹6,00,000 (Young Professional - New Graduate)
Rajesh is a 24-year-old software engineer earning ₹6 lakh per annum with no major investments or rent payments:
New Tax Regime Calculation:
- Gross Salary: ₹6,00,000
- Less: Standard Deduction: ₹50,000
- Taxable Income: ₹5,50,000
- Tax on ₹5,50,000:
- Up to ₹3,00,000: ₹0
- ₹3,00,001 to ₹5,50,000: ₹12,500 (5% of ₹2,50,000)
- Total Tax: ₹12,500
- Less: Rebate u/s 87A: ₹12,500 (Full rebate as income below ₹7L after deduction)
- Final Tax: ₹0 🎉
Old Tax Regime Calculation:
- Gross Salary: ₹6,00,000
- Taxable Income: ₹6,00,000 (no standard deduction, no investments)
- Tax Calculation:
- Up to ₹2,50,000: ₹0
- ₹2,50,001 to ₹5,00,000: ₹12,500 (5% of ₹2,50,000)
- ₹5,00,001 to ��6,00,000: ₹20,000 (20% of ₹1,00,000)
- Total Tax: ₹32,500
- Add: Health & Education Cess 4%: ₹1,300
- Final Tax: ₹33,800
Example 2: Income ₹9,00,000 (Mid-Level Professional)
Sneha is a 30-year-old marketing manager earning ₹9 lakh with ₹1 lakh in ELSS and ₹20K health insurance:
New Tax Regime:
- Gross Salary: ₹9,00,000
- Less: Standard Deduction: ₹50,000
- Taxable Income: ₹8,50,000
- Tax Calculation:
- Up to ₹3,00,000: ₹0
- ₹3,00,001 to ₹7,00,000: ₹20,000
- ₹7,00,001 to ₹8,50,000: ₹15,000
- Total Tax: ₹35,000
- Add: Cess 4%: ₹1,400
- Final Tax: ₹36,400
Old Tax Regime:
- Gross Salary: ₹9,00,000
- Less: 80C (ELSS): ₹1,00,000
- Less: 80D (Health Insurance): ₹20,000
- Taxable Income: ₹7,80,000
- Tax Calculation:
- Up to ₹2,50,000: ₹0
- ₹2,50,001 to ₹5,00,000: ₹12,500
- ₹5,00,001 to ₹7,80,000: ₹56,000
- Total Tax: ₹68,500
- Add: Cess 4%: ₹2,740
- Final Tax: ₹71,240
Example 3: Income ₹12,00,000 (Senior Professional with Rent)
Priya is a 35-year-old project manager earning ₹12 lakh, paying ₹25K monthly rent (₹3L annually), with ₹1.5L in PPF and ₹25K health insurance:
New Tax Regime:
- Gross Salary: ₹12,00,000
- Less: Standard Deduction: ₹50,000
- Taxable Income: ₹11,50,000 (HRA not available)
- Tax Calculation:
- Up to ₹3,00,000: ₹0
- ₹3,00,001 to ₹7,00,000: ₹20,000
- ₹7,00,001 to ₹10,00,000: ₹30,000
- ₹10,00,001 to ₹11,50,000: ₹22,500
- Total Tax: ₹72,500
- Add: Cess 4%: ₹2,900
- Final Tax: ₹75,400
Old Tax Regime:
- Gross Salary: ₹12,00,000
- Less: HRA Exemption (approx 30% of salary): ₹1,50,000
- Less: 80C Deduction (PPF): ₹1,50,000
- Less: 80D (Health Insurance): ₹25,000
- Taxable Income: ₹8,75,000
- Tax Calculation:
- Up to ₹2,50,000: ₹0
- ₹2,50,001 to ₹5,00,000: ₹12,500
- ₹5,00,001 to ₹8,75,000: ₹75,000
- Total Tax: ₹87,500
- Add: Cess 4%: ₹3,500
- Final Tax: ₹91,000
Example 4: Income ₹18,00,000 (Senior Manager with Home Loan)
Amit is a 40-year-old senior manager earning ₹18 lakh with maximum deductions: ₹1.5L in PPF, ₹50K health insurance (including parents), ₹2L home loan interest, and ₹50K NPS additional deduction:
New Tax Regime:
- Gross Salary: ₹18,00,000
- Less: Standard Deduction: ₹50,000
- Taxable Income: ₹17,50,000
- Tax Calculation:
- Up to ₹3,00,000: ₹0
- ₹3,00,001 to ₹7,00,000: ₹20,000
- ₹7,00,001 to ₹10,00,000: ₹30,000
- ₹10,00,001 to ₹12,00,000: ₹30,000
- ₹12,00,001 to ₹15,00,000: ₹60,000
- ₹15,00,001 to ₹17,50,000: ₹75,000
- Total Tax: ₹2,15,000
- Add: Cess 4%: ₹8,600
- Final Tax: ₹2,23,600
Old Tax Regime:
- Gross Salary: ₹18,00,000
- Less: 80C (PPF): ₹1,50,000
- Less: 80D (Health Insurance): ₹50,000
- Less: 80CCD(1B) (NPS): ₹50,000
- Less: Home Loan Interest (24b): ₹2,00,000
- Taxable Income: ₹13,50,000
- Tax Calculation:
- Up to ₹2,50,000: ₹0
- ₹2,50,001 to ₹5,00,000: ₹12,500
- ₹5,00,001 to ₹10,00,000: ₹1,00,000
- ₹10,00,001 to ₹13,50,000: ₹1,05,000
- Total Tax: ₹2,17,500
- Add: Cess 4%: ₹8,700
- Final Tax: ₹2,26,200
Example 5: Income ₹25,00,000 (High Earner)
Kavita is a VP earning ₹25 lakh with all possible deductions totaling ₹5 lakhs:
New Tax Regime:
- Gross Salary: ₹25,00,000
- Less: Standard Deduction: ₹50,000
- Taxable Income: ₹24,50,000
- Tax up to ₹15L: ₹1,60,000
- Tax on ₹15L to ₹24.5L: ₹2,85,000
- Total Tax: ₹4,45,000
- Add: Cess 4%: ₹17,800
- Final Tax: ₹4,62,800
Old Tax Regime:
- Gross Salary: ₹25,00,000
- Less: All Deductions: ₹5,00,000
- Taxable Income: ₹20,00,000
- Tax Calculation:
- Up to ���2,50,000: ₹0
- ₹2,50,001 to ₹5,00,000: ₹12,500
- ₹5,00,001 to ₹10,00,000: ₹1,00,000
- ₹10,00,001 to ₹20,00,000: ₹3,00,000
- Total Tax: ₹4,12,500
- Add: Cess 4%: ₹16,500
- Final Tax: ₹4,29,000
Complete Guide to Available Deductions
Understanding all available deductions under the old tax regime helps you make an informed choice. Here's a comprehensive breakdown:
Section 80C Deductions (Maximum ₹1,50,000)
- Public Provident Fund (PPF): Long-term savings with tax-free interest and maturity, currently earning around 7.1% interest
- Employee Provident Fund (EPF): Mandatory 12% deduction from salary, employer contributes equal amount
- Equity Linked Savings Scheme (ELSS): Tax-saving mutual funds with only 3-year lock-in period, potential for higher returns
- Life Insurance Premium: Premiums paid for self, spouse, and children qualify
- National Savings Certificate (NSC): Post office investment scheme with fixed returns
- Tax Saver Fixed Deposits: 5-year FDs offered by banks, but interest is taxable
- Home Loan Principal Repayment: Principal portion of your EMI qualifies
- Sukanya Samriddhi Yojana: Excellent scheme for girl child with high interest rates
- Tuition Fees: For up to 2 children studying in Indian institutions
- Senior Citizens Savings Scheme: For individuals above 60 years, currently 8.2% interest
Section 80D - Health Insurance Premium (Up to ₹1,00,000)
- Self, Spouse & Children: ₹25,000 deduction (₹50,000 if any insured is senior citizen)
- Parents: Additional ₹25,000 (₹50,000 if parents are senior citizens)
- Preventive Health Checkup: ₹5,000 included within overall limit
- Maximum Possible: ₹1,00,000 if you and your parents are senior citizens
Section 80CCD(1B) - NPS Additional Deduction (₹50,000)
This is over and above the ₹1.5 lakh limit of Section 80C. Invest in National Pension System to get an additional ₹50,000 deduction while building your retirement corpus.
Section 80E - Education Loan Interest (No Upper Limit)
The entire interest paid on education loans for higher education (for self, spouse, children, or legal ward) is deductible. Available for 8 years from the start of repayment.
Section 24(b) - Home Loan Interest (Up to ₹2,00,000)
- Self-Occupied Property: Up to ₹2 lakh per year on interest component
- Rented Property: No limit on interest deduction under house property income
- Under Construction: Pre-construction interest claimed in 5 equal installments after possession
Section 80G - Donations (Up to 100% of Amount)
- 100% Deduction: PM National Relief Fund, CM Relief Funds
- 50% Deduction: Donations to approved charitable trusts and NGOs
- Limits: Some donations have limits up to 10% of adjusted gross total income
Major Exemptions Under Old Regime
- House Rent Allowance (HRA): Least of actual HRA received, 50% of salary (metro cities) or 40% (non-metro), or rent paid minus 10% of salary. Can save ₹50,000 to ₹2 lakh+ annually
- Leave Travel Allowance (LTA): Exemption for 2 domestic journeys in a block of 4 years, covering economy class tickets
- Professional Tax: State-specific tax, maximum ₹2,500 per year fully deductible
- Children's Education Allowance: ₹100 per month per child for up to 2 children
- Hostel Expenditure Allowance: ₹300 per month per child for up to 2 children
Special Provisions for Senior Citizens
Senior Citizens (60-80 years)
Old Regime Benefits:
- Higher basic exemption: ₹3,00,000 (vs ₹2,50,000 for others)
- Health insurance deduction: ₹50,000 under 80D (vs ₹25,000)
- Medical expenditure: ₹50,000 deduction under 80DDB for specified diseases
- Interest on savings: ₹50,000 exempt under 80TTA/80TTB
Super Senior Citizens (80+ years)
Old Regime Benefits:
- Basic exemption: ₹5,00,000 (highest among all categories)
- Medical expenditure: ₹1,00,000 deduction under 80DDB
- No advance tax: Not required to pay advance tax even if liability exceeds ₹10,000
- Health insurance: ₹50,000 deduction under 80D
Senior Citizens and New Regime
In the new tax regime, the basic exemption is ₹3,00,000 for all age groups. Senior and super senior citizens don't get higher exemption limits in the new regime, but they still benefit from lower tax rates.
Surcharge and Cess Structure
Beyond the basic tax rates, additional surcharge and cess apply based on income levels:
Surcharge Rates
| Total Income Range | Surcharge Rate | Effective on |
|---|---|---|
| Up to ₹50,00,000 | Nil | No surcharge |
| ₹50,00,001 to ₹1,00,00,000 | 10% | On total tax amount |
| ₹1,00,00,001 to ₹2,00,00,000 | 15% | On total tax amount |
| ₹2,00,00,001 to ₹5,00,00,000 | 25% | On total tax amount |
| Above �����5,00,00,000 | 37% | On total tax amount |
Health & Education Cess
A 4% Health and Education Cess is levied on (income tax + surcharge). This means:
- Cess is calculated on the total of income tax and surcharge
- It's used to fund education and healthcare initiatives
- It applies to all taxpayers regardless of income level
- No exemptions or deductions available against cess
Marginal Relief on Surcharge
If your income slightly exceeds a surcharge threshold, marginal relief ensures that the increase in tax (due to higher surcharge slab) doesn't exceed the increase in income. This prevents anomalies where earning slightly more results in significantly higher tax.
TDS and Tax Payment Rules
TDS (Tax Deducted at Source) on Salary
Your employer deducts tax from your monthly salary based on your projected annual income and chosen tax regime. Here's what you need to know:
- Regime Declaration: Inform employer at the start of FY about your chosen regime (default is new regime)
- Investment Declaration: Submit Form 12BB with investment proofs if choosing old regime
- Form 16: Employer issues this certificate showing salary, exemptions, deductions, and TDS
- Monthly TDS: Employer calculates annual tax and deducts proportionately each month
- Regime Switch: Can change regime at the start of new FY if salaried (business owners have restrictions)
Advance Tax Payment Schedule
If your total tax liability exceeds ₹10,000 after TDS, you must pay advance tax in installments:
| Due Date | Cumulative Tax Percentage |
|---|---|
| On or before 15th June | 15% of total tax |
| On or before 15th September | 45% of total tax |
| On or before 15th December | 75% of total tax |
| On or before 15th March | 100% of total tax |
Interest on Late/Short Payment
- Section 234B: 1% per month if advance tax is less than 90% of total tax liability
- Section 234C: 1% per month for each installment shortfall
- Section 234A: 1% per month for delay in filing ITR after due date
Comprehensive Tax Planning Strategies
- Calculate Both Regimes Early: Don't assume - use tax calculators in April itself to plan for the entire year
- Employer Communication: Inform your employer about regime choice and submit investment declarations on time to optimize monthly cash flow
- Systematic Investment: If choosing old regime, invest monthly in ELSS/PPF rather than lump sum in March to benefit from rupee cost averaging
- Health Insurance is Mandatory: Regardless of tax benefits, adequate health insurance is crucial. In old regime, you get tax benefit; in new regime, you get peace of mind
- Home Loan Planning: If you're planning to buy a home, consider that old regime offers significant benefits through 80C (principal) and 24(b) (interest) deductions
- NPS for Retirement + Tax: Under old regime, NPS gives you ₹50,000 extra deduction beyond 80C, plus builds retirement corpus
- Document Everything: Keep all receipts, certificates, and proofs even if choosing new regime - you might want to switch next year
- Review Life Changes: Marriage, children, home purchase, parents becoming senior citizens - all these affect optimal regime choice
- Consider Spouse's Income: If your spouse has lower or nil income, invest in their name to utilize their basic exemption limit
- Long-term Wealth Creation: Don't just chase tax savings. ELSS and equity investments under 80C offer tax benefits plus wealth creation
- File ITR Early: File by May-June to get refunds quickly and avoid July rush. Early filing also reduces scrutiny chances
- Track Form 26AS: Regularly check Form 26AS (your tax credit statement) to ensure all TDS is credited to your PAN
- Link PAN-Aadhaar: Mandatory linking to avoid PAN becoming inoperative and consequent 20% TDS on all transactions
- Consult Professionals: For income above ₹15 lakhs or with multiple income sources (rental, capital gains, business), professional advice can save significant tax
- Stay Updated: Tax laws change frequently. Follow GST With Nitesh for latest updates, notifications, and tax-saving tips!
Common Mistakes to Avoid
Critical Errors That Cost You Money
- Not Informing Employer: Results in wrong TDS deduction and cash flow issues throughout the year
- Last-Minute Tax Saving: Panic investments in March lead to poor investment choices and sub-optimal returns
- Ignoring Other Income: Rental income, FD interest, capital gains - all add to tax liability and affect regime choice
- Wrong ITR Form: Using incorrect form leads to processing delays and potential scrutiny
- Missing ITR Deadline: Late filing attracts ₹5,000 penalty (₹1,000 if income below ₹5 lakh) plus interest
- Not Verifying ITR: Filing is incomplete until you e-verify within 30 days via Aadhaar OTP, net banking, or sending signed ITR-V
- Form 26AS Mismatch: Not matching Form 16 with Form 26AS can lead to notices and delays in refund
- Claiming False Deductions: False claims can lead to penalties, interest, and prosecution - claim only genuine expenses with proof
- Large Cash Transactions: Deposits/expenses above ₹2 lakhs in cash attract scrutiny - maintain proper documentation
- Not Keeping Proofs: Income tax can ask for proofs up to 6 years - maintain all investment certificates, rent receipts, bills
Who Should Choose Which Regime?
- Young professionals with income below ₹10 lakhs
- Those with minimal investments and no HRA/LTA claims
- Individuals who prefer simplicity over complex planning
- Employees not paying rent (no HRA benefit in old regime)
- Those without home loans or major deductions
- People who don't want the hassle of maintaining investment proofs
Old Tax Regime is Better For:
- Individuals with substantial investments (₹1.5L+ in 80C)
- Those paying rent and claiming HRA exemption
- Homeowners with home loan (principal + interest deductions)
- People with significant health insurance premiums
- Those with education loan repayments
- Individuals with total deductions exceeding ₹3-4 lakhs
- High-income earners above ₹20 lakhs with maximum deductions
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Conclusion: Make an Informed Decision
The choice between new and old tax regime isn't one-size-fits-all. As we've seen through detailed examples, the new regime benefits most taxpayers with income up to ₹15-18 lakhs, even with moderate deductions. However, those with substantial investments, home loans, and HRA claims might still find old regime beneficial.
Key Takeaways:
- New regime offers zero tax up to ₹7 lakh income
- Lower tax rates in new regime benefit most middle-income earners
- Old regime is valuable if total deductions exceed ₹3-4 lakhs
- Calculate both regimes every year as your situation changes
- Start tax planning in April, not March!
Remember, tax saving shouldn't be the only goal - build wealth wisely while optimizing taxes legally. Stay updated with latest tax amendments and deadlines by following GST With Nitesh for regular updates!
Happy Tax Planning!
