New Tax Regime

What is New Tax Regime?

New regime slabs for FY 2025-26: nil up to ₹3L, 5% from ₹3L to ₹7L, 10% from ₹7L to ₹10L, 15% from ₹10L to ₹12L, 20% from ₹12L to ₹15L, and 30% above ₹15L. The Section 87A rebate makes income up to ₹7 lakh effectively tax-free. The ₹75,000 standard deduction applies to salaried employees and pensioners. Employer's NPS contribution under 80CCD(2) is the only major Chapter VI-A deduction that still works here. Most other deductions and exemptions (HRA, LTA, 80C, 80D, 80E, 80G, home loan interest on self-occupied property) are gone. Most employees with low to moderate investments and no rent or home loan find the new regime simpler and cheaper. High earners with large 80C, 80D, HRA, and home loan claims often still prefer the old regime.

Example

Karthik earns ₹12 lakh CTC, no rent, no home loan, ₹50,000 in 80C. New regime: ₹12L minus ₹75K standard deduction = ₹11.25L. Tax: 5% on ₹4L (₹20,000) + 10% on ₹3L (₹30,000) + 15% on ₹1.25L (₹18,750) = ₹68,750. Plus 4% cess. Old regime, even after 80C and standard deduction, ends up higher for him.

How New Tax Regime is used

Payroll runs both regime computations every month and shows the lower-tax option as a suggestion. The employee's actual choice (declared in April or January) drives the TDS deducted.

New Tax Regime FAQs

Is the new regime really tax-free up to ₹7 lakh?

Yes. With the Section 87A rebate, total tax becomes zero for taxable income up to ₹7 lakh under the new regime.

Can I claim HRA under the new regime?

No. HRA exemption under Section 10(13A) is not available in the new regime. The same applies to LTA and most other allowances.

Is the new regime mandatory?

It is the default from FY 2023-24, but salaried taxpayers can opt for the old regime each year by declaring it to the employer or filing Form 10-IEA.