New Tax Regime 2025 Explained: Slabs, Rebate, and Who Should Choose It

The Union Budget 2025 brought significant changes to India's income tax structure. The new tax regime — now the default regime — offers lower slab rates but removes most deductions. Here's everything you need to know to decide which regime works for you.

New Regime Tax Slabs for FY 2025-26 (AY 2026-27)

The Zero-Tax Threshold: ₹12.75 Lakh

Under the new regime, salaried individuals earning up to ₹12.75 lakh pay zero tax. Here's how:

• Gross salary up to ₹12,75,000
• Minus ₹75,000 standard deduction = ₹12,00,000 taxable income
• Tax on ₹12L = ₹60,000
• Section 157 rebate (formerly 87A) = ₹60,000
• Net tax = ₹0

Standard Deduction: ₹75,000 vs ₹50,000

The new regime gives salaried individuals and pensioners a standard deduction of ₹75,000 — higher than the ₹50,000 available under the old regime. This is one of the few deductions available in the new regime.

What You Give Up in the New Regime

The trade-off for lower slab rates is that most deductions and exemptions are not available under the new regime:

• Section 80C — No deduction for PPF, ELSS, LIC, EPF (up to ₹1.5L)
• Section 80D — No deduction for health insurance premium
• HRA exemption — Not available
• Section 24(b) — No home loan interest deduction (up to ₹2L)
• 80CCD(1B) — No additional NPS deduction (₹50K)
• LTA, professional tax — Not deductible

When the Old Regime Still Wins

The old regime can still save you more tax if your total deductions are substantial. A rough rule of thumb: if your deductions (80C + 80D + HRA + home loan interest + NPS) exceed ₹3.75 lakh, run the numbers for both regimes.

Common profiles where old regime wins:

• You pay high rent in a metro city (large HRA exemption)
• You have a home loan with significant interest
• You maximize 80C (₹1.5L) + 80D (₹50-75K) + NPS (₹50K)
• You're a senior citizen with higher tax-free slab in old regime

Surcharge and Cess

Both regimes apply a 4% Health & Education Cess on total tax. High-income earners also pay surcharge:

• ₹50L – ₹1Cr: 10% surcharge
• ₹1Cr – ₹2Cr: 15% surcharge
• Above ₹2Cr: 25% surcharge (new regime) / up to 37% (old regime)

Note the surcharge cap at 25% under the new regime — this is actually an advantage for very high earners compared to the old regime's 37%.

Can I Switch Between Regimes?

Salaried individuals: Yes, you can switch every year at the time of filing your ITR. The new regime is the default — you need to specifically opt out to use the old regime.

Business income: You can switch out of the new regime only once. After opting for the old regime, you cannot switch back.

Summary: Which Regime Should You Choose?

For most salaried Indians earning under ₹15 lakh with limited deductions, the new regime is better. For those with heavy deductions (homeowners, large families, NPS investors), the old regime may save more. The only way to know for sure is to calculate both — which is why we built the regime comparison calculator.