Income Tax New Regime: Slabs, Benefits & Comparison with Old Regime

The Income Tax New Regime, introduced to simplify tax calculations and offer lower tax rates, is now the default system for most individual taxpayers in India. Updated in Budget 2025, it features revised slab rates, a higher rebate, and a larger standard deduction for salaried individuals. Taxpayers can still opt for the old regime if they wish to claim various exemptions and deductions. It is crucial to compare both options before filing returns to ensure optimal tax savings. This article provides detailed insights into the new income tax regime.

What is the Income Tax New Regime?

The Income Tax New Regime is a simplified tax system introduced by the government to provide lower and more straightforward tax rates while removing most exemptions and deductions available under the old regime. Effective from FY 2020-21 and updated in subsequent budgets, the New Regime is now the default choice for individuals, Hindu Undivided Families (HUFs), and certain other taxpayers. However, taxpayers can opt out and continue with the old regime if it is more beneficial for their financial situation. The New Regime aims to make tax filing easier and more transparent, especially for those who do not claim many deductions.

Updated Tax Slabs Under the New Regime (FY 2025-26)

The New Regime features revised income tax slabs effective from April 1, 2025. These slabs offer concessional rates and a higher rebate for lower and middle-income earners. In the table below, the slabs and their respective income tax rates are outlined:

Key Points:

• The rebate under Section 87A has been increased to ₹60,000 for FY 2025-26, effectively making income up to ₹12 lakh tax-free for most individuals.
• Salaried taxpayers also receive a standard deduction of ₹75,000, raising the effective zero-tax threshold to ₹12.75 lakh.

Key Features & Benefits of the Income Tax New Regime

Below are the key features and benefits of the income tax New Regime:

• Lower tax rates across multiple income slabs compared to the old regime.
• Higher rebate of ₹60,000 for incomes up to ₹12 lakh, resulting in zero tax liability for many taxpayers.
• Standard deduction of ₹75,000 for salaried individuals and pensioners.
• Default tax regime—taxpayers must actively opt for the old regime if desired.
• Simplified tax filing process with minimal documentation.
• No need to track or submit proof for most exemptions and deductions (e.g., HRA, 80C, 80D, LTA). Refer to income tax deductions for more details.
• Suitable for taxpayers who do not claim significant deductions or exemptions.

Old vs New Tax Regime: Which One Should You Choose?

Choosing between the old and new tax regimes depends on your income structure and the deductions/exemptions you can claim. For more detailed guidance, see Old Tax Regime vs New Tax Regime.

Comparison Table:

When to Choose the New Regime:

• When you do not claim or are unable to claim significant deductions/exemptions.
• If your income is up to ₹12 lakh (or ₹12.75 lakh for salaried), as you may have zero tax liability.
• If you prefer a simpler, hassle-free tax filing experience.

When to Choose the Old Regime:

• If you can claim substantial deductions (like 80C, 80D, HRA, home loan interest, etc.).
• If your total deductions bring your taxable income into a lower slab, resulting in lower overall tax.

For more guidance on choosing the right tax approach, visit Choosing the Right Tax Regime for You.

Note: For salaried and non-business taxpayers, you can choose the regime each year while filing your ITR. For those with business/professional income, switching between regimes is allowed only once in a lifetime. Learn more about this in detail at Form 10-IEA.