Overview
The Union Budget for 2025-26 introduced several revisions to the new tax regime under Section 115BAC of the Income Tax Act, 1961. These changes, applicable from Assessment Year 2026-27, are aimed at increasing the attractiveness of the new regime for salaried individuals, senior citizens, and other taxpayers.
This article summarises the key changes and provides a comparative view of tax liability under the old and new regimes to assist taxpayers in evaluating their options for the current assessment year.
Revised Tax Slabs under the New Regime
The revised income tax slab rates under Section 115BAC for AY 2026-27 are as follows:
| Total Income (Rs.) | Tax Rate |
|---|---|
| Up to 4,00,000 | Nil |
| 4,00,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Enhanced Rebate under Section 87A
The rebate under Section 87A has been enhanced for taxpayers opting for the new regime. Under the revised provisions, resident individuals with total income up to Rs. 12,00,000 (Rs. 12,75,000 for salaried individuals after standard deduction) are eligible for full tax rebate, resulting in zero tax liability.
This effectively means that salaried individuals with gross income up to approximately Rs. 12.75 lakh will not be required to pay any income tax under the new regime, subject to applicable conditions.
Standard Deduction
The standard deduction for salaried employees and pensioners under the new regime has been revised to Rs. 75,000 (from the earlier Rs. 50,000). This deduction is available as a flat deduction from salary income without requiring any documentation or investment proof.
Old Regime vs New Regime: Comparison
The choice between the old and new regime depends on the quantum of deductions and exemptions available to the taxpayer. As a general guideline:
Taxpayers with significant deductions under Chapter VI-A (Section 80C, 80D, 80E, etc.), house rent allowance, home loan interest, and other exemptions may find the old regime more beneficial. Taxpayers with limited deductions or those who prefer simplicity may benefit from the new regime with its lower slab rates and enhanced rebate.
The firm recommends that taxpayers compute their tax liability under both regimes before filing their returns. Salaried employees should communicate their regime preference to their employers for accurate TDS deduction.
Key Points for AY 2026-27
The new tax regime is the default regime from AY 2024-25 onwards. Taxpayers wishing to opt for the old regime must specifically exercise this option at the time of filing the return. Business and professional income earners who opt out of the new regime cannot switch back in subsequent years (one-time option).
Employer contributions to NPS under Section 80CCD(2) continue to be available as a deduction under the new regime, up to 14% of salary (central government employees) or 10% (other employees). Family pension deduction under Section 57(iia) of Rs. 15,000 or one-third of the pension, whichever is lower, is also available.