New Tax Regime FY 2025-26 (AY 2026-27): What Taxpayers Should Know?

From FY 2023-24, the new tax regime is proposed to be the default regime. The new tax regime is supposed to simplify the tax structure by offering lower tax rates, which makes it attractive for certain taxpayers; however, they are required to forego certain new tax deductions and exemptions to opt for the new regime.

Therefore, it is crucial for taxpayers to assess their finances including income from all the sources and tax-saving investments to make the most of the new tax regime.

Let’s look at the new tax regime rates and other changes in it for the financial year 2025-26.

Team Digit

New Income Tax Slab Rates
Changes in New Tax Regime
Tax Deductions and Exemptions
How to Save Tax Under New Tax Regime?
Frequently Asked Questions

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

The Union Budget 2025 proposed changes in the existing tax slabs of the new income tax regime, which are applicable from April 1, 2025, onwards. Here are the new tax rates:

Income Tax Slabs	Rate of Taxation
Up to ₹4,00,000	Nil
Between ₹4,00,001 and ₹8,00,000	5% of your total income that exceeds ₹4,00,000
Between ₹8,00,001 and ₹12,00,000	₹20,000 + 10% of your total income that exceeds ₹8,00,000
Between ₹12,00,001 and ₹16,00,000	₹60,000 + 15% of your total income that exceeds ₹12,00,000
Between ₹16,00,001 and ₹20,00,000	₹1,20,000 + 20% of your total income that exceeds ₹16,00,000
Between ₹20,00,001 and ₹24,00,000	₹2,00,000 + 25% of your total income that exceeds ₹20,00,000
Above ₹24,00,000	₹3,00,000 + 30% of your total income that exceeds ₹24,00,000

Under this revised tax structure for FY 2025-26, individuals with earnings up to ₹12 lakh will not have to pay any tax thanks to an increased tax rebate of ₹60,000, under Section 87A.

What are the Changes in the New Tax Regime for FY 2025-26 (AY 2026-27)?

In addition to changes in the slabs in the new tax regime, Budget 2025 proposed some more changes in the rules for the new tax regime, which are as follows.

Note that apart from these changes, all other rules for the new tax regime remain the same as for FY 2024-25.

For Taxpayers up to 60 Years

Income up to ₹12 lakh is now tax-free under the new tax regime.
The basic exemption limit is hiked to ₹4 lakh from ₹3 lakh in the previous fiscal year.
Salaried employees can now avail a rebate of ₹60,000 under Section 87A. Earlier this limit was ₹25,000.
The Budget also provided a marginal relief benefit under Section 87A for incomes up to ₹12.75 lakh. It ensures that taxpayers whose income exceeds ₹12 lakh by a small margin do not have to pay significantly more tax.

For Taxpayers Above 60 Years

The 2025 Budget doubled the tax deduction limit on interest income from ₹50,000 to ₹1 lakh.
The TDS limit on fixed deposit interest has also been raised to ₹1 lakh annually.
Now, withdrawals from National Savings Scheme (NSS) account after August 29, 2024, are from tax.

An Illustration Explaining Tax Free Income up to 12 Lakhs

Let’s understand how your income up to ₹12 lakhs can be tax-free with the help of an example:

Suppose your annual salary is ₹12,75,000.

Then,

Standard Deduction: ₹75,000
Taxable Income: ₹12,00,000
Tax calculation as per new regime tax slab rates = ₹60,000
Rebate u/s 87A: ₹60,000
Total tax after rebate: ₹0

So, for an income of ₹12.75 lakh, the total tax payable under the new tax regime as per Budget 2025 is NIL.

New Income Tax Regime Rates for FY 2024-25 (AY 2025-26)

If you want to know the new tax slabs revised by Union Budget 2024, to plan and calculate your tax, check out the table below. These new tax slab rates are applicable for FY 2024-25.

Income Tax Slabs	Rate of Taxation
Up to ₹3,00,000	Nil
Between ₹3,00,001 and ₹7,00,000	5% of your total income that exceeds ₹3,00,000
Between ₹7,00,001 and ₹10,00,000	₹20,000 + 10% of your total income that exceeds ₹7,00,000
Between ₹10,00,001 and ₹12,00,000	₹50,000 + 15% of your total income that exceeds ₹10,00,000
Between ₹12,00,001 and ₹15,00,000	₹80,000 + 20% of your total income that exceeds ₹12,00,000
Above ₹15,00,001	₹1,40,000 + 30% of your total income that exceeds ₹15,00,000

What are the Existing Changes in the New Tax Regime for FY 2024-25 (AY 2025-26)?

For FY 2024-25, Budget 2024 changed the following things in the rules for the new tax regime:

The standard deduction has been hiked to ₹75,000 starting from April 1, 2024. Earlier, the limit was ₹50,000.
The standard deduction limit for family pensioners also hiked to ₹25,000 from ₹15,000.
NPS contribution limit for private sector employees raised from 10% to 14% of their basic salary. So, now for both private and public sector employees, the deduction limit is 14%.

Tax Deductions and Exemptions Under New Tax Regime for FY 2025-26

The Union Budget 2025 altered a few income tax deductions and exemptions in the new tax regime. Here is a list of all the new tax deductions available under the new income tax regime that are allowed and not allowed for both financial years, i.e. FY 2024-25 and FY 2025-26.

Go through these options for tax deduction in the new tax regime to determine your tax liability.

Tax Deductions and Exemptions Allowed Under New Tax Regime

Category	Tax Deductions and Exemptions ALLOWED
Standard Deduction	Standard deduction of ₹75,000. Standard deduction of ₹25,000 for family pensioners or 1/3 of the family pension, whichever is less.
Basic Exemption	Increased to ₹4 lakh by Budget 2025, from ₹3 lakh.
NPS	The benefit of any NPS contribution by the employer to the employee's NPS account is up to 14% of the salary for all employees. The lump-sum maturity amount received from the NPS account.
Section 80JJAA	Up to 30% of additional employee costs can be deducted.
Agni veer Corpus Fund	Any contribution made to the Agni veer Corpus Fund.
Home Loan	The interest component of a home loan borrowed for a rented property.
PPF and EPF	Tax deduction on employers' contributions to their employees' NPS EPF and superannuation accounts. Taxpayers receiving interest from their EPF accounts for up to 9.5%. Interest or maturity amount from PPF.
Savings Schemes	Interest received from Post Office Savings Account. Maturity amount from a life insurance policy. Interests and maturity amounts received from the Sukanya Samriddhi Account.
Allowances	Travel allowances to disabled employees, conveyance, travel, and daily allowances. Up to ₹20 lakh exemption on gratuity for non-government employees and exemption on entire gratuity for government employees. Gifts received from employers up to ₹5,000.
Retirement	The leave encashment during retirement, monetary benefits received from employers for voluntary retirement up to ₹5 lakhs.
Other	Education scholarships, retrenchment compensation, and monetary benefits for retirement cum death.

Tax Deductions and Exemptions Not Allowed Under New Tax Regime

As per the new tax regime rules, taxpayers opting for this income tax regime will have to forego up to 70 exemptions and deductions from the new tax regime in order to avail themselves of the benefits of the lowered new tax slab rates.

Some of the common tax deductions in the new tax regime that taxpayers cannot claim are:

Category	Tax Deductions and Exemptions NOT ALLOWED
Salary Deductions	HRA, LTA, professional tax of ₹2,500, professional tax, and entertainment allowance (applicable for government employees).
Section 80C	Investments made in the Employees’ Provident Fund, life insurance premium, and Public Provident Fund.
Home Loans	Interest and principal amount of housing loans up to ₹1.5 lakhs. Interest payment of home loan for self-occupied/ vacant property under Section 24(b). Interest payment up to ₹2 lakhs for purchase/construction/ repair/reconstruction of house property under section 24(b). Also, Budget 2025 proposed that two self-occupied properties will be tax-free. Earlier, only one self-occupied house was treated as tax-free, while the second house was taxed based on its notional rental value.
Section 80CCD(1B)	The benefits available for NPS contributions under this Section will now apply to contributions made to NPS Vatsalya accounts, after Budget 2025. So, a deduction of ₹50,000 is allowed under the NPS Vatsalya scheme only for the old regime.
Section 80E	Interest paid on the student loan debt under Section 80E can no longer be claimed for tax relief.
Section 80G	Donation or expenses in scientific research, National Defense Fund, Prime Minister’s National Relief Fund, The National Foundation for Communal Harmony, National/State Blood Transfusion Council.
Savings Account	Interest received from Savings Account under Section 80TTA and 80TTB. After Budget 2025, no TDS needs to be deducted if the interest income does not exceed ₹50,000. Previously, this limit was ₹40,000. Special allowances under Section 10(14). Business professionals and owners in the Special Economic Zone cannot claim tax exemption under Section 10AA.
Other	Tax deduction under Section 35(1)(ii), 35(2AA), 32AD, 32(ii) (a), 33AB, 35(1)(iii), 33ABA, 35(1)(ii), 35CCC(a), and 35AD of the IT Act. Deductions as specified under Chapter VI-A such as 80IA, 80CCC, 80C, 80CCD, 80D, 80CCG, 80DDB, 80EE, 80E, 80EEA, 80DD, 80EEB, 80GG, 80IB, 80IAC, and 80IAB. Minor child, helper allowances, and allowances for children's education.

How to Save Tax Under New Tax Regime?

Reducing tax liability while simultaneously achieving their financial goals is the main aim of every taxpayer as soon as the new fiscal year begins.

Since FY 2025-26 has revived most of the new tax regime deductions and benefits, the scope of tax saving under the new tax regime has become more limited than the old regime. So, here are some ways to save tax under the new regime:

Invest in Tax-Efficient Options: Investing in options that offer tax-saving benefits along with low-risk returns should be every taxpayer’s priority. Check which instruments are available under the new regime and which are not before you start investing.
Claim all the Deductions Possible: You can significantly lower your taxable income by utilizing all the relevant tax deductions allowed under the new tax regime, such as for home loans, etc.

FAQs about New Income Tax Regime

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How does the new tax regime work?

The new tax regime was introduced by Budget 2020 to offer lower tax rates but with fewer deductions and exemptions under Sections 80C, 80D, HRA, and others. After Budget 2023 it became the default tax regime. So, taxpayers need to assess whether the reduced tax rates are beneficial for them or do they want to avail exemptions and deductions.

What exemption is available under the new tax regime?

Taxpayers are given a full tax rebate on income up to ₹12 lakhs under the new tax regime. This means that taxpayers with an income of up to ₹12 lakhs will not have to pay any tax at all under the new tax regime!

Which is better for salaried taxpayers: the new tax regime or the old regime?

For salaried employees, the new tax slabs 2025 are better for you if you have invested less than ₹4 lakhs in tax saving schemes; if you’ve have invested more than ₹4 lakhs then go for the old tax regime. Additionally, it also depends on your salary.

What is the advantage of the new tax regime?

The tax rate under the new tax regime is low and more suitable for low-income taxpayers. Also, as per the rules for the new tax regime, taxpayers get a standard deduction of ₹75,000, have zero tax liability if their income is up to ₹12 lakhs, and can enjoy basic exemption limit up to an income of ₹4 lakhs.

What is the disadvantage of the new tax regime?

The tax rate under the new tax regime might be low but it does not offer the benefits of claiming almost 70 tax exemptions and deductions that are available under the old regime.

Can I claim tax deductions under Section 80C for the new tax regime?

No, if you choose the new tax regime you are not eligible to claim tax benefits under section 80C; however, they are available under the old tax regime.

What deductions and exemptions are allowed in the new tax regime?

Some common exemptions and deductions under the new tax regime are available such as standard deduction, home loans, PPF, EPF, NPS, Agniveer Corpus Fund, savings schemes, allowances, retirement, deductions under Section 80JJAA, and more.

What is the new tax regime in 2025?

The new tax regime is now the default tax regime and the income tax slab under the new tax regime for the fiscal year 2025-26 was revised.

Who will benefit from the new tax regime?

The new tax regime is designed to benefit taxpayers who do not have significant deductions or exemptions to claim. Also, it is beneficial for people in the lower income bracket.

How much income is tax-free under new regime in India?

Under the new tax regime, income up to ₹12,00,000 is tax-free, after considering standard deduction of ₹75,000 and rebate of ₹60,000 under section 87A.

Can I switch to the old tax regime in future fiscal years if I choose the new tax regime this year?

Yes, individual taxpayers can switch to the old tax regime in the next financial year provided they do not have business income.

Who is not allowed to switch between the two regimes?

Individual taxpayers having business income are not allowed to switch between the two tax regimes every year.

What happens if I do not specify any tax regime in the beginning of the year?

If an individual taxpayer does not specify their preferred regime, their taxes will be deducted based on the new tax regime as it is now the default regime. However, they can switch to their desired regime at the time of filing the income tax return.

Can I claim HRA in the new tax regime?

No, HRA (House Rent Allowance) cannot be claimed as a deduction in the new tax regime.

How can I reduce my tax liability in the income tax new tax regime?

You can do so by claiming the deductions available under the new tax regime like the standard deduction and family pension deduction. You can also invest in the few tax-saving options available for this tax regime.

Is there ₹50,000 standard deduction in the new tax regime?

No, the standard deduction limit under the new tax regime has been hiked to ₹75,000 from FY 2024-25. The ₹50,000 standard deduction was available only for FY 2023-24.

Is deduction under 80D allowed in the new tax regime?

No, deductions under Section 80D for medical insurance premiums are not allowed for those who have opted for the new tax regime.

Do I have to pay tax on the PPF interest under the new tax regime?

No, the interest earned on the PPF account is tax-free under both the old and new tax regimes.

Can I claim home loan interest in the new tax regime?

Yes, under the new tax regime, you can claim a deduction on the interest component of a home loan borrowed only for a rented property.

Do senior citizens have any specific tax benefits or exemptions under the new income tax regime in India?

No, the new tax regime rates and deductions are the same for all taxpayers, irrespective of their age. However, senior citizens and super senior citizens have reduced tax rates under the old tax regime, along with higher basic exemption limits and other deductions.

How much tax do senior citizens have to pay under income tax new tax regime?

As per the new tax regime, all taxpayers including senior citizens don’t have to pay any tax up to ₹4,00,000. Then as per the slabs under the new tax regime, their tax will increase based on their salary. However, to save tax, they can invest in a few tax-saving options available under the new regime.