If you earn a salary in India, the new tax regime is now the default choice for most people — and for the financial year 2026-27 (assessment year 2027-28), the numbers are worth understanding before you file or before you fill out that investment declaration at work. There's also a bigger structural change happening: the new Income Tax Act, 2025 takes effect from 1 April 2026, replacing the old 1961 law. Here's what actually matters for your wallet.
The new regime slabs for FY 2026-27
The new tax regime uses these slabs for FY 2026-27:
- Up to Rs 4,00,000 — Nil - Rs 4,00,001 to Rs 8,00,000 — 5% - Rs 8,00,001 to Rs 12,00,000 — 10% - Rs 12,00,001 to Rs 16,00,000 — 15% - Rs 16,00,001 to Rs 20,00,000 — 20% - Rs 20,00,001 to Rs 24,00,000 — 25% - Above Rs 24,00,000 — 30%
These are the same slabs that applied in FY 2025-26 — Budget 2026 left them unchanged, so there are no surprises this year. A 4% health and education cess applies on top of the tax you actually pay.
One point people miss: these are marginal rates. If you earn Rs 20 lakh, you don't pay 20% on the whole amount. You pay nothing on the first Rs 4 lakh, 5% on the next slice, 10% on the slice after that, and so on. Your effective rate is always lower than your top slab rate.
The Rs 75,000 standard deduction
Salaried employees and pensioners get a flat standard deduction of Rs 75,000 under the new regime. You don't need any bills or proof — it's automatic. This is why you'll often hear that income up to Rs 12.75 lakh is tax-free for salaried people: the Rs 75,000 deduction brings a Rs 12.75 lakh salary down to Rs 12 lakh of taxable income, and the rebate (next section) handles the rest.
If you're not salaried — say you run a business or earn only from other sources — the standard deduction doesn't apply, so your zero-tax ceiling sits at Rs 12 lakh of taxable income rather than Rs 12.75 lakh.
The Section 87A rebate: zero tax up to Rs 12 lakh
This is the headline feature. Under the new regime, a resident individual with taxable income up to Rs 12 lakh gets a rebate under Section 87A of up to Rs 60,000 — which wipes out the tax entirely. So you compute your tax using the slabs above, and if your taxable income is Rs 12 lakh or below, the rebate cancels it out. You pay nothing.
A crucial distinction: the rebate is not the same as an exemption. Your basic exemption is still just Rs 4 lakh. The rebate is a separate benefit that erases the calculated tax for those under the threshold. Cross above Rs 12 lakh of taxable income and the rebate disappears — you then pay tax on everything above Rs 4 lakh per the slabs.
That would create an ugly cliff (imagine Rs 12,00,001 suddenly attracting Rs 60,000-plus in tax over the person at exactly Rs 12 lakh). To fix this, the law provides marginal relief. If your income is only slightly above Rs 12 lakh, your tax is capped at roughly the amount by which you exceed Rs 12 lakh. For example, at Rs 12.1 lakh taxable income the normal tax would be around Rs 61,500, but since you're only Rs 10,000 over the line, marginal relief limits your tax to about Rs 10,000 plus cess. This relief tapers off by around Rs 12.75 lakh, after which you pay full slab tax.
To see exactly what you'd owe at your income level under both regimes, run the numbers through an income tax calculator rather than estimating by hand.
Old regime vs new regime: the real trade-off
The old regime still exists, and it isn't automatically worse. The difference comes down to deductions.
Under the new regime, most popular deductions and exemptions are switched off — Section 80C (PPF, ELSS, life insurance, home loan principal), 80D (health insurance), HRA, LTA, and the like are all disallowed. In exchange you get wider slabs, the Rs 75,000 standard deduction, and the generous rebate.
Under the old regime, the slabs are narrower and rebate is smaller, but you can subtract those deductions from your income. If you genuinely claim large deductions — a home loan, full 80C, health insurance for your family, and significant HRA — the old regime can still come out ahead.
A rough rule of thumb: the more you invest in tax-saving instruments and the higher your HRA, the more likely the old regime wins. If you don't itemise much — you rent little or nothing, don't max out 80C, and want simplicity — the new regime usually gives you a lower bill with zero paperwork.
The honest answer is that there's no universal winner. Calculate both. For a salaried person with modest deductions, the new regime's zero-tax-up-to-Rs-12.75-lakh math is hard to beat. For someone with a home loan and a full deduction stack, the old regime deserves a proper comparison.
What changes with the Income Tax Act, 2025
From 1 April 2026, the Income Tax Act, 2025 replaces the 1961 Act. It's largely a simplification and consolidation exercise — the language is cleaner and the number of sections is sharply reduced — rather than a rewrite of your tax rates. Slabs, the rebate, and the standard deduction carry over as described above.
The most visible change for ordinary filers is terminology. The old "Previous Year" and "Assessment Year" pair is replaced by a single "Tax Year." For FY 2026-27, the tax year is simply 2026-27. It's meant to reduce confusion about which year you're filing for. Your day-to-day filing experience shouldn't change dramatically, but the forms and portal language will reflect the new law.
The bottom line
For FY 2026-27, the new regime keeps things simple: no tax up to Rs 12.75 lakh for most salaried people, unchanged slabs, and an automatic standard deduction. The old regime is worth checking only if you carry meaningful deductions. This is general educational information, not personalised tax advice — for anything complicated, run both scenarios and, if in doubt, talk to a qualified tax professional.