New Tax Regime Slabs FY 2025-26 — Rates, Rebate and Examples

The new tax regime is the default way you are taxed in India. A salaried person earning up to ₹12.75 lakh now pays nothing at all — a figure that surprises people who have not looked at the rules since the regime was introduced.

New Tax Regime Slab Rates

A 4% Health and Education Cess applies on the final tax. The basic exemption of ₹4 lakh applies to everyone — unlike the old regime, the new regime gives no higher exemption to senior citizens.

Section 87A Rebate — Why ₹12 Lakh Is Tax-Free

The defining feature of the new regime is the Section 87A rebate of up to ₹60,000. A resident individual with taxable income up to ₹12 lakh has their entire tax cancelled by it.

Two conditions matter:

• It applies only to resident individuals
• It covers only normal income. Special-rate income such as capital gains under Sections 111A and 112A is excluded — you can still owe tax on that portion even if your total sits around ₹12 lakh

The ₹75,000 Standard Deduction

Salaried individuals and pensioners get a standard deduction of ₹75,000 under the new regime, up from ₹50,000. It is subtracted from salary before tax is computed.

This is where the widely quoted ₹12.75 lakh figure comes from:

₹12,75,000 salary − ₹75,000 standard deduction = ₹12,00,000 taxable
₹12,00,000 taxable → 87A rebate applies → tax = ₹0

Note the distinction: ₹12 lakh is the tax-free taxable income; ₹12.75 lakh is the tax-free salary. The two figures get confused constantly.

Marginal Relief Just Above ₹12 Lakh

Without a cushion, earning slightly more than ₹12 lakh would trigger a sharp jump — the rebate stops applying entirely. Marginal relief prevents that cliff.

If taxable income crosses ₹12 lakh by a small margin, tax is limited to the amount by which income exceeds ₹12 lakh.

The relief continues until roughly ₹12.70 lakh of taxable income, beyond which regular slab tax applies in full.

Worked Examples

For a salaried person claiming only the ₹75,000 standard deduction, including 4% cess:

Taking the ₹20 lakh salary: taxable income is ₹19,25,000. Nil on the first ₹4 lakh, ₹20,000 on the next ₹4 lakh at 5%, ₹40,000 on the next ₹4 lakh at 10%, ₹60,000 on the next ₹4 lakh at 15%, and ₹65,000 on the remaining ₹3.25 lakh at 20% — ₹1,85,000, becoming ₹1,92,400 after cess.

What You Can Still Claim

Employer NPS contribution under 80CCD(2) is the most valuable deduction remaining for salaried taxpayers in this regime — worth checking whether your employer offers it.

What You Cannot Claim

• Section 80C — PPF, ELSS, life insurance premiums, EPF, home loan principal
• Section 80D — health insurance premiums
• HRA and LTA
• Home loan interest on a self-occupied property
• Self-contribution to NPS under 80CCD(1) and 80CCD(1B)
• Sections 80TTA and 80TTB on interest income

Surcharge

The new regime caps surcharge at 25%, removing the 37% rate that applies in the old regime above ₹5 crore. Marginal relief applies at surcharge thresholds too, so crossing one does not cause a disproportionate jump.

Choosing the Regime

The new regime is the default under Section 115BAC. Salaried taxpayers with no business income can choose the old regime each year while filing. Anyone with business income must file Form 10-IEA before the due date to opt for the old regime — and the option is more restricted once exercised.

Key Takeaways

• Seven bands: nil up to ₹4 lakh, rising to 30% above ₹24 lakh, plus 4% cess
• Section 87A rebate of ₹60,000 makes taxable income up to ₹12 lakh tax-free
• ₹75,000 standard deduction lifts the tax-free salary to ₹12.75 lakh
• The rebate does not cover capital gains under 111A and 112A
• Marginal relief applies up to roughly ₹12.70 lakh taxable income
• Seniors get no higher exemption in this regime
• 80CCD(2) employer NPS is the main surviving deduction
• Business income requires Form 10-IEA to opt for the old regime

Frequently Asked Questions (FAQ)

Q: What are the new tax regime slabs for FY 2025-26?

Nil up to ₹4 lakh, 5% from ₹4–8 lakh, 10% from ₹8–12 lakh, 15% from ₹12–16 lakh, 20% from ₹16–20 lakh, 25% from ₹20–24 lakh, and 30% above ₹24 lakh. A 4% Health and Education Cess applies on the final tax.

Q: Is income up to ₹12 lakh really tax-free?

Yes for resident individuals, because the Section 87A rebate of up to ₹60,000 cancels the tax entirely. For salaried taxpayers the ₹75,000 standard deduction extends this to a salary of ₹12.75 lakh. The rebate does not cover capital gains taxed at special rates.

Q: What is marginal relief in the new tax regime?

If taxable income slightly exceeds ₹12 lakh, marginal relief limits the tax to the amount by which income exceeds ₹12 lakh, preventing a sudden jump when the rebate stops applying. It operates up to roughly ₹12.70 lakh of taxable income.

Q: Which deductions are allowed in the new tax regime?

The ₹75,000 standard deduction, employer NPS contribution under Section 80CCD(2), the family pension deduction, Agniveer Corpus Fund contribution under 80CCH, and interest on let-out property. Section 80C, 80D, HRA and most other Chapter VI-A deductions are not available.

Q: Do senior citizens get a higher exemption under the new regime?

No. The new regime applies a flat ₹4 lakh basic exemption regardless of age. The higher age-based exemptions of ₹3 lakh for those aged 60 to 80 and ₹5 lakh above 80 exist only under the old regime.

Q: Is the new tax regime compulsory?

It is the default, but not compulsory. Salaried taxpayers without business income can choose the old regime each year at the time of filing. Those with business income must file Form 10-IEA before the due date to opt out.

Q: Does the 87A rebate apply to capital gains?

No. The rebate applies only to normal income. Capital gains taxed at special rates under Sections 111A and 112A are excluded, so tax can still be payable on that portion even when total income is around ₹12 lakh.

Related Reading:

• Old vs New Tax Regime
• What is Tax Audit Under Section 44AB?