New Tax Regime FY 2025-26: Every Change Explained

The Union Budget 2025 made the New Tax Regime significantly more attractive. If you haven't revisited your tax planning for FY 2025-26, now is the time. Here is a complete breakdown of what changed and what it means for your wallet.

Completely Revised Slab Structure

The most dramatic change is the slab restructuring. The old "New Regime" slabs from FY 2023-24 have been replaced with a fresh set of seven slabs:

• 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%

The nil slab now extends to ₹4 lakh (up from ₹3 lakh), and every intermediate slab has been widened. For a person earning ₹15 lakh, this alone saves several thousand rupees compared to last year.

Standard Deduction Raised to ₹75,000

The standard deduction for salaried individuals and pensioners in the New Regime has been raised from ₹50,000 to ₹75,000. This means the first ₹75,000 of your salary is now completely exempt before slabs are even applied.

Practical implication: If you earn exactly ₹12,75,000 in gross salary, your taxable income after the ₹75,000 deduction is ₹12,00,000 — which qualifies for the full Section 87A rebate. Your total tax liability becomes zero.

Section 87A Rebate Extended to ₹12 Lakh

Under the New Regime, the Section 87A rebate now covers all taxpayers with taxable income up to ₹12 lakh. The rebate amount equals the full computed tax, so anyone earning up to ₹12 lakh taxable income pays zero tax.

Combined with the ₹75,000 standard deduction, salaried taxpayers with gross CTC up to ₹12,75,000 have effectively zero income tax liability under the New Regime.

What Remains Restricted in the New Regime

The New Regime still does not allow most exemptions and deductions:

• HRA exemption under Section 10(13A)
• Section 80C (PPF, ELSS, LIC, home loan principal)
• Section 80D (health insurance)
• Section 80E (education loan interest)
• Section 80G (donations)
• Home loan interest deduction under Section 24(b) for self-occupied property

Employer's NPS contribution under Section 80CCD(2) remains deductible in both regimes.

Should You Switch to the New Regime?

The New Regime makes sense if your total Old Regime deductions (80C + HRA + 80D + home loan) are relatively modest. For most people earning below ₹15 lakh with limited investments, the New Regime will now result in lower or equal tax.

The best approach: calculate your liability under both regimes. Use our Income Tax Calculator to run the comparison instantly with your actual numbers.

New Regime is Now the Default

If you do not explicitly choose the Old Regime with your employer (via a declaration), the New Regime applies automatically. Employees who want the Old Regime must inform their employer before the end of the financial year.