Personal Income Tax Slabs: A Beginner's Guide to Choosing the Right Tax Regime
If you're a salaried individual in India, one decision quietly shapes your entire tax bill each year: old tax regime or new tax regime? Since the new regime became the default option, and with the Union Budget 2026-27 leaving slab rates unchanged for tax year 2026-27, the choice remains entirely yours — but only if you understand how the two systems actually differ.
This guide breaks down both regimes step by step: the slabs, the deductions you keep and lose, a simple method to compare them, and practical tax-saving tips for salaried taxpayers.
The Two Regimes at a Glance
India's income tax system offers individual taxpayers two parallel structures:
- Old Tax Regime: Higher slab rates, but you can claim a wide range of deductions and exemptions — HRA, LTA, Section 80C investments, home loan interest, and more.
- New Tax Regime (Section 115BAC): Lower, more granular slab rates with a higher basic exemption limit, but most deductions and exemptions are disallowed. This is the default regime — if you do nothing, this is where you are taxed.
You can opt out of the default regime and choose the old one. For salaried individuals without business income, this choice can be exercised every year when filing your return, so you're never locked in permanently.
New Tax Regime Slabs (Tax Year 2026-27)
The Union Budget 2026-27 made no changes to income tax slabs or marginal rates, so the structure introduced earlier continues unchanged.
| Taxable Income | 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% |
Key features of the new regime
- Section 87A rebate: Resident individuals with taxable income up to ₹12 lakh qualify for a rebate of up to ₹60,000, effectively paying zero tax. Marginal relief applies if income slightly exceeds ₹12 lakh, so your tax bill doesn't jump abruptly.
- Effectively zero tax up to ₹12.75 lakh for salaried individuals: Once you add the ₹75,000 standard deduction (discussed below), a salaried person earning up to ₹12.75 lakh can pay no income tax at all.
- Standard deduction: ₹75,000 for salaried employees and pensioners — available automatically, no proof required.
- Employer NPS contribution (Section 80CCD(2)): Deductible under both regimes, at up to 14% of salary — one of the few meaningful deductions that survives in the new regime.
- Maximum surcharge capped at 25% (versus 37% under the old regime), a benefit for very high earners.
Old Tax Regime Slabs (Tax Year 2026-27)
The old regime retains its classic three-slab structure, with a higher basic exemption for senior citizens:
| Taxable Income (Below 60 years) | Tax Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Senior citizens (60–79 years) get a nil-rate band up to ₹3 lakh, and super-seniors (80+) up to ₹5 lakh. However, under the new regime there are no special slab benefits for senior citizens — the same slabs apply to everyone.
Old-regime specifics:
- Standard deduction: ₹50,000.
- Section 87A rebate: Smaller — up to ₹12,500, and only if taxable income does not exceed ₹5 lakh (with no marginal relief, so crossing ₹5 lakh loses the rebate entirely).
- Surcharge: Can reach 37% on income above ₹5 crore.
- The trade-off: You give up lower slab rates in exchange for the full menu of deductions and exemptions.
Both regimes levy a 4% Health and Education Cess on the tax payable (plus surcharge, where applicable).
What You Keep and What You Lose: Deduction Rules Compared
This is the heart of the regime decision. The table below summarises the major items for salaried individuals:
| Deduction / Exemption | Old Regime | New Regime |
|---|---|---|
| Standard deduction | ₹50,000 | ₹75,000 |
| Section 80C (PPF, EPF, ELSS, LIC, tuition fees, home loan principal) | ✅ Up to ₹1.5 lakh | ❌ Not allowed |
| Section 80D (health insurance premium) | ✅ Up to ₹25k–₹1 lakh | ❌ Not allowed |
| HRA (House Rent Allowance) exemption | ✅ Yes | ❌ Not allowed |
| LTA (Leave Travel Allowance) | ✅ Yes | ❌ Not allowed |
| Home loan interest — self-occupied (Section 24(b)) | ✅ Up to ₹2 lakh | ❌ Not allowed |
| Section 80CCD(1B) — additional NPS (₹50,000) | ✅ Yes | ❌ Not allowed |
| Section 80CCD(2) — employer NPS contribution | ✅ Up to 10% of salary (private) | ✅ Up to 14% of salary |
| Section 80E (education loan interest) | ✅ Yes | ❌ Not allowed |
| Section 80G (donations) | ✅ Yes | Limited cases only |
| Professional tax paid | ✅ Deductible | ❌ Not allowed |
A few items that are still available under the new regime include the standard deduction, employer NPS contributions under Section 80CCD(2), and deductions such as Section 80CCD for Agniveer corpus contributions.
The practical takeaway: the new regime is not automatically "lower tax" — it's lower rates in exchange for giving up deductions. Whether you win or lose depends entirely on how much you can legitimately claim.
Step-by-Step: How to Choose the Right Regime
Step 1: Estimate your gross total income
Add your salary, bonus, allowances, interest income, rental income, and any other earnings for the year.
Step 2: Compute taxable income under the new regime
Subtract the ₹75,000 standard deduction (and any employer NPS contribution eligible under Section 80CCD(2)). Apply the new slabs, check the 87A rebate, and add 4% cess. For most people with income up to ~₹12.75 lakh of gross salary, this calculation alone may show zero tax.
Step 3: Compute taxable income under the old regime
Subtract the ₹50,000 standard deduction, then every deduction and exemption you can genuinely claim — HRA (use your rent receipts and the official formula), 80C investments, 80D premiums, home loan interest, and so on. Apply old slabs, the ₹12,500 rebate if eligible, and add cess.
Step 4: Compare the two tax liabilities side by side
Whichever number is lower is your regime — provided the deductions you claimed in Step 3 are real and documented. Never choose the old regime based on deductions you could take but don't actually use.
Step 5: Consider your filing situation
- No business income: Choose freely each year in your ITR, provided you file by the due date.
- Business or professional income: Switching out of the new regime requires filing Form 10-IEA, and re-entering the new regime is permitted only once — a more permanent decision.
A worked example
Take a salaried individual earning ₹15 lakh per year, paying ₹25,000 monthly rent in a metro, with ₹1.5 lakh in 80C investments and ₹50,000 in health insurance premiums.
- New regime: Taxable income = ₹14.25 lakh after standard deduction → tax ≈ ₹97,500 (including cess).
- Old regime: After standard deduction, HRA exemption, 80C, and 80D, taxable income could drop to around ₹9–10 lakh → tax ≈ ₹1,06,600–₹1,32,600 (including cess).
In this scenario the new regime wins despite substantial deductions — the lower slab rates are powerful. The old regime typically starts winning only when total deductions and exemptions exceed roughly ₹4–5 lakh, which usually requires a combination of high HRA, home loan interest, and full 80C/80D utilisation. The higher your income, the more deductions the old regime needs to offset.
Tax-Saving Tips for Salaried Individuals
Whichever regime you pick, these habits reduce errors, surprises, and missed opportunities:
- Don't invest blindly for "tax saving." If your natural deductions (HRA, EPF contributions, home loan interest) already cover your needs, locking money into low-yield 80C products just for the deduction may not be mathematically sensible. Compare post-tax returns.
- If you stay in the new regime, maximise the deductions that survive: ask your employer to route part of your compensation into NPS — the employer's 14% contribution under Section 80CCD(2) is exempt in both regimes and doesn't touch your 80C limit.
- Time your investments early in the year. Starting 80C contributions (PPF, ELSS via SIPs, etc.) in April instead of March earns you a full year of returns and the deduction.
- Track your salary structure. Under the old regime, optimising the CTC split (HRA, LTA, fuel/reimbursement components) can matter as much as investments.
- Verify TDS against Form 26AS/AIS. Under-deduction at source means a large tax bill at filing time. Budget 2026 also raised several TDS thresholds (for example, interest TDS for senior citizens doubled to ₹1 lakh, and rent TDS moved to ₹50,000 per month), which improves monthly cash flow.
- Use the extended correction window. The deadline for filing revised returns has been extended from 31 December to 31 March (with a nominal fee), giving you extra room to fix mistakes or claim missed deductions.
- Recalculate every April. Slabs, standard deductions, and your own income change. An annual 30-minute comparison using the official income tax department calculator — or a trusted spreadsheet — keeps you in the optimal regime year after year.
One More Thing: The New Income Tax Act, 2025
From 1 April 2026, the Income Tax Act, 2025 replaces the 1961 Act, and "financial year/assessment year" terminology gives way to a single "tax year" concept. The slab rates, deductions, and limits are unchanged — but the section numbers are new (for example, 80C-type deductions now sit under Section 123, and health insurance premiums under Section 126). If your employer's Form 16 or your CA cites unfamiliar numbers, that's why.
The Bottom Line
- Low-to-mid income (up to ~₹12.75 lakh salary): the new regime's rebate makes tax zero or minimal — simplicity wins.
- Mid income with modest deductions: run both calculations; the new regime's lower slabs often still come out ahead.
- High income with heavy, genuine deductions (large HRA, home loan, full 80C/80D/NPS): the old regime can still be the better deal.
- Everyone: the regime choice is an annual, reversible decision for salaried taxpayers — treat it as a yearly habit, not a one-time one.
Disclaimer: This article is for educational purposes only and should not be taken as financial advice. Tax laws change frequently, and individual circumstances vary — please verify current rates on the official Income Tax Department portal or consult a qualified tax professional before making decisions.
