The new regime became the default, the rebate rose to twelve lakh, and most people concluded the question was settled. For a lot of taxpayers it is. For a smaller group with large deductions it still is not, and the gap between the two answers is worth real money.
Under the new regime, a resident individual with taxable income up to Rs 12 lakh pays no tax, because the Section 87A rebate of up to Rs 60,000 cancels the liability. The old regime only wins once your deductions are large enough to pull taxable income well below that — which for most salaried people means roughly Rs 6 lakh or more of claims.
Not sure which regime fits you? WhatsApp us your salary and deductions and we will run both.
New Regime Slabs
| Taxable income | Rate |
|---|---|
| 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% |
Standard deduction of Rs 75,000 for salaried individuals. Section 87A rebate of up to Rs 60,000 where taxable income does not exceed Rs 12 lakh. Health and education cess of 4% on the tax.
Old Regime Slabs
| Taxable income | Rate |
|---|---|
| Up to Rs 2,50,000 | Nil |
| Rs 2,50,001 to Rs 5,00,000 | 5% |
| Rs 5,00,001 to Rs 10,00,000 | 20% |
| Above Rs 10,00,000 | 30% |
Standard deduction of Rs 50,000. Section 87A rebate of up to Rs 12,500 where taxable income does not exceed Rs 5 lakh. Same 4% cess. The trade-off is that 80C, 80D, HRA, home loan interest and the rest of Chapter VI-A remain available, and under the new regime most of them do not.
The Rebate Is a Cliff, Not a Slope
Worth understanding properly, because it is where the twelve lakh figure comes from.
Rs 12 lakh is not an exemption limit. It is the ceiling for a rebate. Tax is calculated normally on your income, and the rebate then wipes it out. Cross Rs 12 lakh of taxable income and the rebate disappears entirely rather than tapering.
Marginal relief prevents the obvious absurdity. Just above Rs 12 lakh you pay roughly the amount by which your income exceeds Rs 12 lakh, rather than the full tax on the whole amount. So a small rise in income never leaves you worse off.
For a salaried person the Rs 75,000 standard deduction sits on top, so a salary of about Rs 12.75 lakh can still land at Rs 12 lakh taxable and pay nothing.
Worked Example: Salary of Rs 9,00,000
New regime. Less Rs 75,000 standard deduction gives taxable income of Rs 8,25,000. Tax comes to Rs 22,500 before rebate. Taxable income is under Rs 12 lakh, so the Section 87A rebate cancels it. Tax payable: nil.
Old regime. Less Rs 50,000 standard deduction and, say, Rs 1,50,000 under 80C, gives taxable income of Rs 7,00,000. Tax comes to Rs 52,500, plus 4% cess. Tax payable: about Rs 54,600.
At this income the new regime is not close. You would need deductions large enough to bring taxable income under Rs 5 lakh before the old regime produced nil tax, which at a Rs 9 lakh salary is unlikely.
Worked Example: Salary of Rs 18,00,000
New regime. Less Rs 75,000 gives taxable income of Rs 17,25,000. No rebate at this level. Tax works out at Rs 1,45,000 plus cess. Tax payable: about Rs 1,50,800.
Old regime. Less Rs 50,000, and assume Rs 1,50,000 under 80C, Rs 25,000 under 80D and Rs 2,00,000 of HRA exemption. Taxable income is Rs 13,75,000, tax is Rs 2,25,000 plus cess. Tax payable: about Rs 2,34,000.
The new regime is ahead by roughly Rs 83,000, despite Rs 3.75 lakh of deductions in the old one.
So When Does the Old Regime Actually Win?
Run the same Rs 18 lakh salary backwards. To match the new regime, the old regime needs taxable income of about Rs 11,08,000 — which means total deductions of roughly Rs 6,40,000.
That is achievable, but it takes a specific profile. Typically a home loan with substantial interest under Section 24, full 80C, meaningful HRA in a metro, health insurance under 80D, and often NPS under 80CCD(1B) as well.
If that describes you, run both. If it does not, the new regime almost certainly wins and the calculation is not close enough to agonise over.
Switching Between Them
The new regime is the default. You have to opt out to use the old one.
A salaried person with no business income can choose afresh every financial year. Someone with business or professional income has one opportunity to opt out and, having returned to the new regime, cannot switch back again. That asymmetry matters if you are considering the old regime for a business.
Tell your employer your choice at the start of the year so TDS is deducted on the right basis. Declaring late means a correction later, which employees notice.
Frequently Asked Questions
Is income up to Rs 12 lakh really tax-free?
Effectively yes, for a resident individual under the new regime. It works through the Section 87A rebate of up to Rs 60,000, not through an exemption. It does not apply to income taxed at special rates, such as most capital gains.
What happens just above Rs 12 lakh?
The rebate stops, but marginal relief applies. Just above the threshold you pay approximately the excess over Rs 12 lakh rather than the full tax on the whole amount.
Can I claim 80C under the new regime?
No. Most Chapter VI-A deductions are unavailable under the new regime. The standard deduction of Rs 75,000 and the employer’s NPS contribution under 80CCD(2) are the main exceptions.
Can I switch every year?
A salaried individual without business income can. With business or professional income, opting out is a one-time choice and returning to the new regime closes it permanently.
Does the rebate apply to capital gains?
Under the new regime the Section 87A rebate is not available on income taxed at special rates, including most capital gains. The position under the old regime differs for certain heads.
I have a home loan. Which regime?
This is the case most likely to favour the old regime, because interest under Section 24 can be substantial. Run both before deciding rather than assuming either way.
References
- Income-tax Act — slab rates, Section 87A rebate and standard deduction
- Finance Act, 2025 — revised new regime slabs and enhanced rebate
- Income-tax Act — Section 115BAC and the option to opt out
⚠️ Slab rates, rebate limits and deduction thresholds change with each Finance Act. The figures above reflect the position as we understand it at the time of writing. Verify against the income tax portal or ask us before relying on any number for a filing decision.
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