The new tax regime, explained in five minutes
How the FY 2026-27 slabs actually work, why ₹12.75 lakh of salary is tax-free, and what you can and can’t claim.
The new regime has been the default since FY 2023-24, and since Budget 2025 it has been the better deal for most salaried people. Budget 2026 left it untouched, so the rules below apply to FY 2026-27 (the return you file in 2027).
The slabs
| Taxable income | Rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4 – 8 lakh | 5% |
| ₹8 – 12 lakh | 10% |
| ₹12 – 16 lakh | 15% |
| ₹16 – 20 lakh | 20% |
| ₹20 – 24 lakh | 25% |
| Above ₹24 lakh | 30% |
Add 4% health and education cess on top. Above ₹50 lakh a surcharge kicks in, but it stops at 25% in the new regime (the old regime goes up to 37%).
Slabs are steps, not cliffs
The most common myth: “if I cross ₹16 lakh, all my income gets taxed at 20%.” It doesn’t. Each slab only taxes the slice of income that falls inside it. Moving into a higher slab only affects the rupees above the line.
Drag the salary below and watch the steps fill one at a time:
Why ₹12.75 lakh of salary costs you nothing
Two things combine:
- Standard deduction of ₹75,000. Every salaried person and pensioner gets it automatically. ₹12.75 lakh of salary becomes ₹12 lakh of taxable income.
- A rebate of up to ₹60,000. If taxable income is ₹12 lakh or less, the rebate cancels the slab tax completely. Slab tax at exactly ₹12 lakh is ₹60,000, so it becomes zero.
One catch: the rebate covers income taxed at normal slab rates. Capital gains taxed at special rates, like equity gains, don’t get it.
A worked example: ₹18 lakh salary
- Taxable income: ₹18,00,000 − ₹75,000 = ₹17,25,000
- ₹0 – 4 L: nil
- ₹4 – 8 L at 5%: ₹20,000
- ₹8 – 12 L at 10%: ₹40,000
- ₹12 – 16 L at 15%: ₹60,000
- ₹16 – 17.25 L at 20%: ₹25,000
- Slab tax: ₹1,45,000 + 4% cess = ₹1,50,800
That’s 8.4% of the salary, even though the top slab you reach is 20%.
What you can’t claim in the new regime
Most of the deductions people know: 80C (PF, PPF, ELSS, LIC, tuition fees), 80D health insurance, HRA, LTA, and interest on a home loan for a house you live in.
What still works
- The ₹75,000 standard deduction.
- Your employer’s NPS contribution, up to 14% of basic pay plus DA. This is one of the few tax breaks left, and worth asking HR about. Your employer’s PF, NPS and superannuation together are tax-free only up to ₹7.5 lakh a year.
- Interest on a home loan for a let-out property, set off against the rent from it.
- A family pension deduction of up to ₹25,000, and contributions to the Agniveer Corpus Fund.
The new Income-tax Act
From 1 April 2026 the Income-tax Act, 2025 replaced the 1961 law. Many section numbers changed (you’ll still see “87A” and “80C” everywhere, including here, because that’s what people search for), but the slabs, rebate and deductions stayed the same for this year. The one change most people notice is in the old regime: HRA in Bengaluru, Hyderabad, Pune and Ahmedabad now uses the 50%-of-basic limit, as in the four metros.
So which regime should you pick?
For most salaried people, new. The old regime only wins if your deductions are big, about ₹4.5–8 lakh depending on salary. That means a large HRA claim and a home loan, not just 80C. The old vs new regime guide shows exactly where the line is, and the regime calculator checks your own numbers.