How income tax works in India: new regime or old regime
India has two ways to calculate your tax. The new regime is the default, and you can choose the old one.
Resident individuals in India can pay income tax under the new regime or the old regime. The new regime has lower slab rates but allows few deductions. The old regime has higher rates but lets you deduct things like 80C investments and home loan interest. Salaried people can usually choose each year.
New regime slabs (Assessment Year 2026-27)
| Taxable income | Tax 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% |
Old regime slabs (resident under 60)
| Taxable income | Tax 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% |
Worked example: Rs 15,00,000 salary
New regime: taxable income is Rs 14,25,000 after the Rs 75,000 standard deduction. Tax is Rs 20,000 + Rs 40,000 + 15% of Rs 2,25,000 = Rs 93,750, plus 4% cess of Rs 3,750, a total of Rs 97,500. Old regime with Rs 1,50,000 of deductions: taxable income is Rs 13,00,000, tax is Rs 2,02,500 plus Rs 8,100 cess, a total of Rs 2,10,600. The new regime is cheaper unless your deductions are large.
✨ Key Takeaways
- Both regimes add 4% cess.
- The new regime has lower rates and fewer deductions.
- A section 87A rebate makes tax nil up to Rs 12 lakh in the new regime.
- Check the Income Tax Department for the current year's rates.