Personal income tax in India runs on a slab system — each rupee of income falls into a tax bucket. The complication is that, since FY 2020-21, two parallel regimes exist, and choosing the right one can shift your annual tax bill by ₹30,000 to ₹2 lakh. This chapter covers the structure and the choice.

The new regime (default since FY24)

For FY 2025-26 (AY 2026-27), the new regime slabs are:

• ₹0 - ₹4,00,000: 0%
• ₹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%

Standard deduction of ₹75,000 for salaried; rebate u/s 87A makes income up to ₹12 lakh effectively zero-tax.

The old regime

• ₹0 - ₹2,50,000: 0%
• ₹2,50,001 - ₹5,00,000: 5%
• ₹5,00,001 - ₹10,00,000: 20%
• Above ₹10,00,000: 30%

Standard deduction ₹50,000; rebate u/s 87A for income up to ₹5 lakh.

Old regime allows deductions; new does not

This is the heart of the choice. The old regime lets you reduce taxable income via 80C (₹1.5 lakh), 80D, HRA, LTA, home loan interest, NPS, education loan interest, etc. The new regime offers none of these (with very minor exceptions like employer NPS contribution and standard deduction).

When new regime wins

• You have few deductions (no home loan, low 80C investment, no HRA)
• Total deductions you would have claimed under old regime are below ~₹4 lakh
• Income is between ₹7 lakh and ₹15 lakh (sweet spot due to rebate and lower slabs)

When old regime wins

• HRA exemption is substantial (rented in a metro)
• Home loan interest > ₹2 lakh annually
• 80C fully used, plus 80D family floater + parents, plus NPS 80CCD(1B) ₹50k
• Total deductions > ~₹4 lakh

The break-even calculation

A rough rule: if your total old-regime deductions exceed roughly 25% of your gross income, old regime usually wins. Below that, new regime usually wins. For a clean answer, run both calculations in our income tax calculator using your actual numbers.

Surcharge and cess

On top of the slab tax:

• Surcharge at 10/15/25/37% kicks in above ₹50 lakh / ₹1 cr / ₹2 cr / ₹5 cr income.
• Health & Education cess of 4% on (tax + surcharge).

New regime caps the surcharge at 25%. This is one reason high-income earners (₹2 cr+) almost always prefer the new regime.

Capital gains tax sits separately

Capital gains have their own tax rates — equity STCG 20%, equity LTCG 12.5%, etc. (see Chapter 4). These rates apply regardless of which regime you choose. Your salary income goes through the slab; your capital gains do not.

Which regime to elect each year

Salaried employees can switch every year. Business income earners can switch only once in a lifetime (with conditions). For most retail investors, run the math in March before year-end and inform your employer in April so TDS is correct.

Next chapter: if you choose the old regime, how to fully use Section 80C.