What is the difference between old and new tax regime?

The old tax regime has higher tax rates but allows various deductions and exemptions like 80C, HRA, and home loan interest. The new tax regime has lower rates but minimal deductions, with only standard deduction of ₹75,000 available.

What are the deductions under Section 80C?

Section 80C allows deductions up to ₹1.5 lakh for investments in PPF, EPF, ELSS mutual funds, life insurance premiums, NSC, tax-saving FDs, Sukanya Samriddhi, and home loan principal repayment.

What is Section 87A rebate?

Section 87A provides a rebate of up to ₹25,000 under the new regime (income up to ₹12 lakh) and up to ₹12,500 under the old regime (income up to ₹5 lakh). If your total income is within the rebate limit, you pay zero tax.

What is the standard deduction?

Standard deduction is a flat deduction available to salaried employees. Under the new regime (FY 2025-26), it is ₹75,000. Under the old regime, it is ₹50,000. No proof of expenses is required to claim this deduction.

Income Tax Calculator

Compare your tax liability under old and new tax regimes for FY 2025-26. Enter your income and deductions to find the best regime for you.

Gross Annual Income (₹)

Section 80C Deductions (₹)

HRA Exemption (₹)

NPS 80CCD(1B) (₹)

Other Deductions (₹)

Taxable Income

₹7,50,000

Tax Before Cess

₹25,000

Cess (4%)

₹1,000

Total Tax Liability

₹26,000

Effective Rate: 2.2%

Recommended: New Regime

Income Tax Calculation

Tax = Sum of (Slab Amount × Rate%) for each slab | Total = Tax + 4% Cess

Income tax in India is calculated on taxable income using progressive slab rates. Under the new regime (FY 2025-26), income up to ₹4 lakh is tax-free with slabs ranging from 5% to 30%. The old regime has wider slabs with rates up to 30%. A 4% health and education cess is added to the total tax amount. Section 87A provides a rebate making income up to ₹12 lakh (new) or ₹5 lakh (old) effectively tax-free.

Example Calculation

Gross Income ₹12,00,000 with deductions under New Regime

Standard Deduction ₹75,000 | Taxable: ₹12,00,000 − ₹75,000 = ₹11,25,000 | Slabs: 0-4L (0%) + 4-8L (5%) + 8-12L (10%)

Tax: ₹62,500 + Cess: ₹2,500 = ₹65,000

Understanding Income Tax Regimes

New Tax Regime (FY 2025-26)

The new tax regime features lower tax rates with minimal deductions. Slabs: ₹0-4 lakh (0%), ₹4-8 lakh (5%), ₹8-12 lakh (10%), ₹12-16 lakh (15%), ₹16-20 lakh (20%), ₹20-24 lakh (25%), above ₹24 lakh (30%). Standard deduction of ₹75,000 is available. Section 87A rebate makes income up to ₹12 lakh tax-free. This regime is ideal for those with limited investments and deductions.

Old Tax Regime

The old tax regime has higher tax rates but allows extensive deductions: up to ₹1.5 lakh under Section 80C (PPF, ELSS, life insurance, etc.), ₹50,000 under NPS 80CCD(1B), HRA exemption, home loan interest under Section 24(b) up to ₹2 lakh, and various other deductions. Slabs: ₹0-2.5 lakh (0%), ₹2.5-5 lakh (5%), ₹5-10 lakh (20%), above ₹10 lakh (30%). Standard deduction is ₹50,000.

Key Deductions Explained

Section 80C covers up to ₹1.5 lakh for investments in EPF, PPF, ELSS, tax-saving FDs, NSC, life insurance premiums, and home loan principal. Section 80CCD(1B) allows additional ₹50,000 for NPS Tier I. Other deductions include 80D (health insurance up to ₹25,000), 80E (education loan interest), and 80G (donations). Under the new regime, most of these deductions are not available.

Choosing the Best Regime

Generally, the new regime is better for those with income up to ₹12 lakh due to the 87A rebate. For higher incomes, compare both regimes by calculating total deductions. If your deductions exceed ₹3-4 lakh, the old regime may be more beneficial. You can switch between regimes every year if you are a salaried employee. Use the toggle above to compare your tax liability under both regimes.

Frequently Asked Questions

Which tax regime is better for salaried employees?

For income up to ₹12 lakh, the new regime is usually better due to the 87A rebate. For higher incomes, it depends on your deductions. If you have significant 80C, HRA, and home loan deductions exceeding ₹3-4 lakh, the old regime may save more tax.

Can I switch between old and new tax regimes every year?

Yes, salaried individuals can switch between regimes each financial year when filing their income tax return. Business owners and professionals with business income can switch only once in their lifetime.

What is the benefit of Section 87A rebate?

Section 87A provides full tax rebate if your total income does not exceed ₹12 lakh under the new regime or ₹5 lakh under the old regime. This means if your taxable income is within these limits, your tax liability becomes zero.

Are capital gains taxed differently under the new regime?

Capital gains are taxed at their respective rates regardless of which regime you choose. LTCG on stocks above ₹1.25 lakh is taxed at 12.5% under both regimes. STCG on stocks is taxed at 20%. Short-term gains on other assets are added to your income and taxed as per your slab.

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