Income Tax Calculator

New Tax Regime for FY2025-26 — The Default Now

From FY2024-25 onwards, the new tax regime is the default. If you don't explicitly opt for the old regime when filing your ITR, the new regime applies automatically. For salaried employees, the default can be communicated to the employer at the start of the financial year — most companies now ask via their HR portal.

Budget 2025 (for FY2025-26) brought a significant enhancement: the rebate under Section 87A was increased such that individuals with taxable income up to ₹12 lakh pay zero tax under the new regime. Combined with the ₹75,000 standard deduction for salaried individuals, effective zero-tax income extends to ₹12.75 lakh for salaried taxpayers.

Old Regime — When It Still Makes Sense

The old regime offers deductions that can significantly reduce taxable income for certain profiles. The most valuable: Section 80C (₹1.5 lakh limit — PPF, ELSS, EPF, LIC premiums, home loan principal), Section 24b (home loan interest up to ₹2 lakh for self-occupied property), HRA exemption (up to 40–50% of basic salary depending on city), and NPS contribution deduction under 80CCD(1B) (additional ₹50,000 beyond 80C).

The old regime wins when you have large legitimate deductions. The break-even analysis: if your deductions exceed roughly ₹3.5–4 lakh in total (80C + HRA + home loan interest + others), the old regime often produces lower tax than the new regime. Below this threshold, the new regime is almost always better.

A salaried professional earning ₹15 lakh with full 80C investments (₹1.5L), NPS (₹50K additional), HRA exemption (₹1.2L), home loan interest (₹1.5L), and standard deduction (₹50K) — total deductions: ₹5.2 lakh, bringing taxable income to ₹9.8 lakh. Old regime tax: approximately ₹1.37 lakh. New regime tax on ₹15 lakh with ₹75K standard deduction (taxable ₹14.25L): approximately ₹1.60 lakh. Old regime wins here by ₹23,000.

Section 87A Rebate — The Zero-Tax Threshold

Section 87A makes income up to ₹12 lakh tax-free under the new regime. The rebate equals the actual tax liability for income up to ₹12 lakh — meaning the tax is computed normally, and then the full amount is rebated away.

One important nuance: special rate income like STCG (20%) and LTCG (12.5%) may not benefit from the 87A rebate in the same way. There has been ongoing clarification from the IT department on this. As of FY2025-26, the consensus is that STCG on equity is taxed at the special 20% rate even if total income is below ₹12 lakh — the rebate doesn't eliminate special-rate taxes. Verify with your CA as interpretations have evolved.

Surcharge and Cess — The Often-Forgotten Add-Ons

Income tax is not the only levy. Health and Education Cess of 4% applies to all taxpayers on the income tax amount. Surcharge applies to higher income brackets.