Is the new tax regime better than the old regime for salaried employees?

It depends on the individual's deduction profile. Taxpayers who claim high deductions under 80C, HRA, and home loan interest often find the old regime more beneficial. Those with fewer deductions or income below ₹7 lakh typically benefit from the new regime's lower rates.

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

Salaried employees can switch between regimes each financial year. Self-employed individuals and those with business income can opt out of the new regime only once, after which they cannot return to it again.

What is the tax-free income limit under the new tax regime?

For FY 2025-26, a salaried individual with total income up to ₹7.75 lakh (after the ₹75,000 standard deduction, effective income ≤ ₹7 lakh) pays zero tax due to the Section 87A rebate.

Does the new tax regime apply to capital gains from stocks?

Capital gains from equity are taxed separately at applicable rates regardless of the chosen income tax regime. The regime selection affects only regular income such as salary, business income, and other sources.

New Tax Regime India — Slabs, Deductions & How It Works

New Tax Regime — What It Means for Salaried Investors in India

Understand India's new tax regime, tax slabs for FY 2025-26, what deductions are removed, the Section 87A rebate, and how it compares with the old regime.

Team Sahi

Published: 15 Mar 2026, 05:30 AM IST (5 days ago)

Last Updated: 18 Mar 2026, 11:06 AM IST (2 days ago)

6 min read

The new tax regime is India's simplified income tax system, introduced in Budget 2020 and made the default option from FY 2023-24. It offers lower tax slabs but removes most deductions available under the older system. Understanding how it works helps salaried individuals and investors make informed decisions during tax filing.

What Changed with the New Tax Regime

India's income tax system previously relied on one structure. The new tax regime introduced a parallel option with reduced rates. Since FY 2023-24, this new structure is the default for all taxpayers. Individuals can still opt for the old regime each year, but they must actively choose to do so.

Budget 2024 made two important changes to the new tax regime. The standard deduction for salaried employees was raised from ₹50,000 to ₹75,000. The basic exemption limit was also kept at ₹3 lakh, unchanged from the prior year.

Income Tax Slabs Under the New Tax Regime (FY 2025-26)

The new tax regime uses six income brackets with progressive rates:

Annual Income	Tax Rate
Up to ₹3,00,000	Nil
₹3,00,001 – ₹7,00,000	5%
₹7,00,001 – ₹10,00,000	10%
₹10,00,001 – ₹12,00,000	15%
₹12,00,001 – ₹15,00,000	20%
Above ₹15,00,000	30%

A rebate under Section 87A is available to individuals whose net taxable income does not exceed ₹7,00,000. This means a taxpayer earning up to ₹7 lakh after the standard deduction effectively pays zero income tax under the new regime.

What Deductions Are Not Available

The new tax regime removes most exemptions and deductions that reduce taxable income under the old system. Common ones no longer available include:

Section 80C deductions — PPF, ELSS, life insurance premiums, home loan principal
Section 80D — medical insurance premiums
House Rent Allowance (HRA) exemption
Leave Travel Allowance (LTA)
Interest on housing loan under Section 24(b) for self-occupied property

Salaried employees can still claim the ₹75,000 standard deduction. Contributions to the National Pension System (NPS) by employers remain deductible under Section 80CCD(2).

New Tax Regime vs Old Tax Regime

Feature	New Regime	Old Regime
Tax slabs	Lower rates	Higher rates
Standard deduction	₹75,000 (salaried)	₹50,000
80C deductions	Not available	Up to ₹1.5 lakh
HRA exemption	Not available	Available
Default option	Yes (from FY 2023-24)	Opt-in required
Best suited for	Lower deduction claimers	High deduction claimers

When the New Tax Regime May Work Better

Taxpayers with limited deductions often pay less tax under the new regime. This typically applies to younger earners who are not yet investing heavily in tax-saving instruments. It also applies to individuals who do not pay rent or do not have a home loan.

For salaried earners under ₹7 lakh annually, the rebate effectively eliminates tax liability under the new regime, making it straightforward to use.

How to Switch Between Regimes

Salaried employees can choose their regime each financial year. They inform their employer at the start of the year for TDS purposes. Self-employed individuals and business owners face a restriction. Once they opt out of the new regime, they can return to it only once in their lifetime.

Income tax returns filed via the Income Tax e-filing portal allow selection of the preferred regime at the time of filing, as long as the return is filed within the due date.

Impact on Investment Planning

Investors who previously chose instruments like ELSS mutual funds or life insurance primarily for tax saving may find the new regime changes their calculus. Under the new regime, these instruments still serve their core financial purpose — wealth creation or insurance — but no longer offer a separate tax benefit.

Stock market investors are not directly affected in terms of capital gains tax. Short-term and long-term capital gains from equity continue to be taxed at their respective rates regardless of the regime chosen for regular income.