Every April, salaried employees in India tell their employer which tax regime to use for TDS. For FY 2026-27 the choice works the same way as last year, but two things have changed in the background:
- Budget 2026 (February 2026) did not change the income tax slabs. The new regime structure introduced by Budget 2025 continues.
- The Income-tax Act, 2025 came into force on 1 April 2026, replacing the Income-tax Act, 1961. It uses the term "tax year" instead of "previous year/assessment year" and renumbers most sections. The new regime is now Section 202 (earlier 115BAC), the rebate is Section 156 (earlier 87A) and 80C deductions are in Section 123. The rates and limits for individuals are substantially the same.
Because most people still use the old section names, this guide mentions both where helpful.
How the new regime works
The new regime offers lower slab rates in exchange for giving up most deductions and exemptions. It is the default: if you do not tell your employer otherwise, TDS is calculated under it.
New regime slab rates for FY 2026-27
| Taxable income | Tax rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹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% |
A 4% health and education cess is added to the tax. Surcharge applies only above ₹50 lakh of income and is not covered here.
The ₹12 lakh rebate and why salaried people pay nothing up to ₹12.75 lakh
If your taxable income is ₹12,00,000 or less, a rebate of up to ₹60,000 cancels the entire slab tax. (Slab tax on exactly ₹12 lakh is ₹20,000 + ₹40,000 = ₹60,000.)
Salaried individuals also get a ₹75,000 standard deduction in the new regime. So:
If salary is your only income, gross taxable salary up to ₹12,75,000 means zero income tax under the new regime.
The rebate applies only to resident individuals and does not cover income taxed at special rates (such as certain capital gains).
Marginal relief just above ₹12 lakh
Without relief, crossing ₹12 lakh by ₹1 would create a tax bill of over ₹60,000. Marginal relief prevents this: your tax cannot exceed the amount by which your taxable income is above ₹12 lakh.
Example: Taxable income ₹12,10,000.
- Normal slab tax: ₹60,000 + 15% of ₹10,000 = ₹61,500
- Income above ₹12 lakh: ₹10,000
- Tax payable is limited to ₹10,000, plus 4% cess = ₹10,400
This relief fades out at a taxable income of about ₹12.7 lakh, after which normal slab tax is lower than the excess and applies in full.
What you can still claim in the new regime
Most deductions are gone, but these remain relevant for employees:
- Standard deduction of ₹75,000 on salary income.
- Employer's contribution to NPS (old Section 80CCD(2)): deductible up to 14% of Basic + DA in the new regime (10% in the old regime). If your employer offers NPS through salary restructuring, this is one of the few ways to cut tax in the new regime.
- Employer's contribution to EPF is not taxed in your hands (subject to the overall annual limit on employer retirement contributions).
What you give up in the new regime
- HRA exemption and LTA exemption
- 80C (EPF, PPF, ELSS, life insurance, tuition fees, home loan principal), up to ₹1.5 lakh
- 80D (health insurance premiums)
- 80CCD(1B) (your own extra NPS contribution, up to ₹50,000)
- 80E (education loan interest)
- Home loan interest on a self-occupied house
- Professional tax deduction
Old vs new: tax at different salary levels
Assumptions for this table:
- "Gross salary" is fully taxable salary (after removing employer PF and gratuity from CTC). No other income.
- New regime: ₹75,000 standard deduction only.
- Old regime A ("typical"): ₹50,000 standard deduction + ₹2,500 PT + ₹1,50,000 under 80C + ₹25,000 under 80D = ₹2,27,500 total deductions.
- Old regime B ("heavy"): Old A + ₹1,80,000 HRA exemption + ₹50,000 under 80CCD(1B) = ₹4,57,500 total deductions.
- Old regime slabs: nil up to ₹2.5 lakh, 5% to ₹5 lakh, 20% to ₹10 lakh, 30% above; rebate if taxable income is ₹5 lakh or less.
- All figures include 4% cess and are rounded to the nearest rupee.
| Gross salary | New regime tax | Old regime A | Old regime B | Old-regime deductions needed to match new |
|---|---|---|---|---|
| ₹8,00,000 | ₹0 | ₹28,080 | ₹0 | ₹3,00,000 (only ties at ₹0) |
| ₹10,00,000 | ₹0 | ₹69,680 | ₹21,840 | ₹5,00,000 (only ties at ₹0) |
| ₹12,75,000 | ₹0 | ₹1,31,820 | ₹79,040 | ₹7,75,000 (only ties at ₹0) |
| ₹15,00,000 | ₹97,500 | ₹2,02,020 | ₹1,30,260 | about ₹5,94,000 |
| ₹20,00,000 | ₹1,92,400 | ₹3,58,020 | ₹2,86,260 | about ₹7,58,000 |
| ₹25,00,000 | ₹3,19,800 | ₹5,14,020 | ₹4,42,260 | about ₹8,50,000 |
How to read the last column: it is the total old-regime deductions (including the ₹50,000 standard deduction and PT) you would need for the old regime to cost the same as the new one. If your real deductions are higher than this, the old regime wins. At ₹12.75 lakh and below, the new regime tax is already zero, so the old regime can at best tie.
What this shows: Even with ₹4.5 lakh of deductions (Old B), the new regime is cheaper at every level in this table. The old regime generally makes sense only if you have very large deductions, typically a combination of high rent in a metro (large HRA exemption), home loan interest on a self-occupied house (up to ₹2 lakh), full 80C, 80D and NPS.
How to choose and tell your employer
- List your actual deductions for the year: rent paid, 80C investments (your EPF counts), health insurance, home loan, NPS.
- Compare tax under both regimes using your own numbers. The In-Hand Salary Calculator does this for you; our Methodology page lists what it assumes.
- Inform your employer at the start of the year (or when you join) through the payroll portal or declaration form. If you choose the old regime, you will need to submit proofs (rent receipts, investment statements) later in the year, usually by January-February.
- If you say nothing, TDS is deducted under the new regime.
- At return filing: if you have no business income, you can pick either regime each year when filing your return, even if your employer used the other one for TDS. You may then get a refund or owe some tax. People with business or professional income have stricter limits on switching.
FAQ
Did Budget 2026 change the tax slabs?
No. For FY 2026-27 the new regime slabs, ₹75,000 standard deduction and ₹12 lakh rebate threshold are the same as FY 2025-26.
Is the new regime always better for freshers?
For most freshers, yes, because gross salary is often under ₹12.75 lakh and tax is zero. But if you pay high rent and invest the full ₹1.5 lakh in 80C at a higher salary, run both calculations before deciding.
Does my own EPF contribution reduce tax in the new regime?
No. Your EPF contribution counts under 80C only in the old regime.
What does "tax year 2026-27" mean?
It is the same period as FY 2026-27 (1 April 2026 to 31 March 2027). The new Act uses one term instead of the old "previous year" and "assessment year" pair.
Last reviewed: October 2026. This guide is for general information, not tax or financial advice. Rules change; confirm with your employer's payroll team or a chartered accountant before making decisions.