New Tax Regime 2026 FAQs: All Frequently Asked Questions Answered
- Astha Bhatia
- Jun 29
- 11 min read
Updated: Jun 29
The new tax regime offers lower tax rates than the old tax regime, but this comes with a trade-off. While the old regime allows you to claim several exemptions and deductions, most of these benefits are not available under the new tax regime. As a result, choosing between the two regimes can have a significant impact on your overall tax liability.
Understanding which deductions, exemptions, and benefits remain available under the new tax regime is therefore important to know before making a decision. Read on to know which tax regime is better for you and which deductions or exemptions to claim.
Table of Contents
What are the Differences Between the New and Old Tax Regimes?
Can We Switch Between the Old and the New Tax Regimes Every Year?
What Should Taxpayers Know About Surcharge Under the New Tax Regime?
How Much Is the Standard Deduction Under the Old and New Tax Regimes?
How is Income Up to ₹12 Lakh Tax-free Under the New Tax Regime?
Which Deductions and Exemptions are Available Under the New Tax Regime?
Is It Necessary to Inform the Employer About the Chosen Tax Regime?
Can Interest on a Self-Occupied Home Loan Be Claimed Under the New Tax Regime?
Do Senior Citizens Get Any Special Tax Benefits Under the New Tax Regime?
Is the Section 87A Tax Rebate Different Under the Old and New Tax Regimes?
Can PF and VPF Investments Be Claimed Under the New Tax Regime?
Does Presumptive Taxation Work Differently Under the New Tax Regime?
What Is the New Tax Regime?
It is an alternative tax structure introduced under Section 115BAC of the Income Tax Act. The government launched it on April 1, 2020, for the financial year 2020–21 (assessment year 2021–22) and onwards. Initially, the regime applied only to individuals and Hindu Undivided Families (HUFs). Subsequently, its scope was expanded to cover certain other taxpayers, including:
Associations of Persons (AOPs)
Bodies of Individuals (BOIs)
Artificial Juridical Persons (AJPs)
What Are the New Tax Regime Slabs for AY 2026–27?
The new tax regime follows a simplified slab structure with concessional tax rates across multiple income bands and fewer deductions. Unlike the old tax regime, the same tax slabs apply to all individual taxpayers, regardless of age.
Taxable Income | Tax Rate |
Up to ₹4,00,000 | Nil |
₹4,00,001 to ₹8,00,000 | 5% of the amount exceeding ₹4,00,000 |
₹8,00,001 to ₹12,00,000 | ₹20,000 + 10% of the amount exceeding ₹8,00,000 |
₹12,00,001 to ₹16,00,000 | ₹60,000 + 15% of the amount exceeding ₹12,00,000 |
₹16,00,001 to ₹20,00,000 | ₹1,20,000 + 20% of the amount exceeding ₹16,00,000 |
₹20,00,001 to ₹24,00,000 | ₹2,00,000 + 25% of the amount exceeding ₹20,00,000 |
Above ₹24,00,000 | ₹3,00,000 + 30% of the amount exceeding ₹24,00,000 |
What are the Differences Between the New and Old Tax Regimes?
Both regimes differ in terms of tax slabs, tax rates, and available tax benefits. The old tax regime allows taxpayers to claim various deductions and exemptions, which can help reduce taxable income. In contrast, the new tax regime offers lower tax rates but allows only a limited number of deductions and exemptions.
Check the table below for a comparison of the old vs the new tax regime:
Particulars | Old Tax Regime | New Tax Regime |
Tax Rates | Generally higher slab rates | Generally lower slab rates |
Deductions and Exemptions | Available | Mostly not available |
Standard Deduction | Available | Available |
Default Tax Regime | No | Yes |
Flexibility to Switch (Non-business Income) | Every year | Every year |
Best Suited For | Those claiming significant deductions | Those claiming few or no deductions |
Can We Switch Between the Old and the New Tax Regimes Every Year?
Yes, salaried individuals can choose either the old or new tax regime each financial year when filing their income tax return. Even if a tax regime is selected with the employer, it can be changed at the time of ITR filing.
Individuals with business or professional income cannot switch regimes every year. To opt for the old tax regime, they must generally furnish Form 10-IEA within the prescribed time. Once they opt out of the old tax regime and return to the new tax regime, they generally cannot exercise the option to choose the old tax regime again.
The table below explains when Form 10-IEA is required:
Scenario | Form 10-IEA Required? |
Switching from New Regime to Old Regime | Yes |
Continuing with the Old Regime | No |
First-time filing under the Old Regime | Yes |
First-time filing under the New Regime | No |
Is PF taxable in the New Tax Regime?
PF is not entirely taxable under the new tax regime, but certain components may attract tax:
Employee PF Contributions
Contributions to EPF do not qualify for a deduction under Section 80C in the new tax regime.
Employer PF Contributions
Contributions to EPF, NPS, and superannuation funds are tax-free up to a combined limit of ₹7.5 lakh per year. Any amount above this limit becomes taxable.
Interest on PF
Interest earned on employee contributions exceeding ₹2.5 lakh per financial year is taxable. In cases where there is no employer contribution to the provident fund, the threshold increases to ₹5 lakh. This rule applies under both the old and new tax regimes.
PF Withdrawals
Withdrawals are tax-free after five years of continuous service. If PF is withdrawn before completing five years, a portion of the amount may be taxable.
What Should Taxpayers Know About Surcharge Under the New Tax Regime?
A surcharge is an extra tax imposed on the income tax liability of taxpayers whose total income exceeds prescribed thresholds. Under the new tax regime, the surcharge rates for individuals are as follows:
Total Income | Surcharge Rate |
Up to ₹50 lakh | Nil |
₹50 lakh – ₹1 crore | 10% |
₹1 crore – ₹2 crore | 15% |
₹2 crore – ₹5 crore | 25% |
Above ₹5 crore | 25% |
One noticeable benefit of the new tax regime is that the highest surcharge rate is capped at 25%. Under the old tax regime, individuals with income above ₹5 crore may have to pay a surcharge of 37%.
Taxpayers may also be eligible for marginal relief, which ensures that the additional tax payable due to the surcharge does not exceed the income earned above the relevant surcharge threshold.
What Is the Tax Rebate Available Under the New Tax Regime?
A tax rebate under Section 87A is available under both the old and new tax regimes. But the rebate available under the new tax regime is much higher than that offered under the old tax regime.
Particulars | Old Tax Regime | New Tax Regime |
Tax Rebate | Up to ₹12,500 | Up to ₹60,000 |
Taxable Income Eligible for Full Rebate | Up to ₹5 lakh | Up to ₹12 lakh |
As a result, eligible taxpayers with a taxable income of up to ₹12 lakh under the new tax regime can have no income tax liability after claiming the rebate. Under the old tax regime, this benefit is available for taxable incomes up to ₹5 lakh.
For salaried taxpayers, the ₹75,000 standard deduction means that gross annual income of up to ₹12.75 lakh may still result in a taxable income of ₹12 lakh, making them eligible for the rebate under Section 87A, subject to the prescribed conditions.
How Much Is the Standard Deduction Under the Old and New Tax Regimes?
Salaried individuals can claim a standard deduction under both the old and new tax regimes. But the deduction available under the new tax regime is higher.
Under the old tax regime, the standard deduction is ₹50,000. Under the new tax regime, it is ₹75,000.
So, with the new regime, taxpayers can reduce their taxable salary income by an additional ₹25,000 compared to the old tax regime.
How is Income Up to ₹12 Lakh Tax-free Under the New Tax Regime?
Income up to ₹12 lakh can effectively become tax-free under the new tax regime due to the rebate available under Section 87A. Tax is first calculated according to the applicable slab rates, after which the rebate is applied to reduce the final tax liability, subject to the prescribed conditions.
Here are a few important points for taxpayers to remember:
• The rebate is available only to eligible resident individuals.
• Tax liability is calculated first, and the rebate is applied thereafter.
• For eligible taxpayers, the rebate can reduce the final tax payable to nil.
• Salaried individuals can also claim a standard deduction of ₹75,000 under the new tax regime.
As a result, gross income of up to ₹12.75 lakh may still translate into taxable income of ₹12 lakh and qualify for the rebate, subject to the applicable conditions.
Which Deductions and Exemptions are Available Under the New Tax Regime?
The new tax regime does not allow most deductions available under the old tax regime. Still, taxpayers can claim certain benefits. Some of the important exemptions and deductions available under the new tax regime include:
Deduction/Exemption | Details |
Standard Deduction | Up to ₹75,000 for salaried individuals |
Family Pension Deduction | ₹25,000 or one-third of the pension amount, whichever is lower |
Home Loan Interest | Interest on a let-out property may be considered while computing income from house property, subject to the applicable provisions of Section 24(b) |
Employer's NPS Contribution | Up to 14% of salary |
Agniveer Corpus Fund | Deduction under Section 80CCH |
Leave Encashment | Exemption under Section 10(10AA) |
Gratuity | Exemption under Section 10(10) |
Transport Allowance | Available for persons with disabilities |
Voluntary Retirement Scheme (VRS) | Exemption under Section 10(10C) |
Gifts | Up to ₹50,000, subject to prescribed conditions |
Is It Necessary to Inform the Employer About the Chosen Tax Regime?
Yes, employees should inform their employer about the tax regime they plan to follow during the financial year.
If no choice is communicated:
The new tax regime will be treated as the default option
The employer will deduct TDS according to the new tax regime rules
However, informing the employer is only for TDS calculation. It does not count as the final selection of a tax regime.
For taxpayers, it is important to note the following:
The final choice can still be made while filing the income tax return
Salaried taxpayers can choose a different regime at the time of ITR filing, even if they informed their employer otherwise
Taxpayers required to furnish Form 10-IEA to opt for the old tax regime must do so within the prescribed time limit
Which Is Better: The Old Tax Regime or the New Tax Regime?
The better option for you depends on factors such as income, eligible deductions, exemptions, and overall tax liability. In general:
The old tax regime may be beneficial for those who claim significant deductions and exemptions. These may include home loan interest, Section 80C investments, and medical insurance premiums.
The new tax regime may be suitable for those who claim few deductions and prefer lower tax rates.
Before choosing a regime, it would be ideal to compare the payable tax under both options. The regime that results in lower tax liability will be the better choice. As tax-saving opportunities and income levels vary from person to person, the best regime can differ from taxpayer to taxpayer. Once you know your net taxable income, you can use the Income Tax Calculator on the official Income Tax Department portal to see which regime results in a less tax obligation.
For instance, say your taxable income is ₹17.25 lakh, you are less than 60 years old, and you are an Indian resident. See the results below:
Total Taxable Income | Tax Liability under Old Tax Regime | Tax Liability under New Tax Regime |
₹17,25,000 | ₹3,43,200 | ₹1,50,800 |
Disclaimer: These results are for illustrative purposes only and are calculated on the Income Tax Calculator as per the Income-tax Act, 1961 on the official Income Tax Department portal.
In this case, choosing the new regime saves you ₹1,92,400.
Can Interest on a Self-Occupied Home Loan Be Claimed Under the New Tax Regime?
The new tax regime does not allow a deduction for interest paid on a home loan for a self-occupied property under Section 24(b).
To claim the deduction available under Section 24(b) for a self-occupied property, taxpayers generally need to opt for the old tax regime, subject to the prescribed conditions and limits. The choice can be made while filing the income tax return, subject to the applicable rules for switching tax regimes.
Do Senior Citizens Get Any Special Tax Benefits Under the New Tax Regime?
No. The new tax regime does not provide separate basic exemption limits for senior citizens or super senior citizens.
Under the old tax regime:
Senior citizens (60 years and above) get a basic exemption limit of ₹3 lakh.
Super senior citizens (80 years and above) get a basic exemption limit of ₹5 lakh.
Under the New Tax Regime, the same tax slabs apply to all taxpayers, regardless of age. As a result, senior citizens and super senior citizens do not receive separate basic exemption limits based on age.
Is the Section 87A Tax Rebate Different Under the Old and New Tax Regimes?
Yes. The rebate available under the new tax regime is significantly higher.
Under the old tax regime, resident individuals can claim a rebate of up to ₹12,500 if their taxable income does not exceed ₹5 lakh.
Under the new tax regime, eligible resident individuals can claim a rebate of up to ₹60,000 if their taxable income does not exceed ₹12 lakh. This effectively reduces the tax liability to nil, subject to the prescribed conditions.
The new tax regime also provides marginal relief, ensuring that a small increase in income above the eligible limit does not lead to a disproportionately higher tax liability.
Can PF and VPF Investments Be Claimed Under the New Tax Regime?
Contributions made to Provident Fund and Voluntary Provident Fund do not qualify for 80C deduction in the new tax regime. Here are some points to note:
PF and VPF contributions continue to earn interest as per the applicable rules
Taxpayers who want to claim a deduction for PF or VPF contributions may find the old tax regime more beneficial
Does Presumptive Taxation Work Differently Under the New Tax Regime?
The presumptive taxation provisions under Sections 44AD and 44ADA continue to apply under both the old and new tax regimes. The eligibility conditions and turnover limits remain the same.
Category | Turnover/Receipt Limit |
Small Business Owners (Section 44AD) | Up to ₹3 crore* |
Specified Professionals (Section 44ADA) | Up to ₹75 lakh* |
What Are the Benefits of The New Tax Regime?
The new tax regime is designed to simplify tax filing and reduce the need for extensive tax planning.
Some of its benefits include:
Lower tax rates across income slabs
Reduced deductions and exemptions to track
Less paperwork and documentation
Reduced reliance on tax-saving investments and exemptions
No need to invest in tax-saving products solely for tax benefits
Which Tax Regime Is More Suitable for Investors?
The more suitable option depends on an investor's income and tax-saving investments. Here are a few points taxpayers may consider when making an informed choice:
The tax treatment of capital gains is generally the same under both tax regimes
The old tax regime allows deductions for eligible tax-saving investments
The new tax regime offers lower tax rates but fewer deductions
In general, those who invest in options for wealth generation, which offer lower tax savings, may find the new tax regime a better fit. Investors should compare their tax liability under both regimes before making a decision.
Which Tax Regime Should NRIs Choose?
NRIs can claim several deductions available under the Old Tax Regime, subject to the eligibility conditions prescribed under the Income Tax Act.
The choice depends on factors such as:
Total income earned in India
Eligible deductions and exemptions
Overall tax liability under each regime
Like resident taxpayers, NRIs should compare taxes under both regimes and choose the option that results in greater tax savings.
Which Tax Regime Is Better at Different Income Levels?
The best tax regime for you depends on income level and the amount of deductions and exemptions that you can claim. In general, the new tax regime is more beneficial for taxpayers with limited deductions, while the old tax regime may offer better savings when substantial deductions are available.
The table below shows which tax regime is generally more beneficial at different income levels:
Annual Income | Generally More Beneficial Regime |
₹7 lakh | New tax regime |
₹10 lakh | New tax regime (as eligible resident individuals can pay no tax on income up to ₹12 lakh after claiming the rebate under Section 87A.) |
₹12.5 lakh | New tax regime (after standard deduction and rebate benefits) |
₹15 lakh | Old tax regime if deductions exceed ₹5.44 lakh |
₹20 lakh | Old tax regime if deductions exceed ₹7.08 lakh |
Above ₹25 lakh | Old tax regime if deductions exceed ₹8 lakh |
Disclaimer: The table above is for illustrative purposes only based on specified assumptions regarding deductions, rebate eligibility, and taxpayer profile. Actual tax outcomes may vary.
Since tax liability varies, it is advisable to compare taxes under both regimes before making a choice.
Conclusion
The new tax regime offers lower tax rates, a higher standard deduction, and a simplified tax structure with fewer deductions and exemptions. However, the old tax regime may continue to be beneficial for taxpayers who claim substantial deductions such as Section 80C investments, home loan interest, and health insurance premiums. Before making a choice, compare the tax liability under both regimes and select the option that results in the greatest tax savings based on your income, investments, and financial goals.
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