Every year at tax time, the same question comes up — how do I reduce my tax? The good news is that the government has given major relief in the new rules. Under the new tax regime, income up to ₹12 lakh can now have zero tax. This guide explains it simply — which regime to choose, how to save tax, and what deductions are available.
Under the new tax regime, taxable income up to ₹12 lakh now has zero tax (due to the Section 87A rebate). Salaried people also get a separate ₹75,000 standard deduction — meaning a salary of roughly ₹12.75 lakh can be tax-free.
India now has two tax systems, and you can choose one each year:
Which is better depends on your deductions — explained below.
| Taxable Income | Tax Rate |
|---|---|
| ₹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% |
Note: Up to ₹12 lakh, tax is calculated by the slabs, but the Section 87A rebate (up to ₹60,000) makes the actual tax zero. Above that, tax applies at normal slabs. A 4% cess applies on all tax.
The old regime has older slabs (₹2.5 lakh exempt, then 5%, 20%, 30%), but offers many deductions. It's better for those with lots of deductions — like a home loan, large 80C investments, HRA. In the old regime, taxable income up to ₹5 lakh has zero tax via the 87A rebate (₹12,500).
The most popular deduction. Includes — PPF, EPF, ELSS mutual funds, life insurance premium, children's tuition fees, home loan principal, 5-year tax-saving FD. Up to ₹1.5 lakh total.
Deduction up to ₹25,000 on health insurance premium for you and family (an additional up to ₹50,000 if parents are senior citizens).
Deduction up to ₹2 lakh on home loan interest (for a self-occupied house).
If you live in a rented house and get HRA in your salary, you can get an exemption as per the rules.
Investment in the National Pension System gives an additional ₹50,000 deduction over and above 80C.
Simple rule: if your total deductions (80C + 80D + home loan + HRA) are low, the New Regime is better (lower rates, zero tax up to ₹12 lakh). If you have a home loan and heavy investments, the Old Regime may be more beneficial. Compare the tax in both — a calculator makes this easy.
Yes. In FY 2025-26, under the new regime, taxable income up to ₹12 lakh has zero tax via the Section 87A rebate. Salaried people get a separate ₹75,000 standard deduction, making a salary of about ₹12.75 lakh tax-free.
The new regime has lower rates but no deductions. The old regime has higher rates but offers many deductions like 80C, 80D, HRA, home loan. Old is better for those with many deductions, new is often better for the rest.
PPF, EPF, ELSS, life insurance, children's tuition fees, home loan principal, tax-saving FD — up to ₹1.5 lakh total. This is only available in the old regime.
Salaried people can generally choose the regime each year when filing ITR. Rules differ slightly for those with business income.
A 4% Health and Education Cess applies on the total tax, in both regimes.
This article is for general information only, not tax advice. Tax rules can change with every budget; the above is based on FY 2025-26 (AY 2026-27). Consult a qualified tax advisor or CA based on your situation.