Short answer: the new regime is the default under Section 202, with nil tax to ₹4 lakh and a ₹60,000 rebate under Section 156 taking most people to nil up to ₹12 lakh. The old regime survives only as an opt-out. It still wins for a narrow band — chiefly people with HRA plus home loan interest plus full Chapter VI-A deductions — and that is an arithmetic question, not a rule of thumb.
The two regimes, renumbered
| Provision | 1961 Act | 2025 Act |
|---|---|---|
| Default (new) regime for individuals and HUFs | s.115BAC | s.202 |
| Rebate for resident individuals | s.87A | s.156 |
| Relief for salary arrears (Form 10E) | s.89 | s.157 |
Note the trap: s.87A becomes s.156, and s.157 is the old s.89. Two different reliefs now sit next to each other, and transposing them is an easy mistake to make in a working paper.
New regime slabs — tax year 2026-27
| Total income | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4–8 lakh | 5% |
| ₹8–12 lakh | 10% |
| ₹12–16 lakh | 15% |
| ₹16–20 lakh | 20% |
| ₹20–24 lakh | 25% |
| Above ₹24 lakh | 30% |
Plus 4% health and education cess on tax and surcharge. The Finance Act 2026 left all of this unchanged.
The Section 156 rebate, and its limit
Under the new regime, a resident individual with total income up to ₹12 lakh gets a rebate of up to ₹60,000 — which, combined with the slabs above, means no tax at all at that level. Marginal relief applies just above ₹12 lakh, so income slightly over the threshold does not trigger a disproportionate liability.
⚠️ The rebate does not apply to special-rate income, and the Act says so directly. Section 156(3) provides that the deduction "shall not exceed income-tax payable as per the rates provided in section 202(1)" — that is, the slab rates. Income charged under a special-rate section, such as long-term capital gains under Section 198, is not taxed at the Section 202(1) rates, so the rebate cannot reach it.
Someone with ₹10 lakh of salary and ₹2 lakh of listed-equity long-term gains does not get those gains covered — they are taxed at 12.5% above the ₹1,25,000 annual exemption regardless. This is the single most common misreading of the ₹12 lakh figure.
Under the old regime, the rebate is unchanged at ₹12,500 for income up to ₹5 lakh.
Old regime, if you opt out
| Total income | Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2.5–5 lakh | 5% |
| ₹5–10 lakh | 20% |
| Above ₹10 lakh | 30% |
Basic exemption rises to ₹3 lakh for residents aged 60–80 and ₹5 lakh above 80.
Standard deduction and surcharge
| New regime (s.202) | Old regime | |
|---|---|---|
| Standard deduction (salary) | ₹75,000 | ₹50,000 |
| Surcharge above ₹50L / ₹1cr / ₹2cr | 10% / 15% / 25% | 10% / 15% / 25% |
| Surcharge above ₹5cr | Capped at 25% | 37% |
That surcharge cap is easy to overlook and decisive at the top end. For income above ₹5 crore, the new regime's ceiling of 25% against the old regime's 37% will usually outweigh any deduction the old regime could offer.
So who should still compute the old regime?
The old regime wins when deductions are large relative to income. In practice that means a combination of:
- House rent allowance, where rent is high — a Bengaluru-specific consideration for many salaried taxpayers
- Home loan interest on a let-out or self-occupied property
- The full ₹1,50,000 under Section 123 (ex-80C)
- Health insurance under Section 126 (ex-80D)
- NPS contributions under Section 124 (ex-80CCD)
Stack enough of those and the old regime's higher rates can still come out lower. Strip them away — no rent, no loan, modest investments — and the new regime wins comfortably.
There is no income level at which the answer is automatic. Two people earning the same salary can land on opposite sides of it depending on rent and loan position. The only reliable method is to compute both and compare, which is what we do before filing rather than after.
For what actually survives under each regime, see Section 80C is now Section 123 — the deduction table there is the input to this decision.
Which year, which Act
The regime choice itself is not new — Section 115BAC operated the same way under the 1961 Act. What changes on 1 April 2026 is the citation.
| Income of | Governed by | Regime section |
|---|---|---|
| FY 2025-26 (AY 2026-27) and earlier | Income-tax Act, 1961 | s.115BAC |
| Tax year 2026-27 onwards | Income-tax Act, 2025 | s.202 |
Economically the two are the same — the 2025 Act was a no-policy-change rewrite, and the slabs, rebate and standard deduction above applied in FY 2025-26 too. Only the section numbers differ. See does the Income Tax Act 2025 change your FY 2025-26 return? and the full old-to-new section mapping.
This is a working reference, not the statute. For anything you are filing or relying on, confirm the section text and the applicable Finance Act rates against the Act itself or the department's official 1961-vs-2025 comparison utility.