New regime vs old regime
India currently runs two parallel income tax systems, and you choose one each year:
- New regime (default): Lower rates, more slabs, but almost no deductions or exemptions
- Old regime (opt-in): Higher rates, fewer slabs, but 70+ available deductions (80C, HRA, home loan interest, etc.)
You can switch between them each financial year when filing (with some restrictions for those with business income), so it's worth comparing both against your actual numbers rather than assuming one is always better. The analysis below shows you exactly at what income and deduction level each regime wins, along with worked examples.
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New regime slabs — FY 2026-27 (AY 2027-28)
| Income | Rate |
|---|---|
| ₹0 – ₹4 lakh | 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% |
These slabs, introduced in Budget 2025, carried forward unchanged into FY 2026-27. Two things stack on top of the slab table to reduce what you actually pay:
- Standard deduction: ₹75,000, automatically applied to salaried income
- Section 87A rebate: Up to ₹60,000, which effectively zeroes out tax entirely for net taxable income up to ₹12 lakh
Combined, a salaried individual with gross income up to roughly ₹12.75 lakh pays no tax at all under the new regime — the standard deduction plus rebate cancel it out.
Section 87A Rebate & Marginal Relief: Why ₹12.75 Lakh Is Zero Tax
One of the most searched queries for FY 2026-27 is how salaried employees earning up to ₹12.75 lakh pay zero income tax under the new regime.
The Math Behind the ₹12.75 Lakh Zero-Tax Threshold
- Gross Salary: ₹12,75,000
- Less Standard Deduction: -₹75,000 (applicable to all salaried employees)
- Net Taxable Income: ₹12,00,000
Under the revised new regime slabs:
- ₹0 to ₹4,00,000: Nil (₹0)
- ₹4,00,000 to ₹8,00,000 at 5%: ₹20,000
- ₹8,00,000 to ₹12,00,000 at 10%: ₹40,000
- Total Tax Before Rebate: ₹60,000
Under Section 87A, resident individuals with taxable income up to ₹12,00,000 receive a rebate of up to ₹60,000 (or actual tax, whichever is lower). The rebate wipes out the entire ₹60,000 tax bill, leaving ₹0 net tax payable.
New Tax Regime Marginal Relief Calculator & Worked Examples
In previous tax years, crossing a rebate threshold by even ₹1,000 triggered sudden tax liabilities of tens of thousands of rupees. To eliminate this "tax cliff," Marginal Relief under Section 87A ensures that the income tax payable on taxable income exceeding ₹12,00,000 cannot exceed the incremental income earned above ₹12,00,000.
The Statutory Marginal Relief Formula
Tax Payable with Marginal Relief = min(Slab Tax without Rebate, Taxable Income - ₹12,00,000) + 4% Health & Education CessRupee-by-Rupee Marginal Relief Table (Salaried Individuals, FY 2026-27)
| Gross Salary | Standard Deduction | Taxable Income | Normal Slab Tax | Incremental Income (> ₹12L) | Final Tax Payable (incl. 4% Cess) | Effective Tax Rate |
|---|---|---|---|---|---|---|
| ₹12,75,000 | ₹75,000 | ₹12,00,000 | ₹60,000 | ₹0 | ₹0 (Full Rebate) | 0.00% |
| ₹12,85,000 | ₹75,000 | ₹12,10,000 | ₹61,500 | ₹10,000 | ₹10,400 | 0.81% |
| ₹12,95,000 | ₹75,000 | ₹12,20,000 | ₹63,000 | ₹20,000 | ₹20,800 | 1.61% |
| ₹13,05,000 | ₹75,000 | ₹12,30,000 | ₹64,500 | ₹30,000 | ₹31,200 | 2.39% |
| ₹13,25,000 | ₹75,000 | ₹12,50,000 | ₹67,500 | ₹50,000 | ₹52,000 | 3.92% |
| ₹13,45,000 | ₹75,000 | ₹12,70,000 | ₹70,500 | ₹70,000 | ₹72,800 | 5.41% |
| ₹13,50,000 | ₹75,000 | ₹12,75,000 | ₹71,250 | ₹75,000 | ₹74,100 (Normal Slabs Apply) | 5.49% |
Notice how at ₹12,85,000 CTC (taxable income ₹12.10L), your tax before cess is capped at exactly ₹10,000, shielding you from the normal slab tax of ₹61,500!
Old regime slabs (individuals below 60)
| Income | Rate |
|---|---|
| ₹0 – ₹2.5 lakh | Nil |
| ₹2.5 – ₹5 lakh | 5% |
| ₹5 – ₹10 lakh | 20% |
| Above ₹10 lakh | 30% |
Senior citizens (60–80 years) get a higher exemption limit of ₹3 lakh; super senior citizens (80+) get ₹5 lakh.
Old vs New Tax Regime for Senior Citizens (FY 2026-27)
For senior citizens (aged 60 to 79) and super senior citizens (aged 80 and above), the regime decision follows unique considerations due to age-specific deductions:
Key Differences for Seniors
| Feature | Old Tax Regime | New Tax Regime |
|---|---|---|
| Basic Exemption Limit (Age 60–79) | ₹3,00,000 | ₹4,00,000 |
| Basic Exemption Limit (Age 80+) | ₹5,00,000 | ₹4,00,000 |
| Section 80TTB Interest Deduction | Up to ₹50,000 on bank/post office deposits | ❌ Not Available |
| Section 80D Health Insurance | Up to ₹50,000 for senior citizens | ❌ Not Available |
| Section 87A Rebate | Up to ₹12,500 (Taxable income ≤ ₹5L) | Up to ₹60,000 (Taxable income ≤ ₹12L) |
| Standard Deduction for Pensioners | ₹50,000 | ₹75,000 |
When Does the Old Regime Win for Senior Citizens?
If a senior citizen's primary income is bank FD interest and pension:
- Under the old regime, stacking the ₹3L basic exemption + ₹50,000 standard deduction (for pensioners) + ₹50,000 Section 80TTB interest exemption + ₹50,000 Section 80D health insurance exempts up to ₹4.5 lakh without tax.
- However, for seniors with taxable pension/interest between ₹7 lakh and ₹12 lakh, the New Tax Regime almost always wins due to the Section 87A rebate wiping out tax up to ₹12 lakh taxable income (or ₹12.75 lakh for pensioners after the ₹75k standard deduction).
Key deductions available under the old regime
The old regime's advantage comes entirely from deductions. The most impactful ones for salaried professionals:
- Section 80C (up to ₹1.5 lakh): PPF, ELSS, EPF, life insurance premiums, home loan principal. See the PPF guide for how PPF contributes to this limit.
- HRA exemption: If you live in rented accommodation, a significant portion of your HRA may be tax-free. The HRA calculator guide explains the formula in detail.
- Section 80CCD(1B): Additional ₹50,000 deduction exclusive to NPS contributions — available only in the old regime.
- Home loan interest (Section 24b): Up to ₹2 lakh deduction on interest paid.
How to actually calculate your tax (new regime example)
Tax is calculated slab-by-slab, not as one flat rate on your entire income. For someone with ₹15 lakh taxable income under the new regime:
₹0–4L → Nil = ₹0
₹4–8L → 5% of 4L = ₹20,000
₹8–12L → 10% of 4L = ₹40,000
₹12–15L → 15% of 3L = ₹45,000
-----------------------------------
Total tax before rebate = ₹1,05,000Since taxable income (₹15L) exceeds the ₹12L rebate threshold, the ₹60,000 Section 87A rebate doesn't apply here — the person pays the full ₹1,05,000, plus applicable cess.
Why the old regime can still win for some people
If your eligible deductions are large enough, the old regime's higher rates can still result in lower total tax. Roughly speaking, once your combined deductions — 80C (₹1.5L cap), NPS, HRA exemption, home loan interest under Section 24(b), and others — exceed about ₹4 lakh, the old regime tends to come out ahead. Below that breakeven point, the new regime usually wins.
This is exactly why a side-by-side calculation matters more than a general rule of thumb — someone with a large home loan and maxed-out 80C investments can land in a very different place than someone with minimal deductions, even at the same gross salary.
Surcharge (both regimes)
Above certain income thresholds, a surcharge applies on top of the calculated tax:
- Applicable once income crosses ₹50 lakh
- Increases progressively at higher income bands
- Caps at 25% for income above ₹2 crore
This affects high earners specifically — most salaried taxpayers won't encounter surcharge at all.
Common mistakes
- Comparing gross salary to slabs directly — deductions (standard deduction, 80C, HRA, etc.) reduce taxable income before slabs even apply; always calculate on taxable income, not CTC
- Assuming the rebate applies at any income level — the Section 87A rebate has a hard cutoff; cross it even by a small margin and you owe tax on the full slab-calculated amount, not just the excess
- Not comparing both regimes with real numbers — "new regime is simpler" doesn't mean it's cheaper; run both calculations before deciding
- Forgetting cess — a 4% Health and Education Cess applies on top of calculated tax (plus surcharge, where applicable) in both regimes
Frequently Asked Questions (FAQ)
At what salary level is income tax zero under the new regime in FY 2026-27?
Salaried employees earning up to ₹12.75 lakh pay zero tax under the new regime. The ₹75,000 standard deduction brings taxable income to ₹12 lakh, which is fully covered by the Section 87A rebate of up to ₹60,000.
How does the New Tax Regime Marginal Relief calculator work under Section 87A?
Marginal relief ensures that the tax payable on income marginally exceeding ₹12 lakh cannot exceed the incremental income earned above ₹12 lakh. For example, if your net taxable income is ₹12.10 lakh (₹10,000 above the limit), your tax liability before cess is capped at exactly ₹10,000 rather than the normal slab tax of ₹61,500.
What is the standard deduction for salaried employees in FY 2026-27?
The standard deduction is ₹75,000 under the new tax regime and ₹50,000 under the old tax regime. It is deducted automatically from your gross salary before tax slabs are applied.
Can I switch between the new and old tax regime every year?
Yes, salaried individuals without business income can freely choose between the new and old tax regime each financial year when filing their Income Tax Return (ITR).
Who should use an income tax calculator?
Anyone with income sources beyond a single fixed salary — bonuses, freelance income, capital gains, rental income — should run both regimes through a proper calculator each year, since the old-vs-new breakeven point shifts with your actual deduction mix, not just your salary figure.
Disclaimer: This article is for educational purposes only and does not constitute formal financial advice. Tax slabs, rebates, and rules are subject to change by the Union Budget. Please verify your final tax liability using official government resources.
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