How income tax works under the new regime
The new tax regime is now the default for every individual taxpayer, and for most salaried people it is the simpler choice. It applies a set of progressive slabs to your taxable income, so you pay the marked rate only on the slice of income that falls inside each band, never on the whole amount. A salaried taxpayer first subtracts a flat standard deduction of ₹75,000 from gross salary before the slabs are applied.
The seven bands run from a nil slab up to a 30% top rate. Because each higher rate bites only on the income above its threshold, your effective rate always stays below your top slab, and a person just inside the 15% band pays nowhere near 15% overall.
| Up to ₹4,00,000 | Nil |
| ₹4,00,000 – ₹8,00,000 | 5% |
| ₹8,00,000 – ₹12,00,000 | 10% |
| ₹12,00,000 – ₹16,00,000 | 15% |
| ₹16,00,000 – ₹20,00,000 | 20% |
| ₹20,00,000 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
The Section 87A rebate and the ₹12 lakh cliff
Section 87A hands the tax back to you when your taxable income stays at or below ₹12,00,000. The rebate is capped at ₹60,000, which is exactly the slab tax on ₹12,00,000 — ₹20,000 in the 5% band plus ₹40,000 in the 10% band. So a taxable income of ₹12,00,000 produces ₹60,000 of tax and a ₹60,000 rebate, leaving nothing to pay. Add the ₹75,000 standard deduction and a salaried person earning up to ₹12,75,000 gross can walk away with a zero tax bill.
Cross the ₹12,00,000 line and the rebate vanishes, which on its own would create an absurd jump where one extra rupee of income triggers ₹60,000-plus of tax. Marginal relief prevents that: just above the threshold your tax is capped at the amount by which income exceeds ₹12,00,000, so you never surrender more in tax than you gained in income. The worked example below shows the effect at a taxable income of ₹12,10,000.
| Slab tax before rebate | ₹61,500 |
| Section 87A rebate (income above ₹12,00,000) | ₹0 |
| Income above ₹12,00,000 | ₹10,000 |
| Tax capped by marginal relief | ₹10,000 |
| Relief you receive | ₹51,500 |
| Tax payable + 4% cess | ₹10,400 |
Old regime slabs — and when they still win
The old regime keeps the deductions that the new one gives up, but its slabs are steeper and start biting sooner: nil up to ₹2,50,000, 5% from ₹2,50,000 to ₹5,00,000, 20% from ₹5,00,000 to ₹10,00,000 and 30% above ₹10,00,000. Its standard deduction is smaller at ₹50,000, and its 87A rebate reaches only a taxable income of ₹5,00,000 with a ceiling of ₹12,500.
What keeps the old regime alive is the deductions stack: up to ₹1,50,000 under Section 80C for EPF, PPF, ELSS, life insurance and home-loan principal, up to ₹2,00,000 of home-loan interest under Section 24(b), HRA exemption on rent you actually pay, plus 80D health premiums and the 80CCD(1B) NPS top-up. When those add up to several lakh rupees, the higher rates of the old regime can still leave you with a lower bill than the new one.
| Up to ₹2,50,000 | Nil |
| ₹2,50,000 – ₹5,00,000 | 5% |
| ₹5,00,000 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Old vs new regime — which should you pick?
Start with a simple test: total up the deductions you can genuinely claim. The new regime tends to win for anyone with few deductions, for renters who do not claim HRA, and — thanks to the ₹12,00,000 rebate — for most people earning up to about ₹12,75,000. The old regime tends to win when your combined 80C, 24(b) and HRA claims are large, which usually means a home-loan borrower paying serious interest or a tenant with high metro rent.
The toggle above recomputes both regimes on the same income so you can read the two tax figures side by side. Senior citizens should note that the old regime lifts the nil band to ₹3,00,000 from age 60 and ₹5,00,000 from age 80, whereas the new regime keeps a single ₹4,00,000 nil band at every age.