Understanding the New Income Tax Slab 2025-26 and Its Implications

The tax scenario in India has changed a lot for the financial year 2025–26. This is good news for millions of salaried employees, freelancers, and senior citizens. The new tax slab for 2025–26 is meant to make it easier for middle-income households to pay their taxes and make it easier for people to follow the rules.

Gone are the days when tax-saving was a puzzle that involved everything from ELSS to house rent receipts. With the new structure, a large chunk of taxpayers will now owe less, or nothing at all. But the implications of this go deeper than just reduced tax liability. The new slabs impact how you plan your investments, structure your salary, and even assess whether to choose the new or old regime. If you’re trying to calculate tax on taxable income more precisely, understanding these shifts is the first step.

What Has Changed in the New Tax Regime (FY 2025-26)?

The government’s move to expand the basic exemption limit to ₹4 lakh and increase the rebate to ₹60,000 has effectively made incomes up to ₹12 lakh tax-free for most individuals under the new regime. That’s a significant bump from the earlier ₹7 lakh limit.

At the top end, the 30% tax rate now applies only to income above ₹24 lakh, instead of ₹15 lakh. This pushes the highest tax bracket further, giving additional breathing room to higher earners.

Which Regime Works Better For You, the New or the Old Regime

While the new regime offers reduced tax rates and simpler calculations, it limits the number of exemptions and deductions you can claim. The old regime, on the other hand, still supports deductions under 80C, 80D, HRA, home loan interest, and more.

Suppose Ajesh earns ₹12 lakh annually and doesn’t invest much in 80C instruments or claim housing benefits. Under the old regime, his liability would still be substantial. But under the new structure, thanks to the ₹60,000 rebate, he pays zero tax.

However, if another individual earns ₹25 lakh but claims ₹6 lakh worth of deductions through PF, NPS, 80D, and housing interest, the old regime might result in lower effective tax.

In fact, if you’re trying to calculate tax on taxable income effectively, it’s very important to first map out your possible deductions. The breakeven point often lies in how many exemptions you can claim versus the flat rates in the new system.

What Does This Mean for Salaries And Retirement Planning

Not only does the change in tax brackets affect how much you pay in April, but it also affects how your salary components are set out over the course of the year. Companies may need to change how they provide benefits like HRA, special allowances, and flexible benefit plans if most of their employees choose the new system.

Under the current system, the employer’s contribution to NPS under Section 80CCD(2) is one of the few deductions that are still allowed. This means that NPS is still one of the best long-term investments for taxes in the new system.

How to Save Tax in the New Regime

While the new regime limits the number of deductions, it doesn’t make tax planning irrelevant. In fact, it just shifts the focus from exemption-driven investments to cleaner planning based on long-term goals.

Deductions and contributions still valid under the new regime include the following:

• Employer contribution to NPS (80CCD(2)): Still deductible, up to 10% of salary (or 14% for government employees).
• EPF employer share: Remains non-taxable up to prescribed limits.
• Standard deduction of ₹50,000: Reintroduced even under the new regime since FY 2023-24.
• Family pension deduction: Still available.
• Agniveer Corpus Fund: The Entire amount is exempt.
• Transport and conveyance for disabled employees: Allowed under the new regime.

Essentially, this encourages structural saving via employer-supported contributions. It also means instruments like NPS have grown even more relevant.

Why Should You Choose The Tax Regime Early?

Many taxpayers tend to defer the decision of choosing their tax regimes till it’s time to file returns. But in reality, you need to decide by April or May, especially if you want your Form 16 and monthly tax deductions to align with your chosen regime.

If you’re in a salaried job, your employer will typically ask you to declare your choice early on. Getting this wrong can lead to higher TDS deductions and year-end adjustments, which affect your liquidity across the year.

For freelancers or consultants, this is even more critical. You don’t get the benefit of employer-based deductions, which means you must set aside your tax estimates in advance to avoid shortfalls or penalties later.

Conclusion

The new tax slab 2025-26​ simplifies things since it reduces the effort needed to track every bill, every exemption, and every investment. But it also shifts the onus to the taxpayer to understand what they’re giving up in exchange for simplicity.

Those who prefer flexibility, fewer rules, and predictable deductions may find the new regime liberating. Those who already have structured investments and home loans may still benefit from the old one. So, the important part is to compare your choices and revisit this plan every year, especially as slabs and benefits continue to evolve.

That’s why premium insurance providers like Axis Max Life Insurance have built product portfolios that support both types of tax regimes. Whether it’s retirement-linked annuity plans or long-term life covers, these products offer flexibility across regimes without being overly dependent on deductions alone.

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Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making any related decisions.

Tax benefit is subject to change as per the prevailing tax laws.

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