New vs Old Tax Regime (FY 2025-26): ₹12 Lakh Tax-Free — Which Should You Pick?

Updated 2026-08-02 · By KyaTax · 8 min read

For FY 2025-26 (and continuing under the Income-tax Act 2025), the new tax regime is the default. Its headline benefit: with the enhanced Section 87A rebate, a resident individual with taxable income up to ₹12 lakh pays effectively zero tax — and salaried people get up to ₹12.75 lakh tax-free after the ₹75,000 standard deduction.

How ₹12 lakh becomes zero tax

Tax is first computed on the slabs, then the Section 87A rebate (up to ₹60,000) wipes out the liability for eligible resident individuals up to the ₹12 lakh threshold. Above ₹12 lakh, normal slab tax applies (marginal relief may apply just over the threshold).

When the old regime can still win

You claim large deductions — home-loan interest, 80C, 80D, HRA, etc. — that together exceed the new regime's simpler benefit.
You have specific exemptions the new regime does not allow.

Rule of thumb: heavy-deduction taxpayers should compare both regimes each year; most others are simpler and better off on the default new regime. Run the numbers before you choose.

Important: This article is general information based on laws, notifications and public sources current as of August 2026. It is not legal, tax, accounting or professional advice or opinion, and must not be relied on for any decision. Tax and legal rules change frequently and their application depends on your specific facts. Please verify the latest position and connect with a KyaTax expert or your professional advisor before acting.

Rules change often and how they apply depends on your exact numbers and facts. Don't guess on choosing between the new and old tax regime — get a qualified professional to review your case.

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Frequently asked questions

Is ₹12 lakh income really tax-free?

For eligible resident individuals under the new regime, the Section 87A rebate makes tax nil up to ₹12 lakh taxable income; salaried get ₹12.75 lakh after standard deduction. Your eligibility depends on residency and income type — verify for your case.

Can I switch regimes every year?

Salaried taxpayers without business income can generally choose each year; those with business income face restrictions. Confirm your specific position with a professional.

Which regime is better for me?

It depends entirely on your deductions. Use a calculator for both and, if close, ask an expert to review.