New vs Old Tax Regime

Under the new regime, taxable income up to ₹12,00,000 attracts a full rebate under section 156 (formerly section 87A), so the tax is nil. With the ₹75,000 standard deduction that means a gross salary of ₹12,75,000 carries no tax at all — which is why that figure anchors so many salary negotiations.

The problem starts one rupee above ₹12L. The rebate disappears entirely and the tax should jump by more than ₹60,000. Section 156(2) — the old proviso to section 87A — prevents this: the tax cannot exceed the amount by which income crosses the threshold. At a taxable income of ₹12,10,000 the ordinary tax is ₹61,500, but it is capped at the ₹10,000 excess plus 4% cess, so ₹10,400 is payable.

That relief runs out around ₹12,70,000. Inside the window each extra rupee of income costs almost a rupee of tax, so paying a slightly larger December bonus does the employee no good. Either stay below the window or clear it entirely.

The old regime has no such relief. Its rebate under section 156(1) (formerly section 87A) is a hard cliff at ₹5,00,000 of taxable income: at ₹5,00,010 the whole ₹12,500 rebate is gone. This bites when adjusting year-end bonuses for junior staff.

Above ₹50L of taxable income a surcharge is added to the computed tax: 10% over ₹50L, 15% over ₹1Cr, 25% over ₹2Cr, and under the old regime 37% over ₹5Cr. The new regime caps the surcharge at 25%, which makes it structurally cheaper at the very top.

The surcharge sits on top of the computed tax, and the 4% health and education cess then applies to the sum. So the real top rate above ₹1Cr is 30% x 1.15 x 1.04, roughly 35.9%. Reporting a flat 30% to head office will not reconcile with the payroll.

Surcharge thresholds carry their own marginal relief so that someone just over ₹50L is not left worse off after tax than someone just under it. When that relief applies, this calculator states it and shows the exact reduction as its own row.

There is one test: do your old-regime deductions exceed the break-even figure on this page? If they do, choose the old regime; if not, choose the new one. The break-even moves with income, so rules of thumb like 'anyone above X lakh should use the new regime' are unreliable.

The classic old-regime profile rents in a metro (a large HRA exemption), pays home loan interest, and fills the investment and health-insurance limits (sections 123 and 126, formerly 80C and 80D) to the top. That combination easily stacks up past ₹5L of deductions.

The classic new-regime profile lives in company-provided housing and therefore claims no HRA, holds assets outside India and has no reason to buy Indian tax-saving products, or is one or two years into a career with nothing beyond EPF.

If the new regime wins, one lever remains: employer NPS under section 124 (formerly section 80CCD(2)). Up to 14% of basic plus DA paid into the employee NPS account comes straight off taxable income without increasing the package. It is the first thing to model when designing a senior salary structure.

The Indian financial year starts on 1 April and ends on 31 March. FY 2025-26 covers 1 April 2025 to 31 March 2026 and, under the Income-tax Act, 1961, is assessed in assessment year 2026-27. The Income-tax Act, 2025 drops that pairing from 1 April 2026: the twelve months from April 2026 are simply Tax Year 2026-27. Either way the year is three months out of step with a January-December reporting year, so comparing a headcount budget against Indian tax figures without adjusting the period will always be wrong.

The timing of the regime choice differs too. In April, at the start of the year, the employee declares the regime and the expected deductions on Form 124 (formerly Form 12BB); the employer estimates the annual tax and withholds one twelfth every month under section 392 (formerly section 192). The employer does not settle up after the year closes, as a Korean employer does with February pay; it refreshes the estimate month by month.

Proof is normally collected the following January or February. Deductions declared in April but not evidenced are reversed, and the employer recovers the shortfall from the last two or three payrolls. Employees are routinely shocked by their February payslip; a reminder in December prevents most of it.

The individual return (ITR) is usually due on 31 July, four months after the year closes.

The Income-tax Act, 2025 and the Income-tax Rules, 2026 replaced the 1961 Act and the 1962 Rules on 1 April 2026. Every section, rule and form number changed, but the Finance Act, 2026 kept the figures that drive this calculator: the new-regime slabs, the ₹75,000 and ₹50,000 standard deductions, the ₹60,000 and ₹12,500 rebates, the surcharge bands with the new regime still capped at 25%, and the 4% cess are the same in Tax Year 2026-27 as in FY 2025-26.

What moved is the numbering. The new regime is now section 202 (formerly section 115BAC), the rebate section 156 (formerly section 87A), the standard deduction sits in the table to section 19 (formerly section 16(ia)), the investment deduction is section 123 (formerly section 80C), health insurance section 126 (formerly section 80D), employer NPS section 124 (formerly section 80CCD(2)) and salary withholding section 392 (formerly section 192). The employee's declaration Form 12BB became Form 124, and the annual salary certificate Form 16 became Form 130.

FY 2025-26 is still governed by the 1961 Act, so its returns and certificates keep the old numbers — the salary certificate for that year is the old Form 16. This page follows the same rule: pick FY 2025-26 and it cites the 1961 Act; pick FY 2026-27 and it cites the 2025 Act with the former number alongside.

Two changes do reach the money for some employees, although neither changes this calculator's arithmetic. From Tax Year 2026-27, Rule 279 of the 2026 Rules adds Hyderabad, Pune, Ahmedabad and Bengaluru to Mumbai, Kolkata, Delhi and Chennai as cities where the HRA exemption can reach 50% of basic plus DA; everywhere else it stays at 40%. And Rule 15 (formerly Rule 3) raised the taxable value of a company car that is also used privately. You enter the HRA exemption yourself and perquisites are outside this calculator, so both change the figures you bring to it rather than the way it computes.

It applies slab tax, the rebate under section 156 (formerly section 87A) with its marginal relief, surcharge with its own marginal relief, the 4% health and education cess, the standard deduction, age-based basic exemptions, and the different employer NPS ceilings (section 124, formerly 80CCD(2)). Total income and final tax are rounded to the nearest ₹10 under section 516 (formerly sections 288A and 288B).

What it deliberately leaves out: income taxed at special rates such as capital gains, relief for arrears under section 157 (formerly section 89), claimed on Form 39 (formerly Form 10E), the valuation of perquisites, foreign tax credit under a double taxation avoidance agreement, and residency determination including RNOR status. If residency itself is in question — a common situation for expatriates — treat this result as a starting point and have a local chartered accountant review it.