The New Tax Regime Is Now Default
The most significant change for taxpayers is that the New Tax Regime is now the default option. If you do not actively choose to opt for the Old Tax Regime, your taxes will automatically be calculated under the new slab rates. This shift simplifies the process
for many but requires careful consideration. While the new regime offers lower tax rates, it means giving up most of the popular deductions available under the Old Regime, such as those under Section 80C (like PPF, ELSS, life insurance premiums) and 80D (health insurance premiums). Taxpayers without significant investments in these instruments may find the default regime more beneficial.
Revised Slabs and a Higher Tax-Free Income
The government has made the New Tax Regime more attractive by revising the tax slabs and increasing the tax-free income level. Under the rules for AY 2026-27, there is no tax on income up to ₹4 lakh. Furthermore, thanks to an enhanced rebate under Section 87A, individuals with a taxable income of up to ₹12 lakh will effectively pay zero income tax. For salaried individuals, this benefit is even greater. A standard deduction of ₹75,000 has been introduced to the New Tax Regime, pushing the effective tax-free income up to ₹12.75 lakh. This measure is aimed at providing substantial relief to middle-income earners.
Understanding the New Tax Slabs
For income earned in FY 2025-26, the slabs under the default New Tax Regime are designed to be more granular. The rates are as follows: income from ₹4 lakh to ₹8 lakh is taxed at 5%; ₹8 lakh to ₹12 lakh at 10%; ₹12 lakh to ₹16 lakh at 15%; ₹16 lakh to ₹20 lakh at 20%; and ₹20 lakh to ₹24 lakh at 25%. Income above ₹24 lakh is taxed at the highest rate of 30%. A new concept of marginal relief has also been reinforced for those earning slightly above the ₹12 lakh threshold, ensuring that the tax payable does not unfairly exceed the additional income earned.
What About the Old Tax Regime?
Taxpayers still have the option to file their returns under the Old Tax Regime. This choice makes sense for individuals who have made significant tax-saving investments and can claim deductions that lower their taxable income substantially. The slabs for the Old Regime remain unchanged: no tax up to ₹2.5 lakh, 5% for ₹2.5-5 lakh, 20% for ₹5-10 lakh, and 30% for income above ₹10 lakh. It continues to offer a standard deduction of ₹50,000 for salaried employees and allows claims for HRA and other allowances. You must compare your tax liability under both regimes before making a final decision.
Important Filing Deadlines for AY 2026-27
Knowing your deadline is crucial to avoid penalties. For most salaried individuals and others who do not require a tax audit (filing ITR-1 or ITR-2), the due date remains July 31, 2026. However, there's a key change for those with business or professional income not requiring an audit (filing ITR-3 or ITR-4), whose deadline has been extended to August 31, 2026. For taxpayers whose accounts need to be audited, the deadline is October 31, 2026. As of late July, the government has not announced any extension for the July 31 deadline.
Updates to Leave Travel Allowance (LTA)
For those opting for the Old Tax Regime, there are updates to how Leave Travel Allowance (LTA) is calculated. LTA, a tax exemption on travel expenses for salaried employees, is not available under the New Tax Regime. The new block of four years for claiming LTA began in 2026 and runs until 2029. Recent rule changes specify that the exemption for air travel is now based on the fare for the employee's entitled class of travel via the shortest route. For travel in areas without a recognized public transport system, the exemption will be calculated at a fixed rate of ₹30 per kilometre.
