Sources: Income-tax Act, 2025 as amended by the Finance Act, 2026 (slabs, section 123, employer NPS, HRA in Schedule III) and rule 279 of the Income-tax Rules, 2026.
Frequently asked questions
Which tax regime is better for me?
It depends on your deductions. The new regime has lower rates but almost no deductions; the old regime allows HRA, section 123 (the old 80C), health insurance and home-loan interest. For a ₹15 lakh CTC with ₹20,000 rent a month, the new regime is cheaper by ₹61,800.
What is section 123?
Under the Income-tax Act, 2025, section 123 replaced section 80C. It allows up to ₹1.5 lakh a year for PPF, EPF, ELSS, life insurance, tuition fees and home-loan principal — in the old regime only.
Does employer NPS help in the new regime?
Yes. Your employer’s NPS contribution, up to 14% of basic + DA, is deductible in the new regime too. It is one of the few deductions the new regime keeps.
Can I switch regimes every year?
If you have only salary income (no business income), yes: you can choose either regime each year when you file your return (section 202(4)(b)), whatever you told your employer.
I am filing my return for FY 2025-26. Does this guide apply?
This guide uses the tax year 2026-27 rules. For FY 2025-26 (AY 2026-27) returns, use our income tax calculator, which also covers that year.