Income Tax Calculator FY 2025-26 — Old vs New Regime

What is Income Tax in India?

Income tax is a direct tax levied by the Government of India on the income earned by individuals, Hindu Undivided Families (HUFs), companies, and other entities during a financial year. Under the Income Tax Act, 1961, every person whose total income exceeds the basic exemption limit is required to pay income tax and file an Income Tax Return (ITR). The Central Board of Direct Taxes (CBDT) under the Ministry of Finance administers income tax in India. For FY 2025-26 (Assessment Year 2026-27), the government offers two parallel tax regimes — the old regime with multiple deductions and exemptions, and the new regime with lower tax rates but fewer deductions. Your income from all sources — salary, house property, business or profession, capital gains, and other sources — is aggregated to determine your total taxable income. You can visit the official Income Tax portal at incometax.gov.in for e-filing and more information.

Old Tax Regime vs New Tax Regime 2025-26

The new tax regime (default since FY 2023-24) offers lower tax rates but strips away most deductions. The old regime offers higher rates but allows deductions like 80C, 80D, HRA, home loan interest, and more. Here is a quick comparison:

Tax Slabs FY 2025-26 — Both Regimes Compared

How to Calculate Income Tax — Step by Step Example (₹12 Lakh Salary)

Let us walk through a complete income tax calculation for a salaried individual earning ₹12,00,000 per year under both regimes.

New Regime Calculation:

1. Gross Salary: ₹12,00,000
2. Less Standard Deduction: ₹75,000
3. Taxable Income: ₹11,25,000
4. Tax on ₹0–₹4L: ₹0 (0%)
5. Tax on ₹4L–₹8L: ₹20,000 (5%)
6. Tax on ₹8L–₹11.25L: ₹32,500 (10%)
7. Total Tax Before Rebate: ₹52,500
8. Section 87A Rebate: ₹52,500 (taxable income ≤ ₹12L)
9. Total Tax Payable: ₹0 (Zero Tax!)

Old Regime Calculation (Without Deductions):

1. Gross Salary: ₹12,00,000
2. Less Standard Deduction: ₹50,000
3. Taxable Income: ₹11,50,000
4. Tax: ₹0 + ₹12,500 + ₹1,00,000 + ₹45,000 = ₹1,57,500
5. Add 4% Cess: ₹6,300
6. Total Tax: ₹1,63,800

💡 Under the new regime, a ₹12L salary pays zero tax. The old regime charges ₹1.63L — a difference of ₹1,63,800/year!

Section 80C Deductions — Complete List

Section 80C is the most popular tax-saving provision under the old regime. You can claim up to ₹1,50,000 in deductions by investing in any of these instruments:

• PPF (Public Provident Fund) — 15-year lock-in, current rate 7.1%, EEE status (fully tax-free)
• ELSS (Equity Linked Savings Scheme) — 3-year lock-in, equity mutual fund with highest return potential
• EPF (Employees Provident Fund) — Employee's contribution qualifies, mandatory for salaried
• LIC Premium — Life insurance premium payments
• NSC (National Savings Certificate) — 5-year lock-in, fixed returns
• Tax Saving Fixed Deposits — 5-year lock-in with banks
• Home Loan Principal Repayment — Only principal component qualifies
• Tuition Fees — For up to 2 children's education
• Sukanya Samriddhi Yojana — For girl child, current rate 8.2%

Note: Section 80C deductions are only available under the old tax regime. The new regime does not allow these deductions.

Budget 2025 — Key Income Tax Changes

Union Budget 2025 introduced the most taxpayer-friendly changes in recent years, especially for the new tax regime:

• Basic exemption raised to ₹4 lakh (from ₹3 lakh) under the new regime
• Section 87A rebate increased to ₹60,000 (from ₹25,000) — zero tax up to ₹12.75L for salaried individuals
• Standard deduction increased to ₹75,000 (from ₹50,000) under new regime
• TDS threshold on rent raised to ₹50,000/month (from ₹2.4L/year)
• Senior citizen FD TDS limit raised to ₹1,00,000 (from ₹50,000)
• TCS threshold on LRS remittances raised to ₹10 lakh (from ₹7 lakh)

These changes make the new regime the clear winner for the vast majority of taxpayers who do not have significant deductions under the old regime.

Which Tax Regime is Better for You?

The answer depends on your total deductions and exemptions. Here is a decision framework:

• If total deductions < ₹3.75 lakh: New regime is almost always better due to lower slab rates and higher standard deduction.
• If total deductions > ₹3.75 lakh: Old regime may save more tax. This is common if you have HRA + 80C + 80D + home loan interest.
• Income ≤ ₹12.75 lakh (salaried): New regime = zero tax. No need to make any investments for tax saving.
• Self-employed / freelancers: New regime is generally better since HRA and standard deduction don't apply.
• Senior citizens (60+): Old regime may be better due to higher exemption limits (₹3L or ₹5L).

Use our calculator above to compare your exact tax liability under both regimes and see which one saves you more money.

Frequently Asked Questions