Understand your tax before the deadline does

What the law says now

A new law took over this year. The Income-tax Act, 2025 came into force on 1 April 2026 and replaced the Income-tax Act, 1961. It was designed to simplify the language and structure without changing tax policy, so rates stayed the same.

• “Tax year” replaces the old pair of “financial year” and “assessment year”.
• Section numbers have changed. Older articles that mention Section 80C or 87A are using 1961 numbering; this page does too, so you can match them to what you read elsewhere.
• Income tax is charged on your total income after allowed deductions, and a 4% health and education cess is added on top of the tax.

Two ways to be taxed

Every individual picks between the new regime (the default) and the old regime. The new one has lower rates and almost no deductions. The old one has higher rates but lets you subtract things like investments and insurance premiums.

Three numbers worth remembering

• Standard deduction for salaried people: ₹75,000 in the new regime, ₹50,000 in the old.
• Rebate (Section 87A): in the new regime it can go up to ₹60,000, so taxable income up to ₹12 lakh pays no tax. With the standard deduction, a salary of ₹12.75 lakh can come out tax-free.
• Special-rate income such as capital gains does not get that rebate against it.

Surcharge for high incomes, senior-citizen slabs and marginal relief are not covered on this page.

Old or new regime: which should you choose?

The new regime gives you lower rates and asks for nothing. The old regime only wins if your deductions are large enough to outweigh its higher rates. So the question is not which regime is “better”, but how much you can actually deduct.

If you earn up to about ₹12.75 lakh (salaried)

Choose the new regime. After the ₹75,000 standard deduction and the rebate, your tax is nil, and the old regime cannot beat zero.

Above that, compare your deductions to a break-even

The table shows how much total deduction you need in the old regime, on top of its ₹50,000 standard deduction, to pay the same tax as the new regime. It counts 80C, 80D, NPS, HRA and home-loan interest together.

Our own calculation from the slabs above, for a salaried person under 60 with no other income. It ignores surcharge and uses rounded figures.

A worked example: ₹15 lakh salary

New regime: taxable income is ₹14.25 lakh and tax with cess is ₹97,500.

Old regime with 80C (₹1.5 lakh), 80D (₹25,000), NPS (₹50,000) and home-loan interest (₹2 lakh), a total of ₹4.25 lakh: tax with cess is ₹1,24,800. The new regime saves about ₹27,000.

Add ₹1.5 lakh of HRA exemption, for a total of ₹5.75 lakh: the old regime comes to ₹91,000 and wins by about ₹6,500. That small gap shows how close the two can be.

Who tends to gain from the old regime

• People paying rent and receiving HRA in an expensive city.
• Anyone with a home loan, especially in the early years when interest is high.
• People who already use 80C, health insurance and NPS in full for their own reasons.

Who tends to gain from the new regime

• Anyone earning up to about ₹12.75 lakh.
• People with few deductions, or who would rather not lock money into products for a tax break.
• Anyone who wants the simplest filing.

How to decide, in four steps

• List only deductions you would claim anyway. Do not count spending you would not otherwise make.
• Add them up and compare the total with the table.
• If it is close, run your numbers through the official calculator on the Income Tax Department’s website.
• Tell your employer your choice so the right tax is deducted from your salary. Salaried people can usually change regime when they file their return, but rules differ if you have business income, so confirm before switching.

This is a general guide, not advice for your situation. A chartered accountant can run your exact numbers.

Saving tax in the new regime

The new regime saves you tax mainly through its lower rates, not through deductions. Almost every popular deduction is switched off, so only a few moves are left. Here is what is still allowed and what is not.

Moves that still work

• Use employer NPS. Ask your HR whether part of your pay can go into employer NPS. It is deductible up to 14% of basic salary plus dearness allowance, and it is the biggest lever left. The money stays locked in a pension account, so do it only if that suits you.
• Know the ₹12 lakh line. Taxable income up to ₹12 lakh pays no tax because of the rebate. Marginal relief softens the drop-off just above it, but higher up you pay the normal slab rates.
• Remember what the rebate does not cover. It does not apply to special-rate income such as capital gains, so profits from shares are taxed even when your salary is under the line. The next guide covers that.
• Don’t invest only for a deduction. A tax-saving product earns you nothing here, so pick investments for your goals instead.
• Tell your employer your regime and keep records. Your Form 16 and the Annual Information Statement on the tax portal should match your income and tax already deducted.

Limits are from current published summaries of the 2026-27 rules. Confirm the figure that applies to you before relying on it.

Legal ways to save tax

Most of these work only in the old regime. Which regime is better depends on how much you can actually claim, so work out your tax both ways before choosing.

Limits are summarised from the 1961 Act framework and can change in any Budget. Check the current figure before you invest for tax reasons.

Tax on shares and mutual funds

When you sell an investment for more than you paid, the profit is a capital gain and is taxed. How much depends on what you sold and how long you held it. Budget 2026 left these rates unchanged for 2026-27.

“Equity mutual funds” here means funds with at least 65% in equities. The ₹1.25 lakh limit is one total across all your shares and equity funds, not per holding.

Two quick examples

Long-term: you sell equity mutual funds held for two years and make ₹3 lakh. The first ₹1.25 lakh is tax-free. The other ₹1.75 lakh is taxed at 12.5%, which is ₹21,875, or ₹22,750 with cess.

Short-term: you sell shares after four months for a ₹1.5 lakh profit. The tax is 20%, or ₹30,000 before cess.

Ways to pay less, legally

• Hold past 12 months when it fits your plan, since the long-term rate is lower and has the yearly exemption.
• Book gains up to ₹1.25 lakh each year. Some investors sell long-term holdings up to that limit and buy again. It costs nothing in tax and resets the purchase price, though brokerage and charges still apply.
• Use losses. A short-term loss can offset both short-term and long-term gains. A long-term loss can offset only long-term gains. Unused losses can generally be carried forward for eight years if you file your return on time.

Other things to know

• Dividends are taxed at your slab rate.
• From 2026-27, share buybacks are taxed as capital gains in the hands of the shareholder.
• Futures and options trading is generally treated as business income, not capital gains, and Budget 2026 raised the securities transaction tax on it. Get professional help if you trade derivatives.
• Download your broker’s capital gains statement and compare it with the Annual Information Statement before you file.

Rates reflect published summaries after Budget 2026. Confirm with the Income Tax Department or a chartered accountant before filing.

Plan your money, not just your tax

Saving tax is a side effect of good planning, not the goal. A sensible order for most people:

• Emergency fund first. Keep several months of expenses in an easily accessible account before investing for growth.
• Protect before you invest. Pure term life cover if others depend on your income, and a health policy that does not rely only on your employer’s group plan.
• Clear expensive debt. Credit-card and personal-loan interest usually outruns what investments earn.
• Invest by goal and time. Money you need within a few years belongs in safer options; long-term goals can take more market risk. Regular monthly investing builds the habit.
• Don’t buy a product just for the deduction. A lock-in or a policy you don’t need costs more than the tax it saves.