Is the Old Tax Regime Ending? New ₹12.75 Lakh Limit Shifts the Balance (2025-26)

Chandani — Sun, 28 Dec 2025 05:09:43 +0000

In the Union Budget 2025, Finance Minister Nirmala Sitharaman delivered a clear message to taxpayers: the future of Indian taxation is the New Tax Regime. By making annual income up to ₹12.75 lakh effectively tax-free for salaried individuals, the government has significantly reduced the incentive for many to stay in the old system.

The Math Behind the “Tax-Free” ₹12.75 Lakh

The new regime’s appeal lies in a combination of revised slabs, an enhanced rebate, and a higher standard deduction:

Standard Deduction: Increased to ₹75,000 for salaried taxpayers and pensioners.
Section 87A Rebate: The rebate limit was hiked to ₹60,000, meaning there is zero tax payable on taxable income up to ₹12 lakh.
Effective Limit: For a salaried professional, a gross income of ₹12.75 lakh minus the ₹75,000 standard deduction leaves a taxable income of ₹12 lakh, which is then fully covered by the rebate.

New Tax Regime Slabs: FY 2025-26 (AY 2026-27)

Annual Income (₹)	Tax Rate
Up to 4,00,000	Nil
4,00,001 – 8,00,000	5%
8,00,001 – 12,00,000	10%
12,00,001 – 16,00,000	15%
16,00,001 – 20,00,000	20%
20,00,001 – 24,00,000	25%
Above 24,00,000	30%

Why the Old Regime is Fading

Under the old regime, taxpayers have to “earn” their tax breaks by locking money into 80C investments, health insurance (80D), and home loans.

The Break-Even Point: Experts suggest the old regime now only makes sense if your total deductions exceed ₹8.5 lakh.
Declining Adoption: Official data suggests that less than 20% of taxpayers now opt for the old regime, as the simplicity and lower rates of the new regime outweigh the benefits of complex tax planning.
The Strategy: The government isn’t formally scrapping the old regime yet; instead, it is making the new regime so attractive that the old one becomes “redundant by choice.”

Looking Ahead to Budget 2026

As we approach the 2026-27 Budget, industry experts expect the government to double down on this shift. There is speculation about further simplifying the Direct Tax Code and potentially raising the entry point for the highest 30% tax bracket to incomes above ₹50 lakh under the new regime to encourage high-earners to switch.

Conclusion

The shift from “invest to save” to “lower tax by default” is nearly complete. For the vast majority of middle-income earners, the new tax regime is now the clear financial winner.

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Disclaimer: Tax laws are subject to change. This summary is based on the Finance Act 2025. Always consult a certified tax professional before making major investment or filing decisions…